The Alpha Low Volatility Fund is a market-neutral strategy seeking noncorrelated returns that are independent of market swings. The Fund utilizes the natural decay of index options and other derivatives. As options are expiring assets, the entire extrinsic value is exposed to time decay, which, when all else is equal, decreases the value of the option contract each day up to expiration.
An option contract has no time value at expiration and is only worth its intrinsic value, or the value of the underlying security above (call option) or below (put option) the underlying security.
The Fund will generally generate short-term capital gains but also aims to take advantage of favorable tax treatment available afforded under Section 1256 Contracts of the IRS code. Any gain or loss from a 1256 Contract is treated for tax purposes as 40% short-term gain 60% long-term.
Options trading is not without substantial risk and although the Fund aims to provide steady returns with low volatility there are no assurances that this goal will be accomplished. In times of extreme volatility, potential losses can far exceed gains.