Investment Overview
Strategy Description
Annualising 15.21%, the Oxeye Buyback Option Premium Strategy (BOPS) is an option writing / short volatility strategy similar to insurance underwriting. Investors tend to buy options as a way of insuring their portfolios against a large market move in either direction. Large moves tend to occur infrequently and most of the time the market stays within a pre-determinable range. Therefore, options lose money for the buyer either through time erosion or by never going-into-the-money i.e., mostly they expire worthless. Investors typically overpay to own portfolio insurance strategies, a phenomenon that is well-documented in academic studies. BOPS seeks to exploit the opportunity presented by this preference, which has become more pronounced in the wake of the 2008 financial crisis and Covid-19 recession with a proliferation of expensive ‘tail-risk’ strategies coming to market. If the buyer of options most of the time loses money, then the seller of these options must be making money.
The strategy sells out-of-the-money put and call spreads on equities, an operation known as “selling strangles” or “strangle writing”. Strangles are approximately delta neutral at the time of writing, and the strategy works on the assumption that the market usually stays within a definable range during the lifetime of an option. The options are sold at selected strike prices above the market for call options and below the market for put options. The options are sold for a maximum duration of 3 months. Oxeye uses a combination of Delta control and certain hedging techniques to manage the short options (which carry unlimited risk exposure to the seller) through to a profitable expiry.
Please contact Oxeye for more details.
