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The CMNIX Team on Volatility, Pricing and Positioning for Opportunity

First published: March 23, 2020

In a turbulent period for the markets, Calamos is hosting a Calamos CIO Conference Call for financial advisors. Below are notes from a call Wednesday, March 25, with Eli Pars, CFA, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-Portfolio Manager, and Jason Hill, Senior Vice President, Co-Portfolio Manager. To listen to the call in its entirety, go to

The comments made by Eli and Jason build on what the team had to say on a call last Thursday, March 19. Highlights of that call follow. To listen to the March 19 call, go to

Even for a team that thrives on volatility—and for most asset classes in general—the VIX at 80 can be a challenge. Below, the team provides an update on how they’re navigating the challenge as well as recognizing opportunity for Calamos Market Neutral income Fund (CMNIX) and Calamos Hedged Equity Fund (CIHEX), two funds with “the same mentality but different risk budgets.”

Eli Pars, CFA Jason Hill

“Although volatility has come in some in the last few days, it’s still elevated. The volatility market is implying that this isn’t over yet.”

Eli Pars, CFA, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-Portfolio Manager and Jason Hill, Senior Vice President, Co-Portfolio Manager

March 25 Update

  • Volatility, in the size of the moves of individual stocks and indices, has been amazing and at a level not seen in years. Although it’s come in some in the last few days, it’s still elevated. The volatility market is implying that this isn’t over yet.
  • In aggregate, the convertible market liquidity has been good, if less liquid than a month ago. Total volumes have been at decent levels but trading has been sporadic. Certain names are trading more than others.

    There was a lot of price discovery last week, as people were feeling out where the clearing price was. Ultimately, decent volumes traded. We participated on the bid side of some of the distressed prints and just about all of them were oversubscribed—there were more buyers than there were bonds being sold.

    According to Barclays data, volumes in the convert market are up 30% year over year. Recent weeks have been above the average weekly volume. The convert market continues to be considerably more active than the high yield market. The convert market is on pace to turn over 2-2.5 times over the course of the year while the high yield market generally turns over just once. This isn’t a perfect measure of liquidity but it’s a relative measure.

    Trading has improved over the last few days in terms of price movement. The next thing will be to see the bid/ask spreads normalize. That could take some time.
  • While both funds have sought to protect principal as the market pulled back, the team wants to be able to participate to the appropriate degree if and when the market continues to bounce back from its lows. Upside capture is a greater emphasis for the Hedged Equity fund.

    With CMNIX, we’re continuing to opportunistically add to the convertible arbitrage book, picking our spots with prints from distressed sellers. There’s been less of that yesterday and today as the market has improved. There is a fair amount of liquidity in the fund but if the opportunity set gets bigger in convert arb, we can easily move cash from hedged equity to the convert arb sleeve if we believe the value is there.

    For CIHEX, the team is actively trading the options book. The goal is to monetize the hedges, continuing to have downside protection in place but in pursuit of participating on the way up.

    Both funds are far from historic highs regarding overwritten calls. The team is determined to avoid being overcapped on the upside. Since the end of February, the team has been opportunistically buying back short calls as the market legged down. The goal was to strategically clear the runway to the upside. This is done on an incremental basis, piece by piece and when it makes sense.

    In some cases, the team is strategically rolling calls down to lower strikes because it is attractive now to sell calls. The PMs are also looking at call spreads to mitigate and supplement upside exposure.
  • The funds entered this period with significant liquidity. The advantage of Market Neutral is that roughly half the fund is in the hedged equity sleeve, with extremely liquid, very diversified, 250 S&P 500 names. Hedged Equity is all S&P 500 names and S&P 500 options, making it extraordinarily liquid as well.

Summary of Key Views as of March 19, 2020

  • When you have this much volatility across all asset classes day to day, with intra-day and intra-hour volatility and multiple market halts, it’s challenging. These are unique times. With a large diversified fund, there are many moving parts and dislocations that can make performance volatile. The team acknowledges it can’t control the volatility. Instead, its focus is on making sure that the portfolios are positioned properly and that the fundamentals are solid.
  • Significant effort and emphasis is on minimizing the downside and flattening out the left tail. We have done that successfully in past periods of higher volatility, but all volatility isn’t created the same.

    We generally love the VIX at 20 or 30, but 80 is challenging for almost all asset classes. We never want to be underprotected for either [CMNIX or CIHEX], and often we can—and like to be—overprotected, especially for Market Neutral. The depth and speed of this drawdown is unprecedented, and that makes it challenging and expensive to be really overprotected.
    Eli Pars, CFA David O'Donohue

    "We never want to be underprotected for either CMNIX or CIHEX, and often we can—and like to be—overprotected, especially for Market Neutral.”

    Eli Pars, CFA, Co-CIO, Head of Alternative Strategies and Co-Head of Convertible Strategies, Senior Co-Portfolio Manager and David O'Donohue, Senior Vice President, Co-Portfolio Manager
  • The environment is providing opportunity. The team has been selectively adding to the convertible arbitrage sleeve of CMNIX. While convert arb has held up fairly well, we have seen our book cheapen in recent weeks. This is not unusual in risk-off periods. We think there is significant value in the book and anticipate realizing this in coming months.
  • Market Neutral has ample liquidity, some of which is being selectively employed in converts. The focus is on good credits that have minimal direct exposure to the impact of the coronavirus. The team has seen more weakness this week in converts than had been seen in the first few weeks of the drawdown.

    While we have been adding to converts, there have been no major changes in positioning in recent weeks. However, if the convert market weakness persists, we may move money out of the hedged equity sleeve and into convert arb.
  • The team values its flexibility in adapting hedges to try and fit the market. With volatility this high, puts are expensive but the good news is that so are calls. Call volatility is as high as the team remembers—resulting in more income and hedge from selling calls than was available in past periods.

    The team may need to sell a few less or higher strikes or possibly buy some longer dated higher strike calls to try to capture sufficient upside if this crisis ends with a V-shaped recovery. This would be particularly true for the Hedged Equity fund.

We stand ready to help, let us know what you need. For more information, contact your Calamos Investment Consultant at 888-571-2567 or

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.

Opinions are subject to change due to changes in the market, economic conditions or changes in the legal and/or regulatory environment and may not necessarily come to pass. This information is provided for informational purposes only and should not be considered tax, legal, or investment advice. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations.

Important Risk Information. An investment in the Fund(s) is subject to risks, and you could lose money on your investment in the Fund(s). There can be no assurance that the Fund(s) will achieve its investment objective. Your investment in the Fund(s) is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund(s) can increase during times of significant market volatility. The Fund(s) also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund's prospectus.

The principal risks of investing in Calamos Market Neutral Income Fund include: equity securities risk consisting of market prices declining in general, convertible securities risk consisting of the potential for a decline in value during periods of rising interest rates and the risk of the borrower to miss payments, synthetic convertible instruments risk, convertible hedging risk, covered call writing risk, options risk, short sale risk, interest rate risk, credit risk, high yield risk, liquidity risk, portfolio selection risk, and portfolio turnover risk.

The principal risks of investing in the Calamos Hedged Equity Fund include: covered call writing risk, options risk (see definition below), 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.

Convertible Arbitrage involves buying convertible bonds and short selling their underlying equities to attempt to hedge against equity risk, while still providing the potential for upside returns.

Covered Call Writing: As the writer of a covered call option on a security, the fund foregoes, during the option’s life, the opportunity to profit from increases in the market value of the security, covering the call option above the sum of the premium and the exercise price of the call.

Convertible Securities Risk: The value of a convertible security is influenced by changes in interest rates, with investment value declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may have an effect on the convertible security’s investment value.

Convertible Hedging Risk: If the market price of the underlying common stock increases above the conversion price on a convertible security, the price of the convertible security will increase. The fund’s increased liability on any outstanding short position would, in whole or in part, reduce this gain.

Options Risk—the Fund's ability to close out its position as a purchaser or seller of an over-the-counter or exchange-listed put of call option is dependent, in part, upon the liquidity of the options market. There are significant differences between the securities and options markets that could result in an imperfect correlation among these markets, causing a given transaction not to achieve its objectives. The Fund's ability to utilize options successfully will depend on the ability of the Fund's investment advisor to predict pertinent market movements, which cannot be assured.


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