Explore your options. 440 COVERED CALL & COLLAR STRATEGIES

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1 Explore your options. 440 COVERED CALL & COLLAR STRATEGIES 440 Investment Group 2018

2 440 Investment Group Mariner Holdings Mariner brings together diverse teams of experienced wealth advisory, specialty services and asset management professionals that share a common focus - to deliver industry-leading financial solutions and help navigate clients toward achieving their objectives. Through Mariner s family of asset managers, unified by deep market insight and fundamental research, they offer alternative investment solutions across the spectrum of asset classes and strategies that include mutual funds, closed-end funds, and separate accounts. 440 Investment Group 440 has provided actively managed option strategies since currently provides investment management or advisory services on over $290 million in assets. Proprietary trading system enables full scalability of each of our strategies. Back office support services including operational, accounting, legal and compliance provided by Mariner. 440 assets as of 12/31/ Investment Group, LLC Page 2

3 440 Investment Group Firm Philosophy 440 believes the value that options provide is found in their ability to enhance or minimize specific risk and return features of traditional long only asset class, which in turn can help construct a more optimal risk adjusted return. 440 Investment Group 440 offers actively managed option strategies that serve as an alternative to traditional asset classes and option strategies that seek to either enhance the return or reduce the risk of traditional asset classes. Our strategies include both fully managed strategies and option overlay strategies that can be incorporated into an existing portfolio. All Strategies are managed in an SMA format. Fully Managed Strategies Alternative Fixed Income High Income Equity Option Overlay Strategies Absolute Return Individual Equities 440 Investment Group, LLC Page 3

4 440 COVERED CALL & COLLAR STRATEGIES Explore your options.

5 Strategies for Clients: Covered Calls and Collars Clients That May Benefit From Covered Calls Long-term investors. Desire to Improve the risk and return profile of their existing equity position. Desire to decrease the volatility of owning equities. Clients That Would Not Benefit From Covered Calls Never want to sell shares. Very bullish on the equity market and their equity position. Need call premium for steady income. Desire to tactically reduce a concentrated position over time. Clients That May Benefit From a Collar Desire downside protection. Believe there is limited upside potential in the stock. Clients That Would Not Benefit From a Collar Never want to sell shares. Do not want to cap upside potential. 440 Investment Group, LLC Page 5

6 What is a Covered Call Strategy What is a covered call strategy Owning an equity position and selling a call option against the equity position. What does it mean to sell a call option The seller of a call option is offering to sell shares at a predetermined price (the strike price) for a predetermined amount of time (contract expiration date). In return for offering to sell shares at a predetermined price, the seller will receive a cash payment (the premium) from the buyer of the call option. When a call option is sold, the strike price will be established at a price that is greater than the current stock price. If the stock price is below the strike price at the contract expiration date, then the option contract will expire worthless and the seller will retain the premium. If the stock price appreciates in value above the strike price, the stock return is capped at the strike price that was established when the option contract was sold. How does a covered call strategy add value The premium received is an additional source of return. In essence, an investor in a covered call strategy agrees to give up some of the potential upside appreciation in their equity position in exchange for the premium received on the options sold. 440 Investment Group, LLC Page 6

7 440 Covered Call Investment Objective and Process Investment Objective Enhance return over a market cycle. Provide incremental return. When appropriate, provide an opportunity to reduce a concentrated position. Investment Process Proprietary trading system uses fundamental factors to screen all potential option trades. Portfolio team reviews and executes all trades. Sell out of the money call options with a 1-2 month expiration. Out-of-the-money options allow for more upside appreciation during a rising stock market. Shorter-term option contracts help to mititage the risk of the strategy. A small portion of shares may be sold during a rapidly rising stock market. 440 Investment Group, LLC Page 7

8 440 Covered Call Reduction Objective and Criteria Reduction Objective Long term strategy to dollar cost average out of a position when the position is increasing in value. Spread the capital gains tax over multiple tax years. Target an annual reduction rate based on the client s investment objectives and tax situation. Reduction Criteria that 440 Needs Cost basis for the shares. Total number of shares to be sold each year. Total number of years that shares will be reduced. Order in which shares will be sold based on cost basis and holding period (i.e. highest cost basis or lowest cost basis first and long term gains or short term gains first). 440 Investment Group, LLC Page 8

9 Covered Calls & Technology 440 s proprietary trading system algorithmically designs covered call portfolios across a grouping of accounts. The fundamental parameters driving the selection include: Expiration Date System finds the expiration closest to the desired option contract length. Delta Target Targeting delta (versus a static out-of-the-money percentage) finds the optimal strike price to sell by adjusting the moneyness of the option relative to the volatility of the underlying stock. Coverage Target Partial coverage allows for scaling into positions. Earnings Report Filter Generally avoids being covered during earnings releases. Delta is the ratio comparing the change in price of the underlying security to the corresponding price of the option. 440 Investment Group, LLC Page 9

10 440 Covered Call Risk Management Process Risk Management 440 may employ some of the following diversification strategies to manage risk: Diversification of the call options Leg into covering the position over several trading days. Cover the position with multiple strike prices. Cover the position with multiple expiration dates. Proprietary trading system allows for real time monitoring of each account. Automatic alerts indicate when a position is at or near the strike price. In-the-money option contracts are generally bought back and rolled to a higher strike price in order to allow for more upside appreciation. 440 Investment Group, LLC Page 10

11 Lagging and Staggering of Option Positions 38 Intel Corporation 37 Stock Price INTC Stock Strike #3 Strike #1 Strike #4 Strike #2 32 2/12/2015 2/19/2015 2/26/2015 3/5/2015 3/12/2015 3/19/2015 3/26/2015 4/2/2015 Performance Time Period This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 11

12 Covered Call Overlay: A Sideways or Slowly Rising Market Stock Price Intel Corporation INTC Stock Strike #1 Strike #2 3/27/2015 4/3/2015 4/10/2015 4/17/2015 4/24/2015 5/1/2015 5/8/2015 5/15/2015 Performance Time Period Stock Return Stock Return with Covered Calls Beginning Value $32.00 $32.00 Ending Value $32.99 $32.99 Option value $0.25 Total Ending Value $32.99 $33.24 % Gain/(Loss) 3.09% 3.88% This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 12

13 Covered Call Overlay: A Down Market 36 Intel Corporation Stock Price INTC Stock Strike 28 5/18/2015 6/1/2015 6/15/2015 6/29/2015 7/13/2015 7/27/2015 Performance Time Period Stock Return Stock Return with Covered Calls Beginning Value $33.41 $33.41 Ending Value $29.47 $29.47 Option value $0.29 Total Ending Value $29.47 $29.76 % Gain/(Loss) % % This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 13

14 Covered Call Overlay: A Bull Market & Rolling the Options Stock Price Intel Corporation 8/4/2015 9/13/ /23/ /2/2015 1/11/2016 Performance Time Period INTC Stock Strike Sale Price Beginning Value Stock Return Rolling Call Options Selling Shares $29.13 $29.13 $29.13 Ending Value $34.66 $34.66 $33.00 Option value $(0.30) $0.34 Total Ending Value $34.66 $34.36 $33.34 % Gain/(Loss) 18.98% 17.95% 14.45% Option Trade Date Expiration Date Current Stock Price Strike Premium Sell 8/4/2015 9/18/ $0.15 Sell 9/30/ /20/ $0.19 Buy 10/19/ /20/ $(1.02) Sell 10./ /18/ $0.45 Buy 10/23/ /18/ $(1.07) Sell 10/23/2015 1/15/ $1.00 Net Total $(0.30) This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 14

15 A Year in the Life of a Covered Call Strategy $350, $340, $330, Bullish Market Strong Bull Market Bear Market Stock Performance Stock Performance Covered Call Performance Covered Call Performance $320, $310, $300, $290, $280, $270, $260, $250, Equity Alone Covered call Program Equity Alone Covered call Program Equity Alone Covered call Program Beginning value $250,000 $250,000 Beginning value $272,531 $280,140 Beginning value $341,952 $338,031 Ending Value $272,531 $280,140 Ending Value $341,952 $338,031 Ending Value $273,818 $281,284 % Gain/Loss 9.01% 12.06% % Gain/Loss 25.47% 20.67% % Gain/Loss % % This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 15

16 CBOE BuyWrite Indices Growth of $1,000 (January December 2017) $3000 $2500 CBOE S&P 500 Buy Write Index CBOE S&P 500 Buy Write 2% OTM Index S&P 500 S&P 500 Portfolio with Covered Calls S&P 500 Only $2000 $1500 Note: 2% OTM (BXY) outperforms At-The- Money (BXM) writing $1000 $500 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15 Dec 17 Performance Statistics (1/1/2000 to 12/31/2017) CBOE S&P 500 Buy Write 2% OTM Index CBOE S&P 500 Buy Write Index Annualized Return Standard Deviation Sharpe Ratio Downside Deviation Sortino Ratio Alpha Beta R-squared Correlation 5.92% 12.38% % % % % 10.60% % % % 0.88 S&P % 14.52% % Source: Chicago Board Options Exchange (CBOE) BXM CBOE S&P 500 BuyWrite Index: (Hypothetical buy-write strategy owning the S&P 500 index and selling monthly ATM calls) BXY CBOE S&P 500 BuyWrite 2% OTM Index: (BXM except selling 2% OTM calls instead of ATM calls) The S&P 500 Index is a market-value weighted index representing the performance of 500 widely held publicly traded large-capitalization stocks. Past performance is not indicative of future results. Individuals cannot invest directly in any index. 440 Investment Group, LLC Page 16

17 What is a Collar Strategy? What is a collar strategy? The combination of selling an out of the money call option and purchasing an out of the money put option. What does it mean to use a collar strategy? Selling a call option will establish a ceiling value for a position and generates a positive cash flow. Buying a put option will establish a floor value for a position, but requires a cash outflow. The cash received from selling the call option will be applied to the cost of purchasing the put option. What does a collar strategy accomplish? Provides downside protection below the put strike price. Reduces the cost of purchasing downside protection. What is the risk of a collar? The upside potential of the stock will be capped above the strike price, which may require shares to be sold. 440 Investment Group, LLC Page 17

18 440 Collar Strategy Overview Investment Objective Provide downside protection for a set period of time. Minimize the cost paid to purchase downside protection by selling a call an out of the money call option. Investment Process Call options are generally sold 5% to 15% out of the money. Put options are generally sold between 10% and 20% out of the money. Collars are generally set with a 3- to 12-month expiration. After expiration, the collar will be reset and the strike prices will be adjusted based on the new current stock price. 440 Investment Group, LLC Page 18

19 Collar Overlay Example Stock price is capped at the call strike price Stock Price Strike Price Call Strike Price Put Strike Price Call and put options expire worthless and the collar is reset 50 Performance Time Period The gain in value of the put option offsets the decrease in stock price below the put strike price This material has been prepared for informational purposes only. The returns presented represent possible returns during the named periods for an investor utilizing a covered call strategy and are not meant to be a historical description of actual results, nor a prediction of future performance. The returns do not reflect actual trading activity, and may not reflect the effect of material economic and market factors that might have influenced the adviser s decision making if the adviser had actually been managing clients money. For these reasons, actual client account performance would only match the returns presented by coincidence. 440 Investment Group, LLC Page 19

20 Terms Account Sizing $250,000 minimum. Beginning cash balance of 2% of the initial portfolio value. Note: 100 share minimum (1 option contract = 100 shares common stock). Additional Details Daily liquidity, to the extent possible with options positions. Existing brokerage reporting captures economic effect of options strategy. 440 Investment Group, LLC Page 20

21 APPENDIX Explore your options.

22 440 Leadership Brett Kunshek, CFA President & Chief Investment Officer Brett Kunshek is the president and chief investment officer for 440 Investment Group. He serves as the lead portfolio manager for 440 s investment strategies and directs the option trading. Prior to joining 440, Brett worked at Protiviti as an Internal Audit / Risk Management Consultant. While at Protiviti he obtained the Certified Internal Auditor (CIA) and Certified Investment and Derivatives Auditor (CIDA) designations. Mr. Kunshek holds a Bachelor of Science in Business Administration with an emphasis in Accounting and Finance from Pittsburg State University and a Master of Business Administration with a concentration in Finance from the University of Kansas. Brett is a CFA charterholder and a member of the CFA Institute and the Kansas City Society of Financial Analysts. Jamie Cinotto Client Portfolio Manager Jamie Cinotto is a client portfolio manager for 440 Investment Group. His responsibilities include marketing and promoting 440 Investment Group s products and capabilities within Mariner Wealth Advisors referral partner programs. Prior to joining 440, he worked as a wealth advisor for Mariner Wealth Advisors with high-net-worth clients obtained through referral partner programs, focusing on specific investment strategies. Jamie spent 13 years of his career with UMB Bank, where he assisted community banks with the management of their investment portfolios as a vice president in the Investment Banking Division. He graduated from Pittsburg State University with a Bachelor of Business Administration and a major in Finance. Jamie currently holds Series 7, 63 and 65 designations and is a licensed life and health insurance agent. 440 Investment Group, LLC Page 22

23 440 Leadership Andrew Good, CFA Senior Investment Analyst Andrew Good is a senior investment analyst for 440 Investment Group. Andrew s responsibilities include researching and monitoring the firm s investment strategies as well as assisting in portfolio trading and management. Prior to that, Andrew was a client portfolio manager for 440 where his responsibilities included marketing initiatives, new investor development, and assisting in portfolio trading and management. Prior to joining 440 Investment Group, Andrew worked as a regional consultant for Montage Investments and his responsibilities included building relationships with Registered Investment Advisors and developing the sales channel for Montage Investments products. Andrew began his career in 2008 with Nuveen Investments, located in Chicago, Illinois. At Nuveen, Andrew worked as an internal wholesaler in the independent broker dealer channel. Andrew has a bachelor s degree in finance from the University of Miami in Ohio. He has passed the Series 7 and 66 exams and achieved the Chartered Financial Analyst (CFA) designation in Ashley Gaskins Vice President Ashley Gaskins is a vice president for 440 Investment Group. She is responsible for coordinating the day-to-day operational aspects of the firm which include operational, marketing, legal and finance functions. Prior to joining 440, Ashley worked in the operations department at Mariner Holdings where she was responsible for both the account reconciliation and new account onboarding processes. Ashley received a Bachelor of Science degree in Business Administration with an emphasis in Management from Kansas State University. She also earned a Master of Business Administration from Kansas State University. 440 Investment Group, LLC Page 23

24 440 Leadership Tanner Davis Director of Technology Tanner Davis is a systems engineer and developer of 440 Investment Group s proprietary trade execution and market analysis platforms. Prior to joining 440 Investment Group in 2011, Tanner spent four years as an engineer and project manager on national security focused programs for the U.S. Department of State, following six years developing back-office systems for the banking and financial industry at Innovision Corporation. Tanner graduated from Kansas State University with a degree in Computer Science. 440 Investment Group, LLC Page 24

25 GIPS Compliance Disclosures 440 Large Cap Income Net of Fees Return Number of Total % of Non- 3 Yr Annualized Std Deviation 440 BXY BXM Composite Dispersion Separate Accounts Composite Assets Total Firm Assets Fee Paying Accounts 440 BXY BXM N/A 3 $805,782 $95,062,270 0% N/A N/A N/A 9/30/13-12/31/ N/A 10 $4,206,346 $124,838,667 0% N/A N/A N/A $8,130,973 $95,973,720 0% N/A N/A N/A Full Period End of Period End of Period End of Period End of Period The Firm has elected to present Total Firm Assets and Total Composite Assets to include notional assets. Notional assets represent the committed risk capital with respect to a particular strategy but are not necessarily tied to the market value of securities. In the case of the premium income strategy, a notional amount is committed to the strategy by the client and is collateralized via cash and/or securities held in client accounts. We believe these figures represent the total assets under our discretion in the most fair and reasonable manner. 440 Investment Group, LLC Page 25

26 Disclosures Compliance Statement: 440 Investment Group, LLC claims compliance with the Global Investment Performance Standards (GIPS ) and has prepared this report in compliance with the GIPS standards. 440 Investment Group, LLC has been independently verified for the period of October 1, 2008 to December 31, The verification reports are available upon request. Verification assesses whether (1) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. Definition of The Firm: The definition of the firm, ( The Firm ), is the foundation for firm wide compliance and creates defined boundaries for determining the assets of the firm. In this instance, the firm is defined as 440 Investment Group, LLC ( 440 ) and was founded on February 22, operates on the belief that the alternative investment landscape offers attractive risk adjusted returns over a long period of time. We seek to provide our clients with unique strategies and opportunities in order to diversify their otherwise traditional portfolios. 440 is a subsidiary of Montage Investments, LLC. Montage acts as a holding company for various asset managers including 440. Montage is also a subsidiary of Mariner Holdings, LLC. A detailed flow chart is available upon request. Composite Information: The 440 Large Cap Income Composite (the Composite ) is a composite of actual accounts managed by 440 that are invested in the Large Cap Income Strategy. The creation date for the Composite is 11/4/2013. The requirements for inclusion are a client commitment to the Large Cap Income strategy and a monthly market value of at least $250, Large Cap Income is designed to provide capital appreciation from investing in domestic equity securities augmented by income derived from option related strategies. Composite and portfolio returns are based on full account values and are presented in U.S. Dollars. Composite dispersion is measured by equal weighted standard deviation of returns for accounts managed for the full year. The 3yr annualized standard deviation is not provided as there are not 36 months of returns. The strategy utilizes derivatives and short positions. Composite returns have been compared to the CBOE S&P 500 Buy Write Index, CBOE S&P 500 2% OTM Buy Write Index & the S&P 500 Index for illustrative purposes. The volatility of these indices may be materially different from that of the Composite due to varying degrees of diversification and/or other factors. The CBOE S&P 500 Buy Write Index is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index. The CBOE S&P 500 2% OTM Buy Write Index is a benchmark index designed to track the performance of a hypothetical buy-write strategy on the S&P 500 Index by selling call options that are 2% out of the money. The S&P 500 is a capitalizationweighted index that is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Individuals cannot invest directly in any index. Comparative index data in this report is provided from Zephyr Style Advisor. An investment in the 440 Large Cap Income strategy contains risks, including the risk of total loss. Option trading involves a significant degree of risk, which each prospective investor should seriously consider. The risk of loss in trading options can be substantial. Prospective investors should carefully consider whether such trading is suitable for them in light of their financial condition and individual risk tolerances. The high degree of leverage that is often obtainable in options trading can work against investors as well as for them. The use of leverage can lead to large losses as well as gains. Past performance is not indicative of future results. There is no guarantee that the strategy will meet its investment objectives. This report should be used for informational purposes only and should not be deemed an offer to invest in the strategy. Fees and Related: A full schedule of fees for all 440 products and their descriptions is available upon request. All returns are presented net of model managmenet fees which are currently 90 bps. The collection of fees has a compounding effect on the total rate of return net of management fees. Net of fee performance returns are presented after all fees, which include model management fees and actual trading expenses, including regulatory fees. Additional Notes and Disclosures: 440 Investment Group, LLC ( 440 ) is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply any level of skill or training. 440 and its representatives are in compliance with the current registration and notice filing requirements imposed upon registered investment advisers by those states in which such registration or notice filing is required. 440 may only transact business in those states in which it is noticed filed, or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by 440 with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about 440, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein or refer to the Investment Adviser Public Disclosure web site ( 440 Investment Group, LLC Page 26

27 THANK YOU 5700 West 112th Street, Suite 500 Overland Park, KS Explore your options.