Connors Covered Call Strategy

* Available in both an SMA and Collective Investment Fund

Overview

This strategy is designed to maximize risk‐adjusted returns by combining the long‐term appreciation potential of stocks with the low volatility and capital preservation features of covered call option writing. The foundation of this approach is a portfolio of carefully selected large‐cap equities. Our emphasis is on fundamental quality: strong profitability, low debt levels and proven management. We sell covered call options against these underlying stocks. While this strategy reduces upside potential in very strong markets, it brings in an immediate cash return and reduces portfolio volatility.

Description

  • Inception of strategy 1974
  • Research and purchase 35 ‐ 45 individual stocks that are believed to be great long-term buys and have exchange-listed options
  • Write/ sell calls against a range of 25% ‐ 75% of the total shares
  • Actively sell call options in an attempt to generate additional income
  • Income goal with dividends and call premiums is 5% ‐ 7%
  • Average expiration of calls is between 2 and 4 months
  • Average call written 3%-10% out of the money to allow upside in stock
  • Represent 9 out of 11 of the S&P 500® Index sectors
  • Tactical use of S&P 500® Index protective puts to dampen downside fat-tail risk

Attributes

  • Increased cash flow
  • Enhanced returns in down, flat, and modestly up markets
  • Limited upside in large upward market moves
  • Call premiums taxed as short-term gains

Our Investment Process

STEP 1

Screen the universe of stocks having above $2 billion in market capitalization

STEP 2

Assess relative valuation, profitability, growth in profitability

STEP 3

Balance sheet strength, free cash flow and dividend growth

STEP 4

Quality management

STEP 5

Invest in approximately 45 companies that represent 8 of the 11 sectors in the S&P500®

STEP 6

Assess option writing and income generation potential. Actively manage options to maximize income and total portfolio return