Profiting with Synthetic Annuities Option Strategies to Increase Yield and Control Portfolio Risk

by Lovelady, Michael

• ISBN13: 9780132929110
• ISBN10: 0132929112
• Edition: 1st
• Format: Hardcover
• Copyright: 2012-06-21
• Publisher: FT Press

Summary

The "synthetic annuity" is an options-based strategy that trades off large gains in exchange for higher yields and better downside protection, and utilizes risk more efficiently than pure stock-based portfolios. In Profiting with Synthetic Annuities, this strategy's creator shows exactly how to use it to support a wide range of trading and investing goals. Hedge fund manager and investment strategist Michael Lovelady shows how synthetic annuities blend the best features of traditional portfolios with the risk management discipline of quantitative investing, increasing current yields while also reducing volatility. Lovelady explains this new strategy with "time-lapse" images and simplified models that any investor can understand and apply, and demonstrates its value in the context of today's key market trends. Lovelady explains the entire "ecosystem" surrounding synthetic annuities: theory, product, and tools. Instead of focusing on the standalone use of options, he shows how to integrate them into traditional investment management, including mean-variance portfolios. This book demonstrates how synthetic annuities can help cautious investors reduce volatility and increase returns; improve risk management for value investors and their advisors; help experienced options traders leverage market exposure or yield; and enhance flexibility for institutions with strict prudence requirements. Along the way, he offers deep and intuitive insights into options that will be valuable to any trader or student of finance.

Author Biography

Michael Lovelady, CFA, ASA, EA, is the investment strategist and portfolio manager for Oceans 4 Capital Group LLC. Michael designs and implements reduced-volatility and theta-generating hedge fund investment strategies. He developed the “synthetic annuity” (SynA) and uses it extensively in portfolio management.

Prior to founding Oceans 4, Michael worked as a consulting actuary for Towers Watson and PricewaterhouseCoopers. Much of his work was related to design issues at a time when many employers were moving away from traditional defined benefit plans. Michael worked with clients to consider and implement alternatives ranging from defined contribution to hybrid DB/DC plans. His experience with retirement income strategies, from both the liability and asset sides, has given him a unique perspective.

Michael has also been involved in teaching and creating new methods for making quantitative investing more accessible to students, trustees, and others without math or finance backgrounds. He developed the investment profile--a graphical representation of investments and the basis of a simplified option pricing model, and visually intuitive presentations of structured securities.

Michael has served various organizations, including Hughes Aircraft, Boeing, Global Santa Fe, Dresser Industries, the Screen Actors Guild, The Walt Disney Company, Hilton Hotels, CSC, and the Depository Trust Company. He is a CFA charterholder, an Associate of the Society of Actuaries, and an ERISA Enrolled Actuary. He currently lives in Los Angeles.

Table of Contents

Preface	p. viii
Introduction	p. 1
Synthetic Annuity Design	p. 25
Tracking Performance	p. 53
Covered Synthetic Annuities	p. 69
Managing a Covered Synthetic Annuity	p. 99
Generalized Synthetic Annuities	p. 127
Managing a Generalized SynA	p. 151
Synthetic Annuities for High-Yielding Stocks	p. 169
Synthetic Annuities for the Bond Market	p. 183
Synthetic Annuities for the Volatility Market	p. 207
Index	p. 225
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