QFA,LLC has created an actively managed strategy that provides our clients with equity market participation, while enhancing income potential. Our strategy is comprised of a core allocation of select Exchange-Traded Funds (ETFs), coupled with conservative option strategies that have been designed to generate monthly cash flow. QFA utilizes Asset Secured Puts and Covered Calls to achieve this end.
- Selling Asset Secured Puts on select ETFs creates option premium income and provides the opportunity to buy shares of the ETF at a price lower than the original market price when the Put was initially sold.
- Selling Covered Calls on select ETFs creates option premium income and the potential for equity appreciation of the ETF.
At QFA, LLC our decision-making process is guided by our desire to give clients a real return – in cash flow:
- The first component of our Core Allocation represents Index Exchange-Traded Funds. These ETFs are diversified into Small Cap, Mid-Cap, and Large Cap Funds, including but not limited to the S&P 500 and the Russell 2000.
- The second component of our Core Allocation is comprised of basic material ETFs, which we refer to as “Dirt”. We believe that these holdings represent natural resources that the world cannot do without, in any economy. This allocation of ETFs includes precious metals and their mining, energy, oil, and natural gas, as well as the exploration of these resources.
- The third and final component of QFA’s Core Allocation is the optional use of Cash reserves that serve as collateral for our Asset Secured Puts. These Cash reserves, in addition to all client funds, are held by our custodian TD Ameritrade.
Based on our Core Allocation using Index and “Dirt” ETFs, QFA utilizes Covered Call and/or Asset Secured Put strategies, typically with 30 day option expirations to generate monthly cash returns. We utilize a multi-faceted approach to create monthly cash flow for our clients, with single or combined strategies to meet our cash flow goals:
- Using Cash as collateral, QFA sells Puts on our Core Allocation using Index and “Dirt” Exchange-Traded Funds:
- QFA may also choose to sell Covered Calls on some or all of our Core Allocation, including Index and “Dirt” Exchange-Traded Funds:
- Based on market conditions and outlook, QFA may choose a dual strategy by selling Covered Calls and Asset Secured Puts on our Core Allocation:
In keeping with our conservative philosophy, all client accounts will have a protective hedge or “short position” on a portion of the account, providing partial protection in a falling market. This protective hedge may be adjusted based on prevailing market conditions and outlook.
Why QFA’s Strategy?
Contrary to many myths and misconceptions, options can be a conservative alternative investment vehicle for the investor. Selling Covered Calls is a basic and widely used option strategy that provides our clients with limited downside stock price protection in return for limited participation on the upside, plus the option premium income that it creates. Selling Asset Secured Puts provides our clients with the opportunity to purchase an underlying ETF for a price that is lower than the original market price. Further, the option premium income received for selling the Put provides our clients with some additional downside price protection by lowering their break-even point on the ETF purchase.
Much has been written in the financial press about the failures of a buy and hold strategy, with significant focus on the poor return of the S&P 500 during the infamous “lost decade” from 2000 – 2010. There may be a day when simple buy and hold comes back in vogue. But, as uncertain as the global economy and markets are, volatility is a reality for which investors should be prepared. QFA, LLC believes that those investors looking to generate income in this environment may benefit from our strategy of utilizing select Exchange-Traded Funds in conjunction with Covered Calls and Asset Secured Puts, as a component of their overall portfolio allocation.
The success of our clients is a culmination of four guiding
principles that drive our investment philosophy:
