SMAs with derivatives?

I’m curious to know if there’s any portfolio manager out there who manages separately managed accounts (SMA) and employs call/put options.

Is it worth the hassle of operational challenges and having to communicate tax situations with clients? Or are derivatives not used in SMAs in general?

We don’t have any that specifically us calls/puts, but other dervatives, definitely.

sweep the leg, you are RIA?

Institutional sales

What kind of derivatives are we talking? And probably I should’ve mentioned this, but I’m thking about equity portfolios… Have you seen long-only equity people using derivatives at all?

Sure, currency hedging is probably the most common. But just take a look under the hood of many equity income portfolios.

To be clear, we might be talking about two different playing fields. I’m talking about my asset management company selling a large broker-dealer an SMA for use on a UMA platform or some such. We don’t really sell retail SMAs, but plenty of other shops do.

that sounds interesting. Big bucks i bet.

I worked for a macro manager whose portfolio was pretty much all options and futures positions. He had a primary fund, but there were also SMAs for a few specific clients.

I don’t know how common that is, but macro accounts do tend to be done with derivatives. If you are talking equity portfolios, I do know that some funds will use derivatives to tune beta exposure and or try to make money off of macro views, but these are generally held within fairly tight constraints and therefore are about adding bps to the portfolio, not the major source of performance. I have no idea whether SMAs also try this but I don’t see why they wouldn’t.

Similar to you bchad. I knew of an equity fund with a main fund & SMA’s. Both used calls but they werent typical SMA’s with clients that might not understand, these were pension funds that put in several hundred million and just wanted a break on fees.

Thanks for the insights. I’m a buy-side analyst at a WM shop, and we manage separate accounts. I’m just a bit frustrated that we can’t use options because it was never done before. There’s just so many stocks that we hold and “know” that aren’t going up meaningfully in the near-term (or okay selling after 5% more appreciation), and writing calls and buying puts can be one strategy that I think we can employ. Worked to push this thing to work in early 2014, but didn’t go anywhere. With the hindsight, I probably should’ve pushed it harder…

Some of the push backs included tax issue - some clients would never sell any gainer because of their tax situations (hence they oppose to additional income from writing calls - counter-intuitive, but oh well), and I think having to explain this “exotic” new initiative is what making the whole thing impossible. And I think our ops would wait outside of the building and mug me if they hear I suggested something like this.

I was trying to see if there’re long-only, plain vanilla folks who manage separate accounts use options, but it doesn’t look like there’s common. I didn’t mention long-only, plain vanilla part because for some reason I just felt I wouldn’t’ get any responses if I mention that lol…thanks again for your inputs!