Collateral Yield Enhancement Strategy (CYES)
The Collateral Yield Enhancement Strategy (CYES) is an overlay strategy that seeks to deliver incremental returns in addition to the other investments in a portfolio, with low correlation to traditional asset classes, and minimal opportunity cost. It offers transparency, daily liquidity, no lock-up, diversification and the benefits of Section 1256 tax efficiency.
The strategy seeks to benefit from the spread of implied volatility over subsequent realized volatility (the volatility risk premium or VRP) in the S&P 500, which provides a unique source of potential alpha for a portfolio over time. It also seeks to take advantage of the time decay of options over time (a metric called Theta).
For illustration purposes only
Utilizing Iron Condors
Trading iron condors on the S&P 500 may provide a liquid, transparent, tax efficient and directionally agnostic way to potentially benefit from volatility risk premium (VRP) and theta utilizing an active, risk-managed approach.
An iron condor is an option strategy with 4-legs:
- The sale of out-of-the-money calls
- The sale of out-of-the-money puts
- The purchase of further out-of-the money calls
- The purchase of further out-of-the-money puts
Legs 1 and 2 help to generate premium from the sale of the options. In legs 3 and 4, options that are further out of the money (cheaper) are purchased in an attempt to contain any potential risks associated with legs 1 and 2.
Since the income is sourced from the sale of the call and put options, the Collateral Yield Enhancement Strategy (CYES) may offer a unique potential to generate yield that’s sourced from volatility, rather than more traditional sources of yield such as fixed income or equity dividends.
Non-directional exposure expressed by selling index call and put spreads
Defined maximum loss potential and conservative position risk
Targeting additional yield without increasing or impacting existing portfolio investments
Why Harvest Volatility Management?
Harvest Volatility Management is an experienced derivative asset management firm. From our start in 2008, Harvest Co-founders Rick Selvala and Curt Brockelman have built a team with many decades of experience advising, structuring and managing option related strategies.
A leading manager of option-based strategies and solutions*. Harvest Volatility Management provides yield enhancement, risk reduction, and alternative beta strategies and investments.
Experienced team of 20+ investment professionals with representation in New York, Atlanta, Boston, Denver, and San Francisco.
Vetted and approved by numerous investment consulting firms, independent RIAs and platforms, and large broker-dealers.
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1Please note that the Adviser calculates its assets under management with respect to its overlay strategies based on notional valuations and mandate sizes rather than market valuations.