Horse Cove Partners LLC

Absolute Return Strategy



  • Strategy Options
We do not believe we are smarter than the market, nor can we time the market in any given week or month. As a result, we take an approach similar to an insurance company in our investment strategy that focuses on probability of success and the management of risk.

All investments entail risk. Loss events do occur. However, there is an undeniable characteristic of investors (humans). We have an overwhelming fear of large loss and that translates into overpaying for “insurance”.  Horse Cove makes money because at its core, that “insurance” is over-priced. There is a difference between implied volatility in the pricing of an option and the realized volatility at expiration. That difference cannot be arbitraged away. Horse Cove Partners profits by selling implied volatility and profits when realized volatility is less than implied as time decays.
Each week we begin the investment process in cash. Using a proprietary model, we input variables including time to expiration, the current S&P 500 Index level and volatility using VIX as a proxy. We then solve for strike prices on both our short put and call positions that will produce an expected statistical probability of expiring out of the money at approximately 99.5% on the short put and 90% or higher on the short call. We then calculate the level of protective (long) puts and calls usually at 100 point spread farther out of the money. By solving for risk versus profit or a fixed spread we are accepting what the market will pay us for the assumed risk of the options spreads.

We always write short options covered and generally sell both put and call spreads each week. There are a few weeks each year given the calendar, market closings and/or lack of potential profit that calls and/or puts may not be written or may be written more than one week out to expiration.

During the week, we constantly monitor the probability of the options expiring in the money. In the majority of weeks the options are repurchased when the risk can be taken off the table for $0.05. In some weeks the options are allowed to expire. If the probability of the options expiring out of the money falls to 66 2/3% we take defensive action to repurchase, roll down or roll out the options.
The investment process is a rules-based option trading system that is executed weekly. Therefore little research is necessary to implement the strategy.
Using Reg. T for collateral requirements we sell one option condor for each $10,000 of available collateral in the account. We only trade index options on the S&P 500. These are cash-settled European style options that settle at expiration and cannot be exercised prior to expiration. We trade weekly options to provide for multiple bites at market movements and changes in volatility.
We do not trade to achieve a set profit or execute trades at a fixed spread each week. We focus on the statistical probability of each trade seeking to maintain a very high likelihood of success.  We repurchase when the options fall in value to $0.05 and have risk management rules in place to take risk off the table (‘take intelligent losses”) when the trade is working against us.

Portfolio Manager performance

1.6%

Last 30 days

30D

6.2%

Last 90 days

90D

15.7%

Last 365 days

365D

Quarterly vs S&P500

Quarterly vs S&P500

Risk score

  • 8.2%

    Best quarter

  • -9.0%

    Worst quarter

    • 1.5% fee
    • $12,500 min
  • Required: Margin account
  • Required: Options trading permission

Portfolio Manager performance graph

Performance history disclosure

All performance information on this page is based on the performance of the Portfolio Manager’s account. Client performance may differ. Client account performance is displayed on the client dashboard.

Performance Portfolio inception September 03, 2014

as of June 20, 2017 Manager (net of fees ) U.S. Aggregate Bond ETF S&P 500
Last 30 days 1.6% 0.4% 2.3%
Last 90 days 6.2% 1.4% 3.8%
Last 365 Days 15.7% -1.4% 17.0%
Since inception (Annualized) 11.3% 0.2% 7.3%
2017 (YTD) 9.3% 1.8% 8.9%
2016 9.8% 0.0% 9.5%
2015 7.4% -1.9% -0.7%

Risk metrics Last 365 days

as of June 20, 2017 Manager (net of fees ) U.S. Aggregate Bond ETF S&P 500
Volatility 7.3% 3.5% 9.6%
Sharpe Ratio 2.01 -0.68 1.67
Sortino Ratio 1.77 -0.96 2.08
Maximum Drawdown -3.6% -5.4% -5.3%
Value-at-risk (95%, 1 week) -1.7% -0.8% -2.2%
U.S. Aggregate Bond ETF vs. S&P 500
Information Ratio 2.17 -0.13
Alpha 15.0% 11.7%
Beta 0.16 0.19
R-Squared 0.01 0.06

Exposure

-0.2%
  • Index Option

Top 5 securities

-0.2%
-0.1%
0.0%
0.0%
  • SPXW 170623P02330000
  • SPXW 170623C02480000
  • SPXW 170623P02230000
  • SPXW 170623C02550000
View all

Latest transactions Average trades per month 19.9

Executed Symbol Security Type Price
June 16, 2017 SPXW 170623C02550000 SPX Jun 23, 2017 2550 Call Buy $0.04
June 16, 2017 SPXW 170623P02330000 SPX Jun 23, 2017 2330 Put Sell short $0.53
June 16, 2017 SPXW 170623P02230000 SPX Jun 23, 2017 2230 Put Buy $0.22
June 16, 2017 SPXW 170623C02480000 SPX Jun 23, 2017 2480 Call Sell short $0.13
June 14, 2017 SPX 170616C02480000 SPX Jun 16, 2017 2480 Call Buy $0.05
June 08, 2017 SPX 170616C02575000 SPX Jun 16, 2017 2575 Call Buy $0.04
June 08, 2017 SPX 170616P02240000 SPX Jun 16, 2017 2240 Put Buy $0.27
June 08, 2017 SPX 170616P02340000 SPX Jun 16, 2017 2340 Put Sell short $0.91
View all

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Important Information

  1. Past performance is no guarantee of future results, and all investments, including those in this portfolio, involve the risk of loss, including loss of principal and a reduction in earnings.  
  2. All performance information on this page is based on the performance of the Portfolio Manager’s account, using the manager’s own funds. Portfolio Manager’s pre-Covestor performance information may include performance of non-Covestor client accounts. Performance of the Portfolio Manager's account is calculated by Covestor on a daily time-weighted basis, including cash, dividends and earnings distributions and reflects the deduction of broker commissions. Manager returns include trades and positions that fail Covestor's trading rules, as a result, actual client returns will differ. Covestor advisory fees are simulated and applied retroactively to present the portfolio return "net-of-fees".
  3. None of the performance information displayed on this page is based on the actual performance of any Covestor client account investing in this portfolio. The performance in a Covestor client account invested in this portfolio may differ (i.e., be lower or higher) from the Portfolio Manager’s account performance based on any trading restrictions imposed by the client (resulting in different account holdings), time of initial investment, amount of investment, frequency and size of cash flows in and out of the client account, applicable brokerage commissions, and different corporate actions. Clients investing in this portfolio may view the actual performance of their investment in this portfolio by logging into their Covestor account and reviewing their customized dashboard.
  4. All graph data is as of the end of day for the referenced period, unless otherwise specified. The investment minimum is the minimum investment required to follow a particular portfolio. The minimum amount is determined by Covestor, based on the characteristics of the underlying portfolio. It should not be considered as specific investment advice for your investment situation.
  5. The performance charts are provided for informational purposes only, and should not be used as the basis for making an investment decision. We rely on mathematical formulas, computer programs, and pricing information from third-party vendors to provide these returns. Neither Covestor nor any of its data or content providers shall be liable for any errors in this information or any actions taken by you in reliance upon this information.
  6. Benchmark returns displayed have been calculated by Covestor using daily benchmark prices and do not include dividend income. More information here. For certain portfolios Covestor uses an index as a benchmark, while for others it uses an investable exchange traded fund (ETF) as a benchmark. Index returns do not reflect the deduction of any management fees, transaction costs or expenses. Individuals cannot invest directly in an index. Investable ETF returns reflect the deduction of (i.e., are net of) management fees, transaction costs and expenses.
  7. All Portfolio Manager information including personal data, profiles, strategies, monthly investment reports, and historical results outside of Covestor has been provided by the Portfolio Manager. Covestor makes no representation or warranty of its accuracy, completeness or relevance and it does not represent the opinions of Covestor. Transaction history of Portfolio Managers is available upon request. Portfolio classifications are provided by Covestor, and are intended to serve as a general guide.
  8. Not all transactions listed will appear in accounts due to Covestor's trading rules and individual client constraints. Eligibility of these securities is monitored periodically, and may change over time. Actual client investment holdings may vary.
  9. This portfolio was launched on Covestor on June 08, 2015. Returns history prior to launch is derived from account position valuation and cash flow data at Interactive Brokers. Covestor has not reviewed this performance data but has received manager certification that it adheres to the current strategy.
  10. This portfolio contains options. Options trading involves a high degree of risk, is highly speculative, and is not suitable for all investors. You should only select a portfolio with options trading if you are comfortable with the level of risk involved in trading options.
  11. The Portfolio Manager could use short selling to manage this portfolio. Short selling is more complex than simply owning securities, involves a high degree of risk, is highly speculative, and is not suitable for all investors. The risk of loss associated with short selling is virtually unlimited. Short selling may also involve additional expenses and risks, including hard-to-borrow stock charges and buy-in risk. You should only select a portfolio using short selling if you are comfortable with the level of risk involved in short selling.
  12. The Portfolio Manager could use borrowed funds or leverage to fund investments in this portfolio. Leverage indicates the level of margin utilized and is calculated by dividing gross exposure by portfolio net liquidation value. Leverage involves a high degree of risk, is highly speculative, and is not suitable for all investors. Leverage increases both the amount you may lose and the amount you may make in a portfolio, leading to higher returns in the case of favorable market movements but also larger losses under adverse market conditions. You may also incur additional expenses associated with borrowing funds. You should only select a portfolio using leverage if you are comfortable with the level of risk involved in using leverage.