Trends Watch: Options Trading

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.   

This week, Elana talks with David Rosenblum, Managing Partner & Portfolio Manager, RS Low Beta Opportunity Fund & RS Crypto Income Fund. 

What is your outlook for options trading?   

In general, I believe options are a very under-utilized asset class.  What led to us launching our first fund (RS Low Beta Opportunity Fund) was the belief that there was a niche market that was barely being touched.  Specifically, we believe that selling puts on the S&P 500, using no leverage as puts are only sold on a notional basis, allows our investors to use options “correctly” by systematically selling them to consistently generate income in all market environments. 

Where do you see the greatest opportunities and why?   

For us, this is fund specific.  In RS Low Beta Opportunity Fund, our greatest opportunity for allocations is with high net worth individuals and institutions like pension funds.  We believe trying to hit singles and never having any single stock risk, as we only sell puts on the S&P 500 index, presents the greatest opportunities in this strategy.  Due to the fact that the fund always closes/rolls our expiring puts and never takes assignment, the full AUM of the fund is invested in short-term treasuries.  RS Low Beta Opportunity Fund benefits from higher interest rates.  By nature, this helps diversify our overall portfolio to both mitigate risk and increase returns. 

In RS Crypto Income Fund, while we deploy a similar strategy to RS Low Beta Opportunity Fund of selling puts, due to the higher volatility in Bitcoin and the recent approval of options on Bitcoin related ETFs, we felt a higher risk (and return) strategy made sense to launch.  While RS Low Beta Opportunity Fund is hitting singles, RS Crypto Fund looks to hit doubles and triples.  We believe this offering presents great opportunities for investors looking to take less risk than owning Bitcoin outright given we are using the elevated implied volatility in the options to generate income in this asset class.   

What are the greatest challenges you face and why?   

Our greatest challenge is the pre-conceived notion that selling options are risky.  In absolute terms, at times, selling puts can be risky.  But done systematically and on a notional basis (never taking leverage), relative to owning equities the risk we are taking is substantially lower than just owning the underlying outright.  But, like many things in life, when there is a pre-conceived notion, getting past that “wall” is a challenge. 

What keeps you up at night?   

In RS Low Beta Opportunity Fund, the fear of a continuation of this straight up bull market keeps me up at night.  This may seem counter-intuitive because all our puts expire worthless.  But what gets underappreciated here is the greed investors have in bull markets.  Everyone wants to make more; hitting singles becomes boring, but that is what RS Low Beta Opportunity Fund does.  Thankfully, launching RS Crypto Income Fund allows us to provide investors with risk appetite another strategy with a much higher return profile.  

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.