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Eaton Vance launches Option Absolute Return Strategy Fund


Eaton Vance Management has launched Eaton Vance Option Absolute Return Strategy Fund, a new mutual fund managed for total return.

 As an absolute return fund, the fund benchmarks performance primarily against short-term cash instruments and expects to provide returns over the long term that are substantially independent of movement in the stock and bond markets.

The fund pursues its objective by writing a series of call and put option spread combinations on the S&P 500 Composite Stock Price Index, a broad-based US stock market index, and/or an S&P 500 Index proxy. 

The strategy employs a systematic, rules-based programme that seeks to take advantage of the general imbalance of natural buyers of stock index options over natural sellers, reflected in the customary excess of option price-implied volatilities over observed market volatilities.

The fund seeks to mitigate risk by selling option "spreads," rather than standalone options, by staggering roll dates across the option position portfolio, and by using exchange-traded options guaranteed for settlement by the Options Clearing Corporation, a market clearinghouse. 

The fund will generally write call spreads and put spreads that are "out of the money," meaning that the exercise price of call options sold generally will be above the current level of the index when written and the exercise price of put options sold generally will be below the current level of the index when written.

In implementing its strategy, the fund generally intends to enter into written call and put option spread positions that primarily have a maturity of approximately four weeks, and to space the timing of spread originations and expirations through each four-week period. 

Positions will generally be written more out-of-the-money when option valuations reflect high volatility and less out-of-the-money when implied volatilities are lower, providing relatively consistent market exposures and net option premiums through varying equity market conditions. 

The fund’s option strategy will be implemented as an overlay to a portfolio of short-term, high-grade debt securities that are expected to maintain a dollar-weighted average effective maturity of one year or less.

"Eaton Vance Option Absolute Return Strategy Fund expands and diversifies our growing lineup of absolute return mutual funds," says Thomas E. Faust Jr., chairman and chief executive officer of Eaton Vance. "Strategies that offer the potential for returns that are uncorrelated to traditional asset classes continue to broaden their appeal."

The fund’s option programme is managed by Parametric Risk Advisors, an investment manager focused on the management of equity option and equity index option strategies for institutional, high-net-worth and fund investors.

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