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Iphix iphones vermont1/9/2023 Unfortunately in the meltdown, those were the stocks people least wanted to own so they got killed. The guys attributed that loss to the nature of the fund’s long portfolio: it buys stocks in badly dented companies when the price of the stock is even lower than the company’s dents would warrant. The fund’s maximum drawdown was 48%, between 10/07 and 03/08. Between 2000-12, the S&P 500 returned 24% and the BXM returned 52% the options portion of the Gargoyle portfolio returned 110% while the long portfolio crushed the S&P.Įxcept not so much in 2008. The ETFs are largely based on the CBOE S&P Buy-Write Index (BXM). The guys identify two structural advantages they have over an ETF: (1) they buy stocks superior to those in broad indexes and (2) they manage their options portfolio moment by moment, while the ETF just sits and takes hits for 29 out of 30 days each month. It also anticipates clubbing the emerging bevy of buy-write ETFs. Throughout, it has sort of clubbed its actively-managed long-short peers. The entire strategy has outperformed the S&P in the long-term and has matched its returns, with less volatility, in the shorter term. Their long portfolio has outperformed the S&P 500 by an average of 5% per year for 15 years. They believe that their long portfolio is a collection of stocks superior to any index and so they don’t want to hedge away any of their upside.Īnd it works. And (2) selling calls on their individual stocks – that is, betting that the stocks in their long portfolio will fall – would reduce returns. For sellers, that means something like a 35 bps free lunch. In particular, they are overpriced by about 35 basis points/month 88% of the time. Why index calls? Two reasons: (1) they are systematically mispriced, and so they always generate more profit than they theoretically should. That 2% is a long-term average, during the market panic in the fall of 2008, their options were generating 8% per month in premiums. Those policies pay an average premium of 2% per month and rise in value as the market falls. At base, they’re selling insurance policies to nervous investors. The options portfolio is a collection of index call options. They then buy the 100 more undervalued stocks, but maintain sector weightings that are close to the S&P 500’s. They screen the 1000 largest US stocks on four valuation criteria (P/B, P/E, P/CF, P/S) and then assign a “J score” to each stock based on how its current valuation compares with (1) its historic valuation and (2) its industry peers’ valuation. The long portfolio is 80-120 stocks, and stock selection is algorithmic. The portfolio rebalances between those strategies monthly, but monitors and trades its options portfolio “in real time” throughout the month. The fund combines an unleveraged long portfolio and a 50% short portfolio, for a steady market exposure of 50%. Morty has been investigating buy-write strategies since the mid-1980s and he described the Gargoyle guys as “the team I’ve been looking for for 25 years.” They have 35 and 25 years of experience, respectively, and all of the investment folks who support them at Gargoyle have at least 20 years of experience in the industry. He’s also an internationally competitive bridge player (Gates, Buffett, Parker…) and there’s some reason to believe that the habits of mind that make for successful bridge play also makes for successful options trading. Josh, a securities lawyer by training, handles the options portfolio. Here’s a brief recap of the highlights:Īlan handles the long portfolio. On February 12th we spoke for an hour with Alan Salzbank and Josh Parker, both of the Gargoyle Group, and Morty Schaja, CEO of RiverPark Funds. Alan Salzbank and Josh Parker, Gargoyle Group
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