Interview with Catalyst Funds Portfolio Manager Gerry Black

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Catalyst Funds

Q&As and Interviews

Interview with Catalyst Funds Portfolio Manager Gerry Black

Shauna O'Brien Feb 03, 2015

Insights from Gerry Black

Gerry Black: Writing or selling options is a strategy called “premium selling”. It’s basically taking in a premium and profiting from options that expire worthless. It’s said that 80% of all options are repurchased for less than they are sold or expire worthless, so the probability of making a profit is in our favor. The best market for this type of strategy is one that is more stable. In our case, we use fundamental and technical analysis to anticipate trading ranges over a short period of time (normally 30 days or less). This enables us to trade mean reverting events within those parameters. A volatile market can widen the bands of profitability. While a highly volatile market or a very low volatile market can be profitable, it is the velocity of the change in volatility that present the most challenging environment. The fund also invests in cash and cash equivalents, including high-quality short-term fixed income securities such as U.S. Treasury securities. How does the low interest rate environment play into the fund’s strategy?

Gerry Black: In this low interest rate environment, investing in U.S. Treasury securities is very infrequent, and not significant as part of our overall profitability at this point. Although changes in interest rates are a factor in valuing options, analysis of the direction of interest rates isn’t an integral part of our strategy. The fund can also explore other futures markets such as agricultural products, metals, and currencies. What are the strategies around those investment vehicles?

Gerry Black: The option strategies we employ are applicable to most commodities, including the ones mentioned. Although the great majority of what we do in the fund deals with options on S&P 500 Index futures our analysis and strategies are equally applicable to other futures markets. Can you delve into some of your professional experience and how that will come to benefit investors in the fund?

Gerry Black: Jeff Dean and I have actually been trading together for over 19 years, refining the strategies that we employ in the fund today. I am the President of James I Black & Co, our affiliate broker dealer, and commodities and options are a large part of what the firm was built on. Jeff is a former accountant and tax attorney with a passion for trading, and has been devoting full time co- managing ITB’s commodity pools and individual accounts for the past 9 years. For those who may not know how the birth of a new mutual fund takes shape, can you give us some insight as to the planning and preparation that goes into the process?

Gerry Black: We were introduced to Catalyst by an independent introducing broker out of Chicago. He believed that our history and performance would provide a great vehicle to market to individuals that couldn’t afford our normal $5mm minimum investment. It was an arduous process – it took nine months of due diligence from Catalyst, which included hours of coordination between our legal, accounting and administrative entities. We launched the fund just last month. What are the main themes investors should pay attention to as we head into 2015?

Gerry Black: Because our average length of trade is normally 14 days, we are continually monitoring macro and micro events that effect our economy and our markets, but most importantly what will affect the S&P 500 Index over the near term. Consequently, long term trends are not as important as near term events. While most anticipate that 2015 will be a much more volatile market going forward, we welcome such expansion of volatility and its resultant impact on the bands or probability that factor into our analysis. Managing the velocity of volatility will be the challenge in 2015.

The Bottom Line

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.

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