01 Objective
Seeks to earn income and gains both from dividends paid on the ETFs it owns and from cash premiums received from writing, or selling, call options. The approach aims to dampen volatility and provide risk-adjusted returns.
BuyWrite
A hedged-equity strategy: a predominantly U.S. equity ETF core, with covered calls written on the underlying ETFs and managed case by case. It seeks a smoother ride than the equity market, with option premium as a source of return, and sits between equity and fixed income in a portfolio.
How BuyWrite approaches covered calls
The covered-call category is crowded with strategies built around a headline yield. The standard playbook writes short-dated, out-of-the-money calls, weekly or monthly options struck above the market, to maximize the distribution. Short-dated premium is small, so it offsets less of a decline when the market falls.
BuyWrite is dual-active: the same fundamental-with-a-catalyst research that builds the equity allocation also drives the option overlay. Calls are written on the underlying ETFs and managed case by case. Strikes, expirations, and rolls move with our market and sector outlook, and calls are typically written long-dated and in the money.
We believe the strategy that matters is the one a client can stay invested in through a deep drawdown, and that a smoother return path can help with that.
Underneath the overlay sits a predominantly U.S. equity ETF allocation, built from the same research the firm has run for more than twenty years.
Overview
02 Approach
Dual-active. The same fundamental-with-a-catalyst framework drives the equity ETF allocation and the option overlay. Covered calls are written on the underlying ETFs case by case, in line with our market and sector outlook, so strikes, expirations, and rolls reflect current conditions.
03 Implementation
The equity sleeve is built from liquid, predominantly U.S. equity ETFs. Calls are written on those ETFs, typically long-dated and in the money, with strike and expiration set case by case. Available as an ETF (BUYW) and as a model.
How it works
Three steps from an equity core to a hedged-equity sleeve.
01 Core
Own equity ETFs
A diversified, predominantly U.S. ETF allocation creates the underlying equity exposure, built from fundamental-with-a-catalyst research.
Sector allocations are illustrative.
02 Overlay
Write covered calls
Sell covered calls on the underlying ETFs, with strike and expiration set case by case, and collect the premium up front.
Call option
contract
contract
Strike
Where it’s struck sets the premium and how much of a decline it can offset
Expiration
Longer-dated than the category’s weeklies, balancing premium against time decay
Roll
Adjusted case by case as conditions evolve
Overlay decisions adapt to market conditions.
03 Outcome
The portfolio role
Premium and dividends become income, the equity core participates up to the strike, and the written calls are designed to smooth the ride.
Income
Call premium adds to dividends
Participation
Retains equity upside to the strike
Seeks lower volatility
Premium income can help smooth returns
BuyWrite Equity market
Illustrative path versus the equity market.
Sources of return
Equity returns come from price appreciation and dividends. BuyWrite adds a third source, option premium, which traditional equity portfolios don’t have.
Premium is driven by volatility and time
Option premium is driven mainly by volatility and time to expiration, so it behaves differently from a bond coupon.
Premium can offset part of a decline
Premium can offset part of a decline in the equity core, and writing closer to the money increases that offset.
Upside is capped at the strike
The strategy gives up some upside in a sharp rally in exchange for seeking a smoother ride.
Across market environments
The same structure plays a different role depending on the market. The four panels below show how the overlay is designed to behave in each one.
Gives up some upside
Up markets
Participates with the market up to the strike. Gains above the strike are given up, so the strategy can trail a strong rally.
Premium accrues
Sideways markets
When the index goes nowhere, the equity core earns little, while collected premium keeps accruing.
Can temper a decline
Down markets
Collected premium can offset part of an early decline, and the strategy seeks a shallower drawdown than the equity core alone.
Larger premium
Volatile markets
Higher volatility means a larger premium for the same strike, and the overlay can dampen the swings of the underlying.
BuyWrite Equity market
For illustrative purposes only. The paths shown are stylized depictions of how the strategy is structured to behave across market environments – not actual or hypothetical performance, a projection, or a guarantee of any result. For actual, strategy-level performance across these environments, please contact us.
Where it fits in a portfolio
A sample client portfolio and its income bucket, where BuyWrite sits alongside high-yield bonds and dividend-paying equities.
Sample portfolio allocation
Talk with us about BuyWrite
Talk through how the overlay is run today and how BuyWrite could sit alongside an existing income allocation.