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Capital 19 Weekly Income Strategy

PutReturns Strictly more of a strategy than a model portfolio, the Capital 19 Weekly Income Strategy has been one of our most popular portfolios with investors seeking regular income.

A lot of research has shown that a strategy of selling options, whether a sold put or a covered call, not only outperforms the index in the long term, but does so with less risk. 1

You might have heard that most option contracts expire worthless. That means, at expiration, the seller of those options keeps the premiums as profit. The Chicago Mercantile Exchange produced a study that looked at all options from 1997 to 1999 and they found 93.9% of all S&P500 put options left to expiry, expired worthless.2

The Capital 19 Weekly Income Strategy takes advantage of this fact.

The strategy has been running now for close to 4 years3. In that time it has experienced a 90%+ successful trade rate. The graph you see above is the returns of an actual account following these trades and is after all costs and the effects of FX and dividends.

The strategy involves selling put options under the S&P500 stock index. Capital 19 will select a strike price that we believe the market will not fall under. This strike price can also be thought of as a "profit/loss" level. As long as the index finishes above this strike price, the trade will result in a profit. Only when the index finishes below this strike price will the trade result in a loss.

RequestInfo

How it works

You will need a minimum of $10,000 per contract to participate in the Weekly Income Strategy. Capital 19 will send you an email every time we are placing a new trade. All you need to do is confirm to us, either by return email, or phone, that you would like to take the trade and how many contracts and we will place the order for you.

Fees

Standard execution fees apply. There are no other additional fees charged for the service. It is complimentary to all clients of Capital 19.

Risks

There are a number of risks that apply to this strategy.

Use of Derivatives

Derivatives carry a high risk of loss and should only be used by experienced traders.

Market Risk

We consider the strategy as high risk and you should only use funds you can afford to lose. Losses will occur if the index finishes below the strike level of the sold put. In theory, an index could fall a considerable way and you could lose 100% of the funds committed to the trade

Liquidity Risk

Liquidity risk refers to the risk there will not be enough buyers and sellers available to execute your desired trade. Index options tend to be the most liquid of all option contracts, but liquidity risk still exists

Counterparty Risk

Counterparty risk refers to the risk of not receiving funds from your trading counterparty. This strategy only trades exchange traded products so the exchange guarantees the counterparty risk. Additionally, we receive the premium up front at the time of initiating the trade further minimising counterparty risk

Leverage

The use of leverage can substantially enhance performance. Conversely, the use of leverage runs the risk of losing a larger proportion of the equity component of a particular investment in the event of adverse price movements. The use of leverage tends to lead to higher volatility in client net asset values.

FX Risk

We are trading a US instrument so all profits and losses will be generated and remain in USD until you elect to transfer them back to AUD. Whilst profits and losses remain in USD this value will be open to fluctuation due to exchange rate movements. There is no FX risk on the capital committed to the trade as when selling options you receive cash and have no requirement to change your AUD into USD, unless you so wish.

Margin Risk

Selling put options requires you to have enough funds in your account to cover the margin required. If the value of funds in your account drops below the maintenance margin, you will experience a margin call that will involve automatic liquidation of some or all of your positions.

Historical Performance

Historical performance shown is from a live trading account and reflects real trades. It therefore includes all the effects of commissions and FX. But historical performance is only an indication and cannot be relied upon for future performance. Capital 19 makes no guarantee any account will experience similar results


1Source: ASX "An Encyclopaedia of Buy Write Returns"
2Source CME "Exercised/Expired Recap for Expired Contract Report"
3 as at May 2016