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Alternative Market Briefing

Dynamic options emerge as volatility mitigator for retail investors

Tuesday, May 14, 2013

Eric Metz
Bailey McCann, Opalesque New York:

After 2008, many investors found their traditionally constructed 60/40 portfolios to be a little weaker than previously thought. Since then, investors find themselves with a variety of new investment products designed to provide greater diversification, although many of them simply add additional equities. Eric Metz, CFA, Portfolio Manager and Derivatives Strategist at RiverNorth Capital Management, says that instead of just reshuffling equities, investors should look at options for portfolio diversification and stabilization.

RiverNorth Capital Management focuses on opportunistic investment strategies including the trading of closed-end funds and volatility, and manages approximately $2.1bn in assets. According to Metz, dedicated options strategies can provide a "third bucket," or asset class that might be able to provide the desired low volatility of fixed income with a high correlation to equities.

He notes that the options market sometimes offers inefficiencies that can be captured and generate alpha that investors wouldn't necessarily see through a traditional equities exposure. RiverNorth recently launched a fund designed to capture these opportunities - the RiverNorth Dynamic Buy-Write Fund (RNBWX).

Different from most other buy-write – also known as covered call - investment strategies, in which an investor buys a single security or portfolio of securities and writes (sells) calls against the underlyi......................

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