Prudent Value

Prudent Value With Options



  • Strategy Options
Prudent Value Wtih Options concentrates assets in its best ideas (subject to reasonable diversification) and generally maintains its investment positions for extended periods of time.
In selecting among investment opportunities, careful assessment must be made of the risk profile of the various alternatives. In equity and debt (through ETFs) investing, risk comes in basically two forms: bankruptcy/default risk and market risk, with the greatest risk coming from the substantial costs that are incurred through bankruptcy/default. Prudent Value believes that both of these risks are best mitigated by investing in high-quality assets at a discount price.
In addition, we believe that the Prudent Value With Options model can reduce risk further by writing covered calls, uncovered puts, and option spreads.
Writing covered calls is a moderately bullish options strategy to earn a premium (i.e., income) by selling out-of-the-money calls against a holding of the underlying shares while being able to participate in capital gains (albeit limited) if the underlying stock rallies.
Writing uncovered puts (aka naked put write or cash secured put) is a bullish options strategy that is executed to profit by earning a premium when a put option expires worthless (i.e., out-of-the-money). Also Prudent Value can benefit as a long-term investor if the stock price drops below the put strike and the put gets assigned, thus owning the stock at a lower desired price (i.e., discounted stock price - premiums collected).
Writing option spreads (Bull & Bear) are designed to profit from either a rise or decline in the price of an underlying security. A bull spread is a spread where profit is attained when the price of the underlying security goes up. Conversely, a bear spread is a spread where profit is attained when the price of the underlying security goes down. Based on our view of the market, Prudent Value may write bear call spreads during times of over-valuation and write bull put spreads during times of under-valuation.
Our principal research methodology is as follows: First, seek high-quality equity and/or debt investments within our circle of competence (real estate, insurance, and credit services, to name a few). Second, the underlying assets of these investments should possess strong balance sheets and generate free cash flows. Data sources include but are not limited to the following: 1) financial newspapers and magazines, 2) research materials prepared by others, 3) annual reports, and 4) company press releases.
Prudent Value's approach to diversification is to limit the size of each asset purchase (to approximately 5% of the portfolio) across the capital structure and asset class, then to sell a security if it becomes an uncomfortably large position (10% or greater) in the portfolio.
In addition, the Prudent Value With Options model may write covered calls on stocks we believe to be fully valued to reduce the effect of drawdowns.
Assets are generally sold when their share price reaches our intrinsic value or to minimize losses. Intrinsic value is an economic concept, estimating future cash flows discounted to present value.
In addition, the Prudent Value With Options model may write bear call spreads during times of over-valuation to reduce the effect of drawdowns during market turmoil.
During times of extreme market euphoria, the portfolio may hold large cash balances, buy puts, and/or sell deep-in-the-money covered calls.

Performance

1.0%

Month to date

MTD

1.0%

Quarter to date

QTD

1.0%

Year to date

YTD

Quarterly vs S&P500

Quarterly vs S&P500

Risk score

  • 3.7%

    Best quarter

  • 0.7%

    Worst quarter

    • 1.5% fee
    • $120,000 min
  • Required: Portfolio margin account
  • Required: Options trading permission

Performance detail

Performance Portfolio inception December 04, 2015

as of January 17, 2017 Manager (net of fees ) S&P 500
Month-to-date 1.0% 1.3%
Quarter-to-date 1.0% 1.3%
Last 365 Days 13.0% 20.6%
Since inception (Annualized) 5.1% 7.5%
2017 (YTD) 1.0% 1.3%
2016 6.8% 9.5%

Risk metrics Last 365 days

as of January 17, 2017 Manager (net of fees ) S&P 500
Volatility 7.6% 12.2%
Sharpe Ratio 1.65 1.65
Sortino Ratio 2.30 2.29
Maximum Drawdown -3.4% -5.7%
Value-at-risk (95%, 1 week) -1.8% -2.8%
vs. S&P 500
Information Ratio -1.37
Alpha 1.0%
Beta 0.59
R-Squared 0.90

Exposure

31.1%
27.1%
20.2%
16.3%
-14.6%
  • Equity Fund
  • Debt Fund
  • Financial
  • Technology
  • Equity Option

Top 5 securities

20.4%
10.8%
9.1%
9.0%
9.0%
View all

Portfolio commentary

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Latest transactions Average trades per month 1.3

Executed Symbol Security Type Price
January 11, 2017 LB L Brands Inc Buy $61.10
January 11, 2017 LB 190118C00045000 LB Jan 18, 2019 45 Call Sell short $17.48
January 06, 2017 SRG 171020P00030000 SRG Oct 20, 2017 30 Put Sell short $1.50
December 23, 2016 GPS Gap Inc/The Buy $22.76
December 23, 2016 GPS 190118C00018000 GPS Jan 18, 2019 18 Call Sell short $6.57
November 01, 2016 UAA 190118P00020000 UAA Jan 18, 2019 20 Put Sell short $1.80
September 29, 2016 WFM Whole Foods Market Inc Buy $28.31
September 29, 2016 WFM 180119C00020000 WFM Jan 19, 2018 20 Call Sell short $9.11
View all

Important Information

  1. Past performance is no guarantee of future results.
  2. 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. Average client returns are calculated by Covestor and are composed of the asset-weighted daily average returns of all active client investments (some of which may contain investment restrictions) to the underlying portfolio. These daily average returns are then linked together for the timeframe presented. These returns include cash, dividends, and earnings distributions, and reflect the deduction of Covestor advisory fees, brokerage and other commissions and expenses actually paid by clients.
  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. Leverage indicates the level of margin utilized and is calculated by dividing gross exposure by portfolio net liquidation value.
  8. 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.
  9. 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.
  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. This portfolio uses short selling. 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. This portfolio uses borrowed funds or leverage to fund investments. 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.