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What is a Portfolio Overlay?

A portfolio overlay is an advanced investment strategy employing an independent options-based approach alongside a fully invested portfolio. It serves to assist investors in managing risk, reducing volatility, influencing outcomes over specific periods, or generating additional income to enhance overall portfolio returns.

Investors are attracted to portfolio overlays for their potential to yield more favorable investment outcomes and capital efficiency. This efficiency results from a single investment producing dual sources of returns. In well-designed overlay techniques, the total return is derived from both the underlying portfolio or holdings and the returns generated by the overlay technique.

Portfolio overlays can be applied across various assets, including a portfolio of holdings, an index, ETFs (if a viable options market exists), or a concentrated individual stock position.

As experts in options-based techniques and portfolio overlays, we are well-equipped to assist investors in prudently managing associated risks and aligning goals. Our specialization lies in seamlessly integrating large positions into a well-balanced portfolio and a comprehensive financial plan. This ensures a strategic and informed approach to investment management, maximizing potential returns, and minimizing risks for our clients.

At Avantia, we find that investors are often new to options and we don't always use them. But for some clients these strategies can be creative and useful tools in solving financial puzzles such as concentration risk, appreciated positions, cash flow, or a tax and capital-efficient way to access an asset class.


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