Risk Reduction

A client goes to see his financial advisor. He has been investing in a portfolio of blue chip stocks for years now and he tells his advisor that he would like something with a little bit less risk. “I know stocks go up and stocks go down, but I’d like them to do it just a little less.” He continues to tell his advisor that if he could invest in the same type of stocks but with about a third less risk, then he would be satisfied. This advisor is familiar with the buy write strategy and suggests that this client invest in the Optima Portfolio. He gets the benefit of professional stock selection and by writing covered calls against each position, California Investment Trust can reduce the standard deviation (volatility) of the portfolio. In fact, the advisor goes on to show his client a third party article by Callan Associates discussing the results of the buy write strategy which was able to generate market returns with one third less risk over an 18 year period.

Option trading is not suitable for all investors. Investors should read and understand the Characteristics and Risks of Standardized Options.