CIHEX Set to Capitalize on What We’re Calling a “Cicada” Trade

An opportunistic trading window has enabled us to favorably position the CIHEX options book to target 65% upside and 35% downside relative to the S&P 500 through December 2024.

We could call it the 17-year cicada trade because that’s the last time the markets aligned for this event in 2007. Higher overnight rates combined with moderate to low volatility have created an environment where we can sell calls at what we believe are attractive prices, funding the ability to buy more puts for downside mitigation. This combination of market conditions offers the ability to seek more upside than downside for zero net cost, providing us with a unique opportunity to position Calamos Hedged Equity Fund (CIHEX) for a higher-than-normal level of asymmetric upside/downside capture through late December 2024.

The Cost of Selling 35% 1YR ATM Calls and Buying 65% 1YR ATM Puts on SPX Index

We believe CIHEX is well-positioned to outperform competitors in bear and bull market scenarios.

CIHEX is an active strategy designed to identify the most favorable options positioning based on the current market environment. Although many peers blend a long equity portfolio with an options overlay, the level of active management and the overall approach varies. Many options-based strategies are designed to capture a set amount of downside or upside over a period, regardless of market conditions. One big drawback to many of these strategies is that capped upsides can limit recovery after drawdowns, especially when the outcome periods are short, and chance plays a bigger role. Similarly, strategies that aim to provide unlimited customization can lead to overtrading and little additional value.

Our approach is to seek the best outcome for our clients based on market conditions, which can mean a highly active approach or it can mean locking in beneficial outcomes.

With uneasy markets near all-time highs and the possibility of rate cuts, we believe it's an opportune time to consider CIHEX.

With equity markets and individual names at all-time highs, there are likely many places in the market where investors may be feeling overheated. Similarly, default concerns on credit products have been increasing. An upside capture of 65% with a downside capture of only 35% may be attractive for many investors. If rates fall, the conditions and options pricing that made this trade possible will likely disappear—all the more reason to invest now. It's important to note that the exact outcome will vary as markets move, but active management of the book seeks to provide a similar asymmetric outcome as conditions evolve.

Whether markets are orderly or chaotic, hedged equity strategies that seek to reduce the downside of S&P 500 exposure while still maintaining a healthy upside are attractive for investors who seek to avoid large drawdowns but want to participate as much as possible on the upside.

To find out how CIHEX’s opportunity to capture more upside than downside has the potential to work for your clients in this uncertain year, contact your Calamos Investment Consultant at 866-363-9219 or caminfo@calamos.com.