Resources
Explore these three foundational options strategies designed to help investors understand key approaches for managing risk and capturing opportunity in different market environments.
Each video includes a clear walkthrough to help you understand our options-based investing approach. It is presented by Mark Sorensen, Chief Investment Officer, Royal Fund Management.
Back Ratio Strategy
In this video, we walk through the Back Ratio strategy using simple, everyday language. You’ll see how selling a smaller number of options that are closer to the current price can help pay for buying a larger number of options that are farther out, at a different strike price. The goal is to position you to benefit from a strong upward price move in the underlying investment while using the trade’s structure to help manage risk.
When it is set up thoughtfully, the Back Ratio strategy is designed to magnify return potential without adding risk beyond the normal price swings (volatility) of the underlying asset, aside from Opportunity Cost. Overall, this strategy is considered Moderate to Aggressive and is intended primarily for investors who are focused on capital appreciation and are comfortable with market volatility.
Covered Writing High Volatility Strategy (CWHV)
This Covered Writing strategy involves selling (or “writing”) options on investments you already own, specifically focusing on assets with higher volatility. This approach is often used to help generate additional cash flow from the portfolio. In effect, you are collecting option premiums from market participants who are willing to pay for the right to buy your shares at a specified price in the future.
When used thoughtfully with higher-volatility positions, CVHV can help you collect premium income that may help offset some of the day-to-day price swings in the underlying investment. Aside from Opportunity Cost, the goal of this approach is to keep risk primarily tied to the asset’s normal ups and downs (volatility) rather than adding a new layer of risk. Overall, Covered Writing with higher-volatility holdings is considered a Moderate to Aggressive strategy and is typically used by investors seeking a combination of growth and income.
Covered Writing Low Volatility Strategy (CWLV)
Covered Writing with lower-volatility assets is a strategy that involves selling (or “writing”) options on investments you already own, but using holdings that tend to move more steadily in price. Because these assets are typically less volatile, the option premiums are usually smaller, yet selling covered calls can still be a useful way to modestly enhance cash flow over time by consistently collecting these premiums.
When implemented thoughtfully, this approach is intended to keep risk primarily tied to the normal price movements (volatility) of the underlying asset, rather than introducing additional speculative risk beyond Opportunity Cost. Covered Writing with lower-volatility positions is generally considered a Conservative to Moderate strategy and is typically used by investors who prioritize income first, with some potential for growth.
