The universe of Options-Based strategies is expanding rapidly as investors explore ways to better manage risks and pursue their investment needs and objectives in a low-yield world. However, options utilization can be overwhelming with all there is to know about evaluating them, so in this paper we:
- Discuss and critique Morningstar’s laggard approach to classifying option-based strategies, to help due diligence and investment selection processes.
- Propose our three-tiered system of separating strategies in this category: hedging, income, and alpha
- Outline the objectives, pros, cons, and risks of each of those three broad strategies
- Discuss the Defined Risk Strategy within the framework we established