THE CASE FOR OVERLAY

Most investors have a substantial percentage of their investable assets and net worth invested in equities and equity ETFs

Despite this bull market likely being in its later innings, most investors have not implemented a way to stay fully invested while dampening portfolio volatility and protecting the downside

Selling upside call options against existing equities and equity ETFs avoids disrupting the portfolio holdings, strategy and weightings, while greatly increasing portfolio yield.  This increase in cash flow lowers the risk profile of the portfolio, and can also fund downside put protection

TODAY'S MARKET LANDSCAPE

  • Stimulus from central banks around the globe totaling $15 trillion since 2009 has lifted asset prices tremendously

  • Fundamental equity market metrics are becoming very stretched; many are at levels that have preceded major market downturns

  • Valuations within individual equities are far less compelling today than most time periods

  • Traditional fixed income investments are growing less attractive and finding value is scarce

  • Short exposure in VIX instruments and short volatility in general are at all-time highs, suggesting a relatively small pullback in equities could send volatility exploding higher

  • Impossible to time a market top or the next bear market, but very possible to start reducing risk today while staying fully invested and NOT disrupting the underlying portfolio holdings

  • Dramatically increasing the portfolio cash flow provides investors the flexibility to keep a higher cash position, lowering the volatility around the portfolio in choppy to risk-off market environments, and preserving more capital

  • The increase in portfolio cash may also be used to fund downside puts, adding an additional layer of protection

  • Managing portfolio volatility should begin before market volatility rises, yet few are embracing the opportunity to take risk down

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Wennco LLC is an SEC registered investment advisor located in Atlanta, Georgia. Wennco LLC provides asset management services utilizing the Wennco Downshift Strategies and Customized Option Overlay Solutions.