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A Hedged Equity Strategy Needs the Flexibility to Position for Big Moves—Up or Down

Much of the commentary on market volatility has to do with shielding investors from the downside. But, gains in down markets can significantly contribute to overall investment returns. Don't overlook the potential for volatility to provide an upside opportunity. 

Calamos Hedged Equity Fund (CIHEX)

Morningstar Overall RatingTM Among 131 Options Trading funds. The Fund's risk-adjusted returns based on load-waived Class I Shares had 3 stars for 3 years and 4 stars for 5 years out of 131 and 74 Options Trading Funds, respectively, for the period ended 12/31/2022.

Here is where Calamos Hedged Equity Fund (CIHEX) differs from others in Morningstar's Options Trading category: Its active management has the flexibility to position the fund opportunistically. CIHEX is managed to pursue equity returns in all environments—and as windows of opportunities open and close. There are no caps to limit participation when stocks run.

One window could be opening next week, says Joseph Cusick, Calamos Vice President, Portfolio Specialist. Many of you know Cusick from attending options updates hosted by our Calamos Investment Consultants or our Options 101 Continuing Education course. Cusick came to Calamos after managing and educating about derivatives since 1994 at firms such as Stafford Trading, optionsXpress, and Charles Schwab.

Next Friday, June 17, is a “quad witching day"—so-called by traders to refer to the quarterly expiration of cash index options (SPX), index futures (e-mini), futures options (e-mini), and single stock options.


"Such a large expiration could spark a historic gamma release by dealers, i.e., liquidity providers who will have to cover their hedges against the options they transacted. This hedge covering could, in turn, potentially see the market trade more volatile, especially if strategically combined with a burst in buybacks and a potential short squeeze," according to Cusick.

What happens on the 17th remains to be seen, of course. Nevertheless, it provides a timely example of why a hedged equity strategy needs that flexibility to position for expected big moves, whether up or down.

cihex is dynamically managed with an aim to capitalize on volatility

In this case, says Cusick, CIHEX is back to having significant skew in the hedge. CIHEX has more outright long puts vs. put spreads as a hedge than the fund has used in the last 18 months. But, Cusick hastens to add, "we also have a clear runway to the upside. We have the lightest short call exposures in '22. We have a fairly defined bottom, with an extended runway for the next 30 to 60 days."

Beyond commenting on the likelihood of heightened trading activity on June 17, Cusick provided additional perspective on the market. “There is a real lack of harmony between bullish and bearish catalysts,” he said. “This makes it virtually impossible to develop a coherent case for either sustained market upside or another sharp burst of selling.

“However,” he continued, “in our conversations with investment professionals, we hear a general trend of continued risk aversion by clients and expectations that the stock market will remain volatile. The options market’s message is clear: many significant events could change the market’s tempo around hedging, demanding discipline and fortitude.”

Investment professionals, contact Calamos Investment Consultant at 888-571-2567 or to learn more about our dynamic approach to hedged equity.

Before investing carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-800-582-6959. Read it carefully before investing.

Calamos Hedged Equity Fund average annual returns and expense ratio

The principal risks of investing in the Calamos Hedged Equity Fund include: covered call writing risk, options risk, equity securities risk, correlation risk, mid-sized company risk, interest rate risk, credit risk, liquidity risk, portfolio turnover risk, portfolio selection risk, foreign securities risk, American depository receipts, and REITs risks. 

The Morningstar Options Trading Category is comprised of funds that use a variety of options trades, including put writing, options spreads, options-based hedged equity, and collar strategies, among others.

Morningstar RatingsTM are based on risk-adjusted returns and are through 5/31/22 for the share class listed and will differ for other share classes. Morningstar ratings are based on a risk-adjusted return measure that accounts for variation in a fund's monthly historical performance (reflecting sales charges), placing more emphasis on downward variations and rewarding consistent performance. Within each asset class, the top 10%, the next 22.5%, 35%, 22.5%, and the bottom 10% receive 5, 4, 3, 2 or 1 star, respectively. Each fund is rated exclusively against US domiciled funds. The information contained herein is proprietary to Morningstar and/or its content providers; may not be copied or distributed; and is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Source: ©2022 Morningstar, Inc.

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