About TOP
If an investor is more concerned about total return or loss mitigation than income enhancement, Rampart’s Tactical Overlay Program may provide a solution. TOP is a customized options strategy that uses the Rampart Options Management System technology to dynamically and systematically adjust equity market exposure in response to market fluctuations. Rampart portfolio managers combine the purchase of puts with call writing to adjust equity exposure and the related portfolio risk.
In rising markets, the Tactical Overlay Program strategy sequentially reduces a portfolio’s effective equity exposure by selling more calls and purchasing more puts. Conversely, in a declining market, the Tactical Overlay Program incrementally increases the portfolio’s effective equity exposure by selling a reduced number of call options and purchasing fewer put options.
In this manner, the Tactical Overlay Program seeks to effectively employ a “buy low and sell high” methodology.
The two primary risks with the Tactical Overlay Program strategy are the potential for limiting upside participation, as well as the risk that the call writing component of the program produces insufficient income to fund an optimal level of put protection.
New clients will work with Rampart to determine if the Tactical Overlay Program is the right fit for their investment portfolio and how much in notional value to allocate to the strategy. The notional amount represents the dollar value of the underlying equity assets that an investor chooses to place in the strategy. Investors must select a benchmark index that is highly correlated with the underlying portfolio. The benchmark index serves as a proxy for the underlying assets placed in the Tactical Overlay Program. The investor must also select a Target Price, which is the price level of the benchmark index above which additional upside appreciation may be lost.
The Target Price selection in the initial Tactical Overlay Program illustration sets the amount of protection that investors can expect. Rampart uses the premium generated by selling calls to fund the mathematically derived purchase of put options that provide a measure of downside protection. The lower the Target Price, the greater the potential cash flow from selling calls that can be used to purchase protective puts. However, the lower the Target Price, the greater the amount of potential upside appreciation the client must be willing to forego. Thus, the Target Price reflects the tradeoff between retaining upside potential and seeking downside protection.
The Tactical Overlay Program (TOP) is a dynamic, integrated call and put option strategy managed on a discretionary basis by Rampart Investment Management, an independent registered investment adviser. Clients subscribing to the TOP strategy should be willing to liquidate (sell) the notional value of underlying stock under certain circumstances. The sale of stock will produce tax consequences for U.S. taxpayers.
