Market Thesis / Core Values:
Fixed Income / Bonds have typically been a safe haven, for conservative – moderate investors. Historically, the debt markets have provided fruitful returns with minimal price fluctuations for investors. Rates are at historically low levels. Eventually, we anticipate rates rising. Increasing rates, will negatively impact bond returns, causing most investors safe haven investments to be an area of portfolio weakness. Investors do not have many options in lieu of fixed income. One option for investors to minimize their bond exposure is liquid alternatives.
VectorShares created VSPY as a solution for this piece of investors portfolios.
VectorShares believes that investors can minimize volatility and maximize returns using options.
Options are derivative contracts that derive their value from an underling asset. They give the right to either buy or sell a set amount of an underlying asset at a predetermined price at or before the options expiration. Options are a powerful tool for investors, they can be utilized for many different reasons including, but not limited to the following:
Leverage – Options provide leverage for investors. Investors can control a large quantity of shares with small dollar amounts using options.
Risk Aversion – Options can be used by investors to hedge their positions. The investor can use options to minimize or eliminate risk in their holdings.
Income – Options can be sold and therefore can be used by investors to generate income.
VectorShares uses long call contracts in an attempt to generate returns from market increases.
In conjunction VectorShares uses a synthetic VIX hedge to help mitigate market decreases. The concept being, if the market fear increases, volatility increases, and the hedge increases in value.
The Volatility Index (VIX) is measure of the future volatility on a specific instrument. Often, when people reference VIX they are quoting the traditional 30 day, Cboe created, SPX VIX. The VIX is a measure of future, anticipated volatility, based on the S&P 500 index (SPX) puts and calls that have an expiration greater than 23 days by less than 37 days. The VIX is also synonymous with terms like “the fear index” and “the fear gauge”. Investors utilize VIX to get a quick snapshot on markets expectation of volatility over the next 30 days.