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  • bee March 2014
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Understanding RGHVX

As I understand it, RGHVX buys a basket of stocks which they think will out perform the index and sells "expensive" calls on the index. If S is the basket of stocks and C is the calls then their portfolio is S - C. If the index is I then we can re-write the fund portfolio as S - I + I - C = (S - I) + (I -C).
So the portfolio hopes to make money two ways --- first the (S - I) term represents how their basket of stocks outperforms the index; second the (I - C) term is how they hope to make money on the calls. Assuming the calls are "expensive" they were probably sold below or just above the index value. If the index closes below the strike price on the call then the call won't be exercised and the fund has pocketed the amount that the buyer paid for the call. If the index closes above the strike price on the call, then the fund has to pay the difference between the index's closing price and the strike price (with the price of the call as a cushion.)


  • Charting RGHVX against the Midcap Value TR Index indicates a lack of success:
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