Using Options to Hedge and Potentially Add Alpha to an Equity Strategy
March 12, 2019
Most investors, financial advisors included, are uncertain about today’s markets—and Calamos Co-CIO Eli Pars acknowledges as much in a recently published interview.
“A lot of people are trying to figure out where we are, when the next bear market is coming, what inning of the expansion and the bull market are we in,” Pars, Head of Alternative Strategies, Co-Head of Convertible Strategies, and Senior Co-Portfolio Manager of Calamos Market Neutral Income Fund (CMNIX) and Calamos Hedged Equity Fund (CIHEX) told The Wall Street Transcript. “I think we’re in the seventh or eighth inning. We just don’t know if it’s a nine-inning game or an 18-inning game.”
It’s for this reason, he points out, that advisors are asking: “’How do I take a little risk out of my equity book?’”
The interview includes Pars’ comments on how CMNIX and CIHEX are managed across market cycles. He details the team’s dynamic, ongoing evaluation of stock positions, index options and trading strategies as they seek to create an actively managed, lower-volatility risk/reward profile.
Pars addresses the response investors may have to increased volatility, discussing the role that CMINX—a fixed income substitute—and CIHEX—an equity substitute—can play in a client’s portfolio.
Advisors, for more information on our dynamic approach to using options to hedge an equity strategy, contact your Calamos Investment Consultant at 888-571-2567 or firstname.lastname@example.org.
Calamos is the fourth largest alternatives manager by assets under management and #1 in alternative flows for 2018 (Morningstar data, 12/31/18). Visit www.calamos.com/alternatives for an overview of our expertise and growing presence in alternatives.
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.
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 the 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.
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 Arbitrage 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.
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.
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