What does OptionAgent invest in?
OptionAgent invests in publicly traded call and put options on a market index, typically the S&P500. Recently S&P500 options are now available with expirations on every weekday, and they can be traded almost around the clock. With a systematic trading strategy as deployed by OptionAgent, this provides an opportunity for consistent and regular income.
I need some basic info. What are "options"?
An option is a financial instrument that gives you the right to purchase (for a call option) or sell (for a put option) an underlying security at a pre-determined price, until or at a specified date (the expiration date of the option). If you buy a call (put) option you bank on the fact that the price of the underlying will increase (decrease) so that you make money from the difference between the future spot price of the underlying, and the pre-determined strike price of the option. In exchange for this right, you pay some money (an option premium).
I thought options were used as 'insurance' for a stock position you have, how can you generate income from them?
When you buy an option it is indeed a hedge against the value of the underlying decreasing (for a put option). In exchange you will pay an option premium which is like an insurance premium. But when you sell options it's the other way around: you can then generate income from the option premiums received from the option buyer. OptionAgent uses a net option selling strategy to generate consistent income. Furthermore we trade options on a market index. These options are 'cash settled' so we hold no positions in any underlying. This provides for excellent liquidity.
What do you mean by 'return from volatility'?
Obviously you can generate positive returns when the market goes up by holding positions in a stock or market index - basically you follow the market 'trend'. But that's not the only way. You can also generate returns from the price variation of a stock or market index, which is its volatility. The value of an option is very dependent on the volatility of the underlying. The strategy employed by OptionAgent effectively monetizes this variation, rather than the trend, of the price of the underlying.
Is this a day trading or crypto trading scheme?
Absolutely not. While OptionAgent uses short-termed options, we do not typically enter and exit a position within a single day. In fact, we aim to enter a complex option position and then hold on to until it expires days later so we can book the full option premium as gain. Since the underlying is a market index such as the S&P500, there is absolutely no crypto involved. These options trade on regulated exchanges, such as CBOE (Chicago Board of Options Exchange).
How is it possible that you can make money when the market goes down?
We typically combine multiple hedged option positions in a single order, a so-called complex option position. Depending on how we structure this position, a positive return is possible in an up and/or down market. For example, if you sell an out-of-money call option, and the market goes down, then the option will expire worthless, and thus the option premium you received upfront will be a 100% gain if you kept the position until expiration.
What are the tax implications of this investment? Is it all short-term gain?
While we keep option positions only for a few days typically, the gains made from them are not 100% short-term gains. This is because OptionAgent trades options on an underlying market index (and not on an ETF that tracks a market index). These kind of options are classified by the IRS as 'Section 1256' contracts under the US tax code. Gains on such contracts are 60% long-term and 40% short-term, irrespective of how long such contracts are kept. So 60% of gains will be taxed at the lower capital gains tax rate if traded in a non tax-exempt account.
Are the trades of OptionAgent allowed in a retirement account?
Yes they are! To limit risk, OptionAgent uses complex option positions that are 'defined risk' (as opposed to 'naked' or 'uncovered' positions that have unlimited risk if the market would move against you). 'Defined risk' option trades are allowed in a retirement account.
How can I participate?
Not yet... We are currently putting the legal structure in place and filing the disclosures required to market OptionAgent to external participants. Fill out the contact form and we will keep you informed about how and if you can participate in the future.