SciVest Options-Based Market Hedging Program
Since the most important objective of the SGDI Strategy is to generate consistent dividend income for its investors, the SGDI Strategy portfolios are generally fully invested in dividend paying equities to continuously produce such dividend income, regardless of market conditions.
For qualified investors who elect to participate in the SciVest “Options-Based Market Hedging Program”, SciVest may in certain extreme market environments where SciVest deems it appropriate implement options-based portfolio capital protection strategies within the SGDI Strategy portfolios while maintaining a fully invested portfolio of dividend paying stocks. Specifically, SciVest may purchase put options on exchange traded funds of broad equity indexes (such as the S&P 500 Index) to partially hedge the SGDI Strategy dividend stock portfolio from large market-wide price corrections. In this manner, the SGDI Strategy investment portfolio remains fully invested generating its desired dividend income, while at the same time the SGDI Strategy portfolio is partially hedged to downside equity market risk. These purchased equity index put options may be paid for in part or in whole by selling (writing) out-of-the-money call options on exchange trade funds of broad equity indexes (such as the S&P 500 Index). The overall effect of this Options-Based Market Hedging Program would be to partially limit large near-term investment capital downside (as a result of the purchased puts options), potentially at the cost of limiting some near-term capital upside (as a result of the written call options, if any). SciVest has complete discretion in the timing and the implementation of any options-based portfolio capital protection strategies; however, SciVest only anticipates very rarely implementing such capital protection strategies, generally in extreme market conditions (e.g., once or twice in any five year period).