Our Portfolios: Short Put Portfolio
The Short Put Portfolio is an alternative trading strategy designed for experienced investors who have a high tolerance for risk. Please keep in mind that this portfolio is not for everyone due to the higher level of risk and the corresponding margin requirements. Investors in this portfolio must qualify and be approved for trading options and must also qualify to trade on margin. There is no guarantee that an investor that wishes to participate in the short put portfolio will be approved to do so. As with any margin account, there is the risk of having a position sold out if a margin call is not met on a timely basis.
Vision Advisors’ Short Put Portfolio aims to provide returns through earning premium income from writing put options (i.e., selling puts) on a select group of stocks. This tactic is employed when Vision Advisors believes that the underlying stock will either maintain a stable price or increase in value. The option positions are managed in an attempt to maximize return and minimize risk. Vision Advisors will identify those stocks whose put options (with maturities ranging from one to nine months) are trading at or close to ranges of prices that have been identified as optimal for this investment strategy. Short put positions are established in only those stocks that are believed will provide a fair economic return to the client.
Vision Advisors identifies those stocks having certain value-oriented characteristics and that trade at relatively stable prices. These stocks may in some cases be the same stocks that are selected for the E-Portfolio, B-Portfolio or the D-Portfolio, but the selection process that is used for the Short Put Portfolio is different. For example, Vision Advisors will consider such value-oriented characteristics as whether a stock’s book value is strong relative to its price and whether a stock’s price is relatively stable over a period of time. Vision Advisors will initially select 30-50 companies that fit its model and have options which trade on their stock (with decent liquidity on those respective options).
Typically, at any given time, Vision Advisors expects to utilize at least 75% of the capital in a client's account toward earning option premiums with the remainder invested in investment grade fixed income instruments or money market instruments. Because this investment strategy is heavily dependent on identification of select value-oriented stocks as described above, a client's account may not, at all times, be fully invested in option positions. Also, during periods when market conditions are unfavorable to writing put options, Vision Advisors may also as a defensive measure, reduce the number of short put positions and/or engage in simultaneous short call positions (i.e., short straddles), or engage in short call positions. In addition to naked puts, credit put spreads may be implemented based upon current market conditions. In order to cover the short put, a put on the same the same stock with a lower strike price would be purchased thus creating a spread position.
The Short Put Portfolio poses significantly higher risks for a client than Vision Advisors' other portfolios. Leverage is a significant part of the investment strategy and creates the risk that a declining price of a stock, in the case of writing puts may result in a loss greater than the amount deposited as margin. Moreover, a stock that is trading below the strike price may incur substantial losses in a short period of time for the holder of a short put position. The price of such a stock may fall to zero and the loss to the client's account will be the cost to purchase the stock at the strike price (far surpassing the value of the margin deposited in the account and the premium income received). Vision Advisors may from time to time enter into put credit spreads, which is when you simultaneously sell a put with one strike price and buy a put on the same security with a lower strike price and the difference between the two premiums is a credit. This limits the potential loss to the difference between the two strike prices minus any premium received. The desired goal of the strategy is to have both puts expire worthless and the net premium received then becomes the profit on the transaction. In the case of a short call option, the potential loss is unlimited, as there is no limit to how much a stock’s price may increase. The call positions may be covered or uncovered.
The investment methodologies at Vision Advisors have been developed by Howard Rothman, its Chief Investment Officer. Mr. Rothman makes the ultimate investment selections or recommendations and monitors the investment portfolio. Clients whose accounts are maintained at Vision Brokerage Services, LLC may access their brokerage accounts and obtain market information at www.visionbrokerageservices.com.
To learn more about the options strategies used in the Short Put Portfolio, please see "Options Strategies Utilized in the Short Put Portfolio" in the education section of our Web site.
Important Information Regarding Selling Put Options
Writing (selling) options is riskier than buying (going long) options. When selling a put option, your maximum profit is limited to the amount of premium received. If the short put is purchased prior to expiration in order to close the position, you may have to purchase the option back for a higher price than you originally received for selling it. At exercise, the potential loss you face can be substantial if the price of the underlying stock falls below the strike price of the put option. Due to the risks involved with writing puts and the corresponding margin requirements, writing puts is an options strategy that may be most appropriate for only experienced investors. Please be sure to speak with your Financial Advisor or Vision Investment Advisors Supervised Marketing Representative for more information on this strategy and to discuss if it is appropriate for you. Prior to buying or selling any options, an investor must receive a copy of Characteristics and Risks of Standardized Options.
Copies of this document may be obtained from your Financial Advisor, by calling 1-888-OPTIONS or online at www.optionsclearing.com. Options are not suitable for all investors. These investments can be volatile and investors may lose their entire original investment.
