Stock Selection

The first step in our stock selection process is identifying the universe of equities from which we will choose our portfolio. In this case, we invest primarily in equity securities of larger capitalization companies.

We will build a portfolio of approximately 30-45 equities diversified by sector and industry group, utilizing similar sector weightings to the S&P500. A cornerstone of our investment philosophy is that sound macroeconomic analysis combined with fundamental research is the most effective way to identify attractive investments. We prefer to buy companies that are growing faster then the rest of the economy, and we like to buy them at attractive valuations. We tend to favor companies with rising returns on invested capital, above-average business visibly, strong free cash-flow generation and attractive risk/reward profiles.

Our portfolio management team utilizes fundamental analysis as well as third party research, which includes research by Bloomberg, S&P, Morningstar as well as other sources.

Stocks are also screened by implied volatility. The stocks we hold in our portfolios must be optionable because our primary value is through the overlay of covered call options. Optima then determines whether an option is undervalued or overvalued by comparing its implied volatility with Optima’s volatility forecast for that option. If the option’s implied volatility is significantly above the option’s volatility forecast, then the option is overpriced according to Optima and likely to be attractive for selling covered calls.

Our portfolio management approach focuses on achieving alpha, or risk-adjusted outperformance of the S&P500.

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