The innovative role of a Systematic Calendar Options Strategy towards a successful Portfolio Implementation

Abstract

The purpose of this study is to analyse the role of the Systematic Calendar Options in the portfolio optimization. The result is a multiple strikes combination, that integrates a downside protection through a Bear Put Spread with a hedging cost compensation through the Covered Call Writing. The outcome is an Asymmetric Collar construction which is able to reduce the risk but it is still extremely correlated to the investment’s timing decision. This issue leads to the impact of the timing risk on the portfolio, which could be mitigated by applying the spread theory of strike price on the options’ maturity factor, creating, thus, a calendar spread construction. However, the strategy is still linked to the investor’s subjective decision. Therefore, the solution is the implementation of a systematic hedging strategy, that could potentially provide an ongoing hedge on the portfolio, by reducing the need to make timing decision as well as the timing risk dependency. This will be possible by implementing the method of averaging the strike price of the options by more frequent monthly executions, reducing the timing sensibility. The final strategy demonstrated to be extremely competitive and flexible in all the field in which it has been tested. Moreover, the result of the strategy is financially consistent in terms of performance and of management. Indeed, this strategy can be used by the retail investors in complete autonomy and by expert traders.