APX, Adaptive Portflio Contracts, are financial contracts whose values are linked to individuals' portfolios: futures and options based on the market value of customers' own portfolios.
Features: customized futures and options contracts with the underlying being the customers' own portfolios. This means, payouts are based on the market values of an customers' own portfolios. These contracts may be digital options, futures, and European calls and puts, with customizable notional amounts, strike prices, and expirations.
Requirements: customers must upload their individual portfolios or give Adaptive permission to access their portfolio positions from standard online brokers. Our initial coverage will be public assets; i.e., exchange traded commodities, stocks and bonds only. In the future, we can consider including other private and illiquid asset classes. Each contract is priced on a snap shot of customers' portfolio, which is assumed to be static during the terms of the contract. However, we will offer customers the ability to close out contracts prior to expiration and establish new contracts, if portfolio composition change (i.e., rolling contracts to the updated portfolio composition).
Features: customized futures and options contracts with the underlying being the customers' own portfolios. This means, payouts are based on the market values of an customers' own portfolios. These contracts may be digital options, futures, and European calls and puts, with customizable notional amounts, strike prices, and expirations.
Requirements: customers must upload their individual portfolios or give Adaptive permission to access their portfolio positions from standard online brokers. Our initial coverage will be public assets; i.e., exchange traded commodities, stocks and bonds only. In the future, we can consider including other private and illiquid asset classes. Each contract is priced on a snap shot of customers' portfolio, which is assumed to be static during the terms of the contract. However, we will offer customers the ability to close out contracts prior to expiration and establish new contracts, if portfolio composition change (i.e., rolling contracts to the updated portfolio composition).
Counter-party: Adaptive will be the sole counter-party to the APX, as it is not realistic to expect bilateral contracts between customers that is customized to individual portfolios.
Use Cases:
- An income investor or long-term investor with a multi-asset class portfolio of stocks (for dividends) and bonds (coupon payment) may desire protection of the principal of her portfolio, while continuing to receive income. This investor may be willing to divert a portion of that income to purchase a protective long-term APX put contract or a digital option, that pays out to the investor if her portfolio's market value drops below a set price. Effectively, the income investor can utilize Adaptive Portfolio Contracts to create a stable-value portfolio with moderate or even high income.
- An active investor may have an aggressive portfolio consisting of small cap stocks, high yield bonds, or other not-so-liquid securities (particularly during crisis). Instead of reducing her risk exposure by forced selling during market downturns (and pay a liquidity premium), she may decide to retain the securities, while hedging the portfolio by buying a short term APX put option on her portfolio. Her portfolio will then be protected in the event that the market value of her portfolio drops below the strike price.
- A speculator may have some views of the future performance of an actively managed ETF, CEF, mutual funds (MF) or any portfolio where he has detailed information about its makeup. He might want to express his view on these portfolio by either long or short the portfolio, and may desire to use leverage to amplify his potential return. This speculator may want to purchase APX futures contracts, digital options, or standard call/put options on these portfolios (portfolio positions of ETFs are publicly available, and those of CEF and MF are available at a lag) by providing Adaptive the portfolio positions, and creating a contract underwritten by Adaptive.