Option Overlays

Julex Capital offers a suite of option overlay strategies that aim to enhance portfolio performance through:

    • Income Enhancement: Options writing is an attractive way to generate income with a high probability of success, but the occasional losses can be painful. By using an iron condor approach with proprietary risk parameters, we can take advantage of consistent income with a defined risk exposure.
    • Downside Protection: Buying put options for protection can be very expensive. By using put spreads, we can balance the amount of protection an investor desires against the cost he wants to bear.
    • Capital Appreciation: Buying call spreads can offer investors an opportunity to participate in a defined market upside with a desired amount of cost.

The strategies are designed to take advantage of the mispricing due to hedging needs and investor behavior biases in the option markets. The demand for protection results in two significant structural inefficiencies in option markets: (1) The option implied volatility is consistently higher than realized volatility; (2) The option markets normally price in more downside risk than realized. We believe that these inefficiencies will persist over time and offer opportunities for us to generate additional income, structure an inexpensive hedge, and add incremental return to any existing portfolios.  Normally, we implement the strategies with the most liquid S&P 500 Index options.