Portfolio Structure

The portfolio is an all capitalization long short equity portfolio utilizing value added options strategies where appropriate.  This strategy is managed by Joe and Tommy and is designed for a Qualified Investor as defined by the SEC.  There are two variations of the portfolio allowing for utilization in both brokerage and IRAs or other qualified retirement accounts with adjustments to risk parameters and margin use.  The portfolios follow the investing strategy Joe Kunkle has been following since shortly after beginning OptionsHawk.com where he originally started to spell out the values behind such an approach in Methods To My Madness – Trading Options Flow in 2012 and then followed up with Categorizing the Types of Options Flow Analysis and the Research Process in early 2014.  Since then Joe has continued to hone his multi-strategy approach into the system we use in this strategy.

“Set your goals high, and don’t stop till you get there.” – Bo Jackson

Portfolio Segmentation: We split the portfolio into the core portfolio holdings and three shorter term strategies, including Event-Driven opportunities, Supplementary options strategies and speculative trading.  This allows us to participate in many different market environments.

  • Core – Trade Hawk 100 stocks as well as small growth stories throughout year, the best fundamental growth/value stocks across all growing industries.  Utilize relative strength and technical analysis for timing entry/exit throughout the year and industry relative strength identification for portfolio exposure per sector.
  • Event Driven – Utilize option strategies to take advantage of elevated volatility to gain entry into names at optimal levels, long or short.
  • Supplementary – Utilize option strategies such as writing calls/puts, ratio spreads, and collars to supplement incomes, especially when stocks are not in strong trends and consolidating/range-bound.
  • Speculative – Utilize options flow and fundamental analysis to identify attractive upside opportunities in M&A candidates.

Value Added Option Strategies: The ability to properly utilize option strategies in a portfolio separates the average from the elite in the world of money management.  A properly structured portfolio can use options to both maximize returns and minimize risks.  There are many strategies that can be designed to fit the specific strategy, time and velocity characteristics we see in an opportunity.  Read More

“It’s not the will to win that matters, everyone has that. It’s the will to prepare to win that matters.” – Paul “Bear” Bryant

Risk Management

Position Sizing is the first line of defense for the portfolio.  This is where we show our conviction on a trade by allowing us flexibility to make adjustments to size to better dial in the potential risk to the portfolio expected for any given trade.

  • VAR Risk Model
  • 30-50 Holdings with weightings between 2-4%.
  • Risk-Adjusted weighting (lower weighting for small caps w/ higher Beta)
  • Maximum portfolio weighting of 10%

Sell Criteria give us consistent parameters to know when to reevaluate a trade to potentially take proceeds or exit.  The criteria used will be matched to the specific trade type and plan design we are working with.  There will also be times we choose to hedge the position via options as an alternative to selling if our long term thesis is undisturbed.  Some examples are:

  • Close below the 8 or 13 exponential moving average
  • Cross of the 8 and 20 exponential moving averages
  • Close below trailing stop level
  • Failed breakout
  • Change in underlying options positioning that served as a basis for the original trade plan

Evaluation Parameters are ongoing and periodic checks to make sure each allocation is the best place for us to have our capital.  With the consistent research we produce to provide trade ideas, finding opportunities is not the issue we often struggle with.  Knowing when, how much and how long to allocate to each position is a constant variable.

  • Re-evaluate positions on an ongoing basis as the character of the security begins to change or as other high conviction opportunities arise.
  • Determine whether to adjust, add or sell.  If adjust or add, set a hard stop. 
  • Quarterly evaluation of positions versus benchmark, if lag by >15%, re-evaluate.  Determine if:
    • fundamentals have deteriorated,
    • change in corporate strategy, or
    • a better opportunity for allocation (opportunity cost).