FAQ

Helping you deliver results
The following questions are important issues for you to cover with your clients. If you have additional questions let us know now and call us at (800) 225-8778.

Why are our strategies important?
In what markets does the strategy work well?
In what markets does this strategy work poorly?

How much does it cost/How do I get paid?
For whom is this strategy appropriate?
Where does this fit into my clients’ asset allocation strategy?
Why is this strategy important to my clients?
How do I introduce alternative investment products to my clients?
How much should be invested in this strategy?
My client is attached to a concentrated stock position.
Can these strategies help me do a better job?
Should I write covered calls myself?
Why should I do this through a Separately Managed Account?
Who has custody of the assets?
What reporting do I get on this account? How about my clients?

Why are our strategies important?
Every investment strategy is based on the premise that we want to maximize the return realized on a portfolio at the lowest likely risk exposure. Our Separately Managed Accounts seek to provide investment results that provide enhanced returns with reduced daily volatility, as measured by standard deviation of account values. For investors comfortable with the risks associated with investing in stocks, we believe we can deliver substantially improved, risk-adjusted outcomes.
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In what markets does the strategy work well?
This strategy works best when the stock prices go down, move sideways or move up to a level less than the level where we sold.

To explain further, our primary portfolio strategy is based on the concept of selling some of the upside of a stock in exchange for cash. For example, let’s say we have a stock trading at $25.00 and we sell an option with a strike price of $28.00. We retain the upside potential of the stock until it goes hits $28.00 a share. At this point, who ever we sold the call to gets the additional upside. Let’s assume we were paid $1.00 to sell the call. The value of the account moves from $25.00 to $26.00 when we sell the call. If the stock doesn’t move through the strike price of $28.00 during the life of the option, we keep the stock and the $1.00. Our potential return on this position is capped at $29.00. We get this number by adding the strike price and the bid premium paid to us.
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In what markets does this strategy work poorly?
This strategy tends to under-perform when the price of a stock moves up rapidly. For example, if there is an acquisition announced on a stock that we’ve written a call on, the price will instantly jump and often through the strike price of the call we’ve written. In this case, the uncovered position will out perform our position. If the general markets rise quickly, this strategy will also under-perform. Lastly, if the stock markets fall, we expect that this environment will tend to result in a loss on our portfolio. We do expect, however, that this strategy will perform better than the market as a whole during these environments.

Take a minute and first read the “In what markets does the strategy work well?” section so we can discuss the same example given in that discussion. Let’s say a company announces that they have agreed to pay $33.00 per share for the $25.00 stock we hold. Remember that we have sold a call at $28.00 per share in exchange for $1.00. We get to keep the dollar and the value of our position is capped at $29.00. So, the balance of the upside has been sold to another investor. They realize the gains from $29.00 to $33.00, assuming the acquisition is competed as announced. As such, this strategy under-performed an uncovered position because of the rapid and unexpected move in the price of the stock.
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How much does it cost/How do I get paid?
Portfolio Accounts: Our fee structure begins at 2.50% plus the TDAmeritrade fee of 0.20% for a total of 2.70%. This fee includes all the trading costs on the account. The advisor is paid half the account fee (1.25%) and California Investment Trust is paid the other half (1.25%). Fees are reduced based on account size, as follows.

Single Stock positions: Our fee structure begins at 2.00% plus the TDAmeritrade fee of 0.20% for a total of 2.70%. This fee includes all the trading costs on the account. The advisor is paid half the account fee and California Investment Trust is paid the other half. Fees are reduced based on account size, as follows.
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For whom is this strategy appropriate?
We attempt to improve performance and reduce volatility on stock positions, so investors who currently hold individual stocks and equity mutual funds may benefit from this strategy.
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Where does this fit into my clients’ asset allocation strategy?
We believe this strategy is an outcome diversification strategy. If stock markets go sideways, down or rise gradually, we believe we are likely to outperform the general market. If markets rise rapidly, we believe we will deliver excellent results, but not as good as a fully invested stock portfolio or mutual fund. So, we believe an allocation of your stock investments should be allocated to this strategy based on your level of confidence for future market outcomes.
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Why is this strategy important to my clients?
If there is another market crash, what do you plan to tell your clients you did to prevent the worst from happening twice? If your answer Is that they had a strong, diversified portfolio with a portion of the equity portfolio designed to out-perform in downward markets, you will be able to demonstrate your value to them.
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How do I introduce a strategy like this to my clients?
We believe that this discussion is borne out of what we are trying to deliver. Lower volatility, a customized approach to risk and cash flow generated by these strategies. We deliver results that an investor can’t get out of only owning bonds and stocks.
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How much should be invested in this strategy?
We think most advisors should have between 20% and 40% of their equity allocations in a covered call strategy, depending on their unique market outlook and the needs of their clients.
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My client is attached to a concentrated stock position.
Many investors hold large, concentrated positions for emotional reasons. Sometimes the stock represents an emotional attachment to a company or a person. The Client’s fear of doing something wrong becomes bigger than the benefit of taking proactive action to make the position work better. Our concentrated stock strategies can generate cash flow on concentrated positions and deliver some control over the economic value realized on these positions.
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Can your strategies help me do a better job for my client?
Yes, we believe that over the long haul, we can deliver equity market returns with less volatility using our portfolio strategy. With risk mitigation strategies, you are on the forefront of the investment management business.

You’ve probably seen many of the articles on the subject of risk management. You’ve got to expect that your high net worth clients have either seen these, or are hearing about it from their friends who also use high net worth Advisors. We suggest that by working together, we can keep you on the leading edge of effective portfolio management techniques.
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Should I write covered calls myself?
There are two primary reasons that outsourcing is the better way for you. First, we have a significant cost advantage because of our scale relative to most independent advisors. Second, writing options is a time consuming process and can cut substantially into the time you have for your clients.

In addition to this, not all stocks have what we consider to be favorable option opportunities. Our proprietary Optima system is used in an effort to maximize your clients success in selecting the ideal strike price, date and implied volatility for the stocks.
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Why should I do this through a Separately Managed Account?
In our opinion, separately managed accounts are the most effective tool for managing this strategy. They are a tool for serious investment professionals. You are able to deliver a differentiated, professional, and customized service to your clients. In our case, we deliver a very cost effective solution compared to a standard brokerage account and we avoid the some tax issues associated with mutual funds.
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Who has custody of the assets?
We use TDAmeritrade to custody client assets. While our strategy is custodian neutral, we find the fee structure and efficiency of the relationship we have in place with TD Ameritrade helps meet our unique needs for options execution and reporting. If you would like more information on the custodian relationship, reporting or have special needs in this area, please call us at (800) 225-8778.
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What reporting do I get on this account? How about my clients?
Advisors and Clients both can get electronic or paper confirmations and monthly statements on their accounts. We can also arrange to have electronic reporting from a custodian into your portfolio management system. For specific needs, please call us at (800) 225-8778.
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