Rethinking Portfolio Management

M1 Capital Management is a Bloomfield Hills, MI based money management firm, founded by former principals of thinkorswim Advisors. We specialize in risk reduced tactical investing, blending alternative and traditional strategies.

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Option Strategies

Tactical Option Portfolio

The M1 Tactical Option Portfolio (TOP) combines investments in 7 broad based index exchange traded funds (ETFs) with corresponding short option positions using both calls and puts on those ETFs to create a portfolio that generates potential returns in three ways.

  1. Capital appreciation of the ETF assets held in the portfolio
  2. Dividend streams generated by the ETF assets held in the portfolio
  3. Income generated from the short option positions held in the portfolio

The ETF securities that make up the portfolio are all broad based index investments that are diversified across various asset classes. The Tactical Option Portfolio holdings include, but are not limited to, SPY, IWM, EFA, QQQ, EEM, XLE, and IYR. All of these ETFs have very low expense ratios compared to mutual funds for the same asset classes, as well as deep liquidity in both the ETF and the corresponding option contracts.

The TOP strategy builds an allocation to each asset class that determines the maximum amount of shares that can potentially be held by each client. The combination of shares held and option contracts sold will never exceed the maximum allocation for each asset.

One of M1 Capital’s core principles is capital preservation, which is why the Tactical Option Portfolio does not use leverage for any of the option positions created.

The TOP strategy is also tactical in nature. We can move from a fully invested position in each asset class, to a partially invested position or to a flat position depending on a combination of factors. This tactical approach allows us to effectively and quickly reduce portfolio risk in periods of high volatility and declining asset prices. During these periods of high volatility (usually associated with falling equity prices), the option portfolio can potentially generate positive returns, which gives the TOP strategy the unique ability to potentially generate positive portfolio returns in down markets.

Some of the primary advantages of the Tactical Option Portfolio are:

  1. Tactical risk reducing approach for the underlying ETF portfolio
  2. Income Generation from option strategy
  3. Portfolio risk reducing strategy
  4. Effective cost basis reduction of portfolio assets

The M1 Tactical Option Portfolio allows investors an alternative to the traditional investment portfolio where capital appreciation is the primary source of returns. For additional information, contact our Chief Options Strategist Steve Rashis at 312-646-2514.