The GameStop story has taken the markets by storm, making and breaking fortunes for novice and experienced investors alike. The shorting saga raises myriad issues in the investing landscape, particularly the importance of devising a long-term strategy to capture upside and mitigate downside over time.
In the upcoming webcast, A Feeding Frenzy: Navigating Investments in the GameStop Era, Meb Faber, Co-Founder and CIO, Cambria Investment Management, will analyze how GameStop’s meteoric rise impacted investors and exposed how critical the investment process is to long-term investing.
Cambria Investment Management also offers a way for investors to diversify a portfolio by mitigating downside risks. Specifically, the Cambria Tail Risk ETF (Cboe: TAIL) can help those investors seeking to consider alternatives strategies to better manage risks. Alternative investments like TAIL can be incorporated into a portfolio to provide diversification from equities or better protect an investor from drawdowns in stocks while allowing for some upside participation.
TAIL tries to provide income and capital appreciation from investments in the U.S. markets while protecting against downside risk. The active ETF will invest in cash and U.S. government bonds and utilize a put option strategy to manage the risk of a significant negative movement in the value of domestic equities, more commonly known as tail risks, over rolling one-month periods.
The TAIL strategy offers the potential advantage of buying more puts when volatility is low and fewer puts when volatility is high. While a portion of the fund’s assets will be invested in the basket of long put option premiums, the majority of fund assets will be invested in intermediate term US Treasuries.
A put option provides the buyer the right to sell the underlying index to the put seller at a specified price within a specified time period. In the event of a decline in the underlying index, the put may help reduce the downside risk. Consequently, the put option becomes more valuable as the underlying market weakens relative to the strike price.
Traders who write put options have essentially sold the right to another investor to sell shares at an agreed-upon price. On the other hand, the buyer has purchased the chance to sell stock to the put writer. In other words, the party that writes puts acts as an insurance provider for the portfolio’s downside but gains access to premiums.
Financial advisors who are interested in learning more about navigating the current market conditions can register for the Thursday, February 11 webcast here.