The Gargoyle Group, a US options-trading hedge fund manager, has launched a fund it believes is a first: a market neutral fund hedged with a continually-monitored index options overlay.
Gargoyle says the fund employs many of the components of the proprietary methodology employed successfully by its flagship fund, the Gargoyle Hedged Value Fund, for the last 12 years.
The Gargoyle Group, in a statement announcing the fund launch, said it “seeks to produce alpha via both stock selection and cumulative excess premiums gained from the sale of overpriced call options.” The new fund’s underlying equity portfolio is chosen from the top 2,000 capitalized U.S.-listed companies while the options overlay portfolio “typically sells near-term call options on indexes highly correlated to the underlying stock portfolio.”
Gargoyle founders Josh Parker and Alan Salzbank say an index options-based hedge avoids the risk of individual equity positions being “called away” early before they have a chance to outperform and also eliminates many of the risks inherent in shorting “overvalued” equities as a hedge.
The Gargoyle Group specializes in sophisticated equity options strategies.