RS Low Beta Opportunity Fund sells downside SPX (SPY) puts at a strike price below the current market price. If the SPX (SPY) does NOT go below that strike at expiration, the investor keeps all of the premium as income.

RS Low Beta Opportunity Fund provides investors S&P 500 equity market exposure with reduced downside risk that will continuously and systematically generate income in sideways and rising markets, and significantly outperform in down markets.

RS Low Beta Opportunity Fund will never use leverage to generate income since puts will always be sold on a notional basis, not delta basis. In addition, excess capital will be invested in treasuries until it’s needed to fulfill the assignment of a short put.

When this strategy is used correctly, it reduces portfolio risk, allowing an investor to enter the market at a lower price and earn income while waiting for a lower entry point into the market.

• Down Market: Significant outperformance due to lower Beta and a rising VIX, allowing options to be sold for a higher premium as the market declines and options are rolled.
• Flat Market: Significant outperformance due to majority of options expiring worthless and the VIX being elevated relative to an up market.
• Moderate up Market: Good performance but outperformance is dependent on speed or magnitude of the up move.
• Rapid up Market: Positive results but will underperform because lower beta limits the performance to premium collected.

On average, this strategy should have 30% of the risk/reward of the overall S&P 500 on extreme moves, with reduced risk and increased reward on smaller moves.

The 30% risk/reward of the overall S&P 500 on extreme moves is due to the fact that throughout the entire year, the average beta of the portfolio is 0.30. The beta will not be 0.30 every single day of the year.

As the market goes sideways or up and the options approach expiration and a worthless value, the beta slowly reduces (typically toward 0.05-0.20).

As the market goes down and the likelihood of the options going in the money increases, the beta slowly increases (typically toward 0.40-0.70). Once the market stabilizes (this could take weeks), the average beta slowly heads back to 0.30. NOTE: This is where tremendous opportunity arises because as volatility spikes, the premiums sold will be much higher, but it sometimes takes up to several months to play out.

While the fund will use both SPX and SPY options, the majority of options will be SPX due to accounting rules for a 1256 contract, which allows short term capital gains on index options to have beneficial tax treatment; 60% will be taxed at long term capital gains, while only 40% will be taxed at short term capital gains.

The tax benefits of the fund are advantageous over an investor managing his or her own account. The main reason is due to the large size of SPX (relative to SPY), most investors would have to use SPY options, which are taxed at normal capital gains rates.