TCW | Gargoyle Options Overlay Service

ADVISORY SERVICES

Investment Team

  • Joshua B. Parker
  • Alan L. Salzbank

Investment Strategy

TCW is working with its sub-advisor, Gargoyle Investment Advisor L.L.C., to develop equity option overlay strategies to meet client objectives. These strategies can be designed to improve portfolio return, generate income, or reduce volatility. The investment team will create a customized options strategy based on the client’s equity portfolio and investment objectives.

Investment Process

The team designs a customized portfolio of equity index options in accordance with the client’s objectives. This portfolio seeks to generate alpha by taking advantage of the excess premium often available in the pricing of index options. After creating an overlay tailored to the client’s investment style and parameters, the team initiates the options positions and then dynamically manages the options portfolio to maintain the client’s desired net exposure and to adjust to changes in the underlying equity portfolio.

Opportunity

Equity index options have been shown to be frequently overpriced, and the strategies are designed to capture the excess premium often available in equity index options.  It is generally believed that a risk-transfer premium is embedded in index option prices. This causes the implied volatility (and therefore the price) of index options to exceed their realized volatility. Investors can benefit from this excess premium by selling index call options to hedge their equity portfolios.

Benefits of Index Options


Team

Gargoyle has been managing options strategies since 1988, and remains committed to seeking out new ways to better serve our clients. Each member of the management team has over 25 years of industry experience. In addition to managing overlay strategies for institutional clients, Gargoyle manages hedge funds and sub-advises a suite of liquid-alternative mutual funds managed by TCW.

Legal Disclosures


Source: Gargoyle
1 The percentage of days that the Index-Implied Volatility exceeded the Subsequent Realized Volatility;
2 The amount by which the index call price exceeds the price of an at-the-money index call option with 30 days to expiration and an implied volatility equal to the subsequent realized volatility;
3 The price of an at-the-money index call option with 30-days to expiration expressed as a percentage of the index price;
4 The average close of the Volatility Index from its inception date through December 31, 2016;
5 The average subsequent 30-day volatility annualized.
6 The amount by which the index call price exceeds the price of an at-the-money index call option with 30 days to expiration and an implied volatility equal to the subsequent realized volatility.

This material is for general information purposes only and does not constitute an offer to sell, or a solicitation of an offer to buy, any security. Any issuers or securities noted in this document are provided as illustrations or examples only, for the limited purpose of analyzing general market or economic conditions and may not form the basis for an investment decision, nor are they intended to serve as investment advice. Any such issuers or securities are under periodic review by the portfolio management group and are subject to change without notice. TCW makes no representation as to whether any security or issuer mentioned in this document is now in any TCW portfolio. TCW, its officers, directors, employees or clients may have positions in securities or investments mentioned in this publication, which are subject to change without notice. Any information and statistical data contained herein derived from third party sources are believed to be reliable, but TCW does not represent that they are accurate, and they should not be relied on as such or be the basis for an investment decision.

An investment in the strategy described herein has risks, including the risk of losing some or all of the invested capital. An investor should carefully consider the risks and suitability of an investment strategy based on their own investment objectives and financial position. There is no assurance that the investment objectives and/or trends will come to pass or be maintained. The information contained herein may include preliminary information and/or “forward-looking statements.” Due to numerous factors, actual events may differ substantially from those presented herein. TCW assumes no duty to update any forward-looking statements or opinions in this document. This material comprises the assets under management of The TCW Group, Inc. and its subsidiaries, including TCW Investment Management Company LLC, TCW Asset Management Company LLC, and Metropolitan West Asset Management, LLC. Any opinions expressed herein are current only as of the time made and are subject to change without notice. The investment processes described herein are illustrative only and are subject to change. Past performance is no guarantee of future results. © 2017 TCW.

Investment Team

  • Photo: Joshua B. Parker
    Joshua B. Parker
    Portfolio Manager

    Mr. Parker is a portfolio manager for the TCW|Gargoyle Hedged Value Fund and is a Co-Founder of Gargoyle Investment Advisor L.L.C. He has been a Managing Partner of the Gargoyle Group for 15 years. His 32-year career in finance has spanned hedge fund and portfolio management, options trading, and legal and regulatory compliance. He is a graduate of the New York University School of Law and Yale University.

  • Photo: Alan L. Salzbank
    Alan L. Salzbank
    Portfolio Manager

    Mr. Salzbank is a portfolio manager for the TCW|Gargoyle Hedged Value Fund and is a Co-Founder of Gargoyle Investment Advisor L.L.C. He has been a Managing Partner of the Gargoyle Group for 15 years. Mr. Salzbank has specialized in hedge fund and portfolio management for the past 16 years of his 38-year career in finance. He is a graduate of the Wharton School of the University of Pennsylvania and the New York University Stern School of Business.

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