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Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk
- By Michael Lovelady
- Published Jun 21, 2012 by FT Press.
- Copyright 2012
- Dimensions: 6" x 9"
- Pages: 272
- Edition: 1st
- Book
- ISBN-10: 0-13-292911-2
- ISBN-13: 978-0-13-292911-0
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Product Author Bios
Michael Lovelady, CFA, ASA, EA (Los Angeles, CA), chief investment strategist and portfolio manager for Oceans 4 Capital Group LLC, designs and operates reduced-volatility and theta-generating hedge-fund investment strategies. Personally responsible for developing the Synthetic Annuity, he has used it extensively in portfolio management. Formerly consulting actuary for Towers Watson and PricewaterhouseCoopers, he has served organizations in defense, transportation, energy, entertainment, travel, IT, and government, including Hughes Aircraft, Lockheed, Boeing, Global Santa Fe, Halliburton, the Screen Actors Guild, The Walt Disney Company, Hilton Hotels, and CSC.
Options-based “synthetic annuities” give investors the ability to generate higher returns, provide better downside protection, and utilize risk more efficiently than pure stock and bond-based portfolios. Now, this strategy’s creator shows exactly how to use them to support a wide range of trading and investing goals. Hedge fund manager Michael Lovelady shows how synthetic annuities blend the best features of traditional portfolios with the risk management discipline of quantitative investing, increasing current yields while also reducing volatility. Michael presents this new strategy with unique graphics and simplified models that any investor or trader can use, and demonstrates its value in the context of today’s key market trends. He illuminates the entire “ecosystem” of theories, products, and tools surrounding synthetic annuities, and shows exactly how to integrate them with other investment and portfolio management techniques.
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5 of 5 people found the following review helpful
Adding Yield, By
This review is from: Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk (Hardcover)
Customer review from the Amazon Vine™ Program (What's this?)
If you already trade options, this is the book for you. It'll show you how to add yield to a high dividend stock portfolio, reduce risk, and construct an annuity-like portfolio. However, if you are not already knowledgeable about options, if you don't know a put from a call from a straddle, this is not for you. One of the best chapters discusses how to construct a covered synthetic annuity that uses only covered calls and protective-put options. In effect, you buy out-of-the money puts using money earned from selling covered calls. Such transactions can cut payback period by a factor of ten. Again, it's not for the unindoctrinated but it really is an effective way of making a better than market return at lower than market risk. What could be better?
4 of 4 people found the following review helpful
A Review of 'Profiting with Synthetic Annuities', By
This review is from: Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk (Hardcover)
Customer review from the Amazon Vine™ Program (What's this?)
The Synthetic Annuity technique is clever...the notion is to use buy-write option strategies to signicantly reduce risk, as opposed to options more traditional role of speculating on market action. What makes the strategy work is "Theta.'. The concept of theta (measuring rate of declien in an option's time value price component) isn't new. It is part of a set of option metrics that include other key metrics such as gamma, delta and vega.The details: Options have two price components: in-the money amount (ex: option is a call with a strike price of $40. Underlying security is $42, so it is 2 points in the money, which if its a stock=$200) and the time value component. The time value component can vary widely based on underlying volatility but is essentially the component that decides how likely it is that the option will go in the money before expiration. If the option is out of the money, all that is left is time value. If the underlying security remains absolutely... Read more
3 of 3 people found the following review helpful
Excellent treatment of a promising techique, tax implications unclear, By
This review is from: Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk (Hardcover)
Customer review from the Amazon Vine™ Program (What's this?)
Lovelady provides a detailed and focused look at a technique that is essentially a variation of buy-write strategy that has the potential to significantly reduce downside risk (at the expense of foregoing some upside potential) and overall dampening the volatility. The complexity of the trade is perhaps belied by the approachable and method description of the technique by the author.Lovelady clearly points out that portfolio gains are derived from capital gains, dividends and interest payments. He adds a fourth component - theta - or the time-decay of options as another component. The first few chapters in this short book describes the technique (what options to sell for an existing long stock position, etc.) and the resulting profile. In addition to describing the profitability curve (utility function), Lovelady provides a way to capture behavior profile (mostly a self-assessed view of risk tolerance as opposed to demonstrated decision making biases) in the design of... Read more |
Online Sample Chapter
Table of Contents
Preface viii
Chapter 1 Introduction 1
Chapter 2 Synthetic Annuity Design 25
Chapter 3 Tracking Performance 53
Chapter 4 Covered Synthetic Annuities 69
Chapter 5 Managing a Covered Synthetic Annuity 99
Chapter 6 Generalized Synthetic Annuities 127
Chapter 7 Managing a Generalized SynA 151
Chapter 8 Synthetic Annuities for High-Yielding Stocks 169
Chapter 9 Synthetic Annuities for the Bond Market 183
Chapter 10 Synthetic Annuities for the Volatility Market 207
Index 225
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