Advisor’s Option: Listeners Take Over

Listener Mail: It’s all mail, all episode long.

Question from Jackson_CFA: What do the hosts think of annuities as a tool for diversification and income generation for risk-averse clients?

Question from Alexander Sarsgard, Portland, OR: Just adding puts to your client's portfolios is expensive. What is your favorite methodology for reducing the cost of protection when structuring client portfolios?

Question from Tim Dinahar, Houston, TX: Do I really need to understand the greeks when writing/buying options for my clients? Or is everything I really need to know encapsulated in the option's price? Thank you very much for this insightful program. I don't think anyone else has tackled the advisor space like this.

Question from Anthony Deshanti, Stracuse, NY: How can I approach the topic of options with my clients when mainstream outlets like New York Times are slamming options as risky and dangerous - http://www.nytimes.com/2013/05/25/business/growth-in-options-trading-helps-brokers-but-not-small-investors.html?ref=nathanielpopper

Question from JBerg: What time frame do you use when constructing collars/risk overlays? Six months is my preferred time frame to buy put/sell call.

Question from Alejandro Vega, San Antonio, TX: I don't use options in my client accounts. If I want leveraged exposure to underlyings I simply turn to leveraged ETFs. What do you think of using these instruments in lieu of options in client portfolios? Am I missing something by not using options?

Question from Mr_Nick: Can I as an individual investor buy into Randy's fund? What is the ticker?

Question from Jim Schulman, Mobile, AL: Adding options to client accounts would generate significant fees to accommodate opening and closing the positions, rolling to new strikes, etc. Do you find your clients are receptive to these instruments even with the added costs?

The Advisors Option 5: Asset Allocation

Tricks of the Trade: The myth/lie of asset allocation.

• It used to be 20 different underlyings to be fully diversified. Now with increasing correlation, it is closer to 40.
• Debunking asset allocation as a method of defense. The old style of asset allocation in no longer effective.
• Absolutely nothing about options, hedging or volatility was discussed at the Morningstar Advisor Event last year.
• You are not fully diversified in this market unless you have something that gives you volatility exposure and negative correlation, i.e. protective puts, collars, volatility instruments, etc.
• "Hedging is too expensive!" The cost of the protection is mitigated, particularly if you manage the positions effectively.
• Outperforming to the downside is still outperforming.

• Defensive positions can still generate competitive returns.

The purpose of this conversation is not just to promote Swan, but also to show that incorporating options into you asset allocation is part of the fiduciary responsibility of any advisor in this marketplace.

Listener Mail: Tell us what you want to know:

• Question from (Name withheld) - As an active financial manager coming to options for the first time, I'd like to know what the hosts consider to be the most effective options position for busy advisors? If I only have time to learn one, I'd like it to be the best.
• Question from Tom Meadows, Pittsburgh, PA - What percentage of financial advisors and planners do you estimate currently use options?
• Question from Allan Gregory, San Diego, CA - If options education for financial advisors is such a problem, why doesn't OIC or some other entity offer a certification course for planners and advisors?

Advisors Option: Tales from the Front

Mark, Mike, and Randy are joined by Alan Grigoletto and Eric Cott from the Options Industry Council.

Tricks of the Trade: OIC has issued a new white paper, “Tales from the Front,” that looks at the use of options from the advisor point-of-view.  Eric and Alan give an overview, the purpose, and some of the findings.  Randy and Mike give their perspective as advisors who already use options.  Each person gives their key surprising takeaway.

Listener Mail: Do you want to know what we’re talking about? What are your questions?

• How do I find an advisor who uses options?
• How do I find out which funds use Randy’s overlay?

Advisor Option: Volatility

Options 101: Volatility

--What is Vega?

--Implied vs. realized volatility.

--What is the impact of low vs. high volatility environment on options trading?

--Correlation and becoming fully diversified by adding a volatility component to your portfolio.

--How do you get volatility exposure?

--What is an overlay strategy, and how do you construct one?

Misconceptions of the VIX:

--Quoting the VIX cash, which is the same as not VIX futures.

--The current pervasive attitude that the VIX is low.

--Believing it is a fantastic inverse correlation portfolio hedging tool, instead of buying a more direct portfolio hedge.

The Buzz: Potential new taxes that might be on the horizon for traders. Swan Wealth Advisors is in discussions with TD Ameritrade to start monthly options seminars.

Advisors Option: Spreads

Options 101: Spreads. What is a spread? Vertical spreads? How do you add spreads to your portfolio? How do spreads affected by the Greeks?

Mail Bag: Our hosts answer listener questions.

Question from Tony - Glendale, AZ: Thank you for this insightful program! I typed the terms financial planner and options into the iTunes search bar on a whim and was amazed to find the Advisors Option. You have been a godsend for professionals like me who want to learn more about these products for our clients. I feel much better prepared to deal with their questions now thanks to your program. Thanks again.

Question from Spencer - Portland, OR: I mostly deal with retired clients whose assets are tied up in IRAs. I was under the impression that options were prohibited in IRAs. Is that the case? Perhaps you can do a program on options for retirees, or people with assets in retirement accounts. Thanks for your one-of-a-kind program Mark!

Question from Alexander S - Portland, ME: I've heard the Advisors Option team, in particular Randy Swan, discussing options overlays in the past. Can you explain exactly what you mean by that term? Do you modify the underlying portfolio to conform to the specifications of the options allocation, or are the options a truly separate component? Also, I listened to a recording of a buy-side panel from the OIC/FIA conference in September. One of the fund managers on that panel said he prefers to liquidate his positions, rather than purchase protective puts. Why do you think so many advisors/assets managers are still so ignorant of the benefits options offer a portfolio manager?

Question from James C: I have a 401K that is invested in the S&P. What's the best way to hedge it outside of the 401K from downside risk? Would beta weighting with SDS be a good hedge or is there a better way? Also, I heard the terms "hitting offers" and "lifting bids," I hope I got that right. What does that mean?

Question from Orlando T: Mark you're program is uniquely situated to address a serious problem in the advisor community - the lack of any real understanding of hedging and risk management using options. I think everyone on your program will agree options are the best tools for this, yet advisors don't have any substantive training on this subject. Why is that? Why don't the CFA/CFP exams offer more in the way of options instruction? Why doesn't the OIC partner with these organizations, or create their own certification exam? It seems to be the only organization that has a shot at solving this problem, otherwise we're all poised to recreate 2008/2009 the next time the market crashes.

Advisors Option: Collar Strategies

Join your co-hosts Mark Longo, founder of the Options Insider, Randy Swan, co-founder of Swan Wealth Advisors, and Mike Cavanaugh from Know Your Options, Inc., as they help advisors navigate their way through the world of options.

Options 101: The ultimate advisor’s option strategy: the collar.  The group is joined by Alan Grigoletto, director of Education at OIC, to discuss the collar.  The group discusses the ways in which collars can be useful for wealth advisors in particular, especially in terms of risk management and managing existing equity positions. Taking the collar to the next level: collar-plus.  Do collars limit upside gains? Will advisors underperform their peers if using this strategy?

Industry Buzz: The nexus of options and advisors has produced a theme of concern over what to do about risk. Why are volumes going down? Why are options still perceived as risky? Dodd-Frank & other regulation. How the political climate affects the markets.

The Advisors Option Episode 5: Selling Puts

In this episode, Mark is joined by Mike Cavanaugh of Know Your Options Inc., and Option Block Fame.

Options  101: Looking at the other end of the spectrum, the Covered Put.

•    Reasons why you, as an advisor, may want to consider selling naked short puts.
•    Less risk than buying a stock outright.
•    Examples with everyone's favorite stock: XYZ.
•    How does KYO use the naked short put to employ their Triple Income Strategy (aka the Wheel of Fun)?

The Holy Grail of the Options Market

Our exclusive OIC 2012 audio coverage continues with Options Insider Founder Mark S. Longo's compelling panel The Holy Grail of The Options Market. This session explores the tumultuous relationship between financial advisors, asset managers and the options market. What are the major stumbling blocks keeping advisors from adopting options? Why aren't more asset managers using options to hedge their portfolios or generate income? We explore these topics and many more on The Holy Grail of The Options Market.

Joining Mark on the panel are:

•     Michael Cavanaugh, Founder, Know Your Options Inc & Co-Host, The Advisor's Option.
•     Randy Swan, Co-Founder, Swan Wealth Advisors
•     Stephen Solaka, Co-Founder, Belmont Capital Group

Advisors Option Episode 3: Mysteries of the Covered Call
 
 
Options 101: Covered Calls

    What is a covered call?
    When should you use it?
    Reasons to write covered calls
    Downsides to the covered call
    Covered call vs. Naked short put

Interview Segment with Sean Heron
Mr. Heron is an Adjunct Finance Professor, CFA, Rutgers University as well as the Senior Investment Manager, Glenmede Trust Company.  In this segment, the gang discusses the OIC/Rutgers options program for advisors.  They touch on topics including: a lack of options education for advisors; why advisors are hesitant to use options; what can be done to increase the adoption rate of options by advisors.
 
Industry Buzz Segment
Overview of the upcoming financial advisor conference in New Orleans.
 
For more information on OIC Advisor, please visit: http://advisor.optionseducation.org/

For more information on the Rutgers/OIC program, visit: http://options.rutgers.edu/
 
For more information on the Options Industry Conference, please visit: http://www.optionsconference.com/2012/default.jsp

The Advisor’s Option Episode Two: Playing Defense with Protective Puts

Options 101: Continuing Education:

• Graduating from the long call to the protective put
• The many uses of protective puts
• Speculative - using leverage to place a bearish bet
• Defensive - a “married put” can limit risk against the downside while maintaining the benefits of a long stock position
• The benefits of protective puts - maintain voting rights, collect dividends, maintain upside potential, limit tax liability
• No free lunch - puts can be expensive
• Finding the sweet spot between buying too much insurance and paying too much time decay
• Put options vs. stop-loss order - which is preferable?

Tricks of the Trade:

• How to introduce the idea of portfolio protection to your clients
• Options are appropriate for every level of risk tolerance
• How to take the emotion out of the advisor/client relationship using options
• Practical tips for implementing puts into your practice

Welcome to The Advisor's Option - The first radio program designed to help registered investment advisors, asset managers and financial planners properly manage risk using options. Join your hosts Mark Longo, Mike Cavanaugh (Know Your Options, Inc.), and Eric Cott (The Options Industry Council) as they dive into options education, outline tricks of the trade and update advisors with the latest industry buzz.

• Developments from the world of options that will impact advisors.
• Large pension funds are beginning to allocate resources toward asset managers with derivatives expertise.
• Record options volume coming from retail investors...don't be outpaced by your clients.

To read the full study mentioned in Options 101, visit www.optionseducation.org/advisor