Automated portfolio management system with internet datafeed

• US 6,064,985 A
• Filed: 01/21/1998
• Issued: 05/16/2000
• Est. Priority Date: 01/21/1998
• Status: Expired due to Fees

• Current Assignee: Assured Equities Incorporated
• Original Assignee: Assured Equities Incorporated
• Inventors: Anderson, Leroy E.
• Primary Examiner(s): MacDonald, Allen R.
• Assistant Examiner(s): MEINECKE DIAZ, SUSANNA M
• Application Number:
  US09/010,419
• Time in Patent Office: 846 Days
• Field of Search: 705/36
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

An automated portfolio management system and method which manages data in a database, and populates the database with data from a data feed off the Internet. The system utilizes double leveraging of funds and purchased index puts as insurance against market downturns, to generate a guaranteed high yield. The double leveraging is accomplished by selling covered calls and using a formula to determine the maximum amount to borrow against the portfolio, and using income from both sources to purchase additional stock. The high yield from the portfolio is protected from market downturns by index puts.

Claims

1. An automated method of managing an investment portfolio which contains shares of stock purchased at various stock prices based on an index, and managed by an automated data processing system, comprising:

linking said automated manager by a data link to current stock information;

selecting an index which contains selected stocks in a ratio, against which to mirror a stock portfolio;

establishing portfolio parameters for need for and level of insurance protection, and mix of strike dates of options sold;

purchasing stock which is listed on said index to form an investment portfolio which is representative of said index;

selling covered calls on said stock in said stock portfolio to receive a premium;

using said premium from said covered calls to purchase additional stock, and selling covered calls on said additional stock to receive a premium;

using a means of determining an at-risk value of said portfolio which is to be insured from loss by a purchase of puts;

using a means of determining an amount of insurance to be purchased to insure said at-risk value of said portfolio against loss;

purchasing index puts which if exercised will be worth at least said at-risk value plus a safety factor, as insurance against a decrease in stock prices;

using a means of determining a maximum amount to be borrowed against said portfolio which is performed by calculating a formula

space="preserve" listing-type="equation">(E-S)(1.00-D)(0.5)+(0.90G)-I=Maximum Amount of Borrowing

where E equals long market value of portfolio less U.S.

Government securities;

S equals short market value of securities;

D equals percent of market theoretical drop possible under extreme conditions expressed as a decimal;

G equals total value of U.S. Government Securities; and

I equals the value of index puts in the portfolio

borrowing a maximum amount against said stock portfolio by purchasing stock on margin and selling covered calls on said stock purchased on margin; and

adjusting said at-risk value and amount of insurance to be purchased to account for additional stock purchased on margin; and

periodically monitoring said portfolio for compliance with portfolio parameters.

2. The method of managing an investment portfolio of claim 1 which further comprises purchasing each stock of said selected index in a ratio equal to its representation in said index.

3. The method of managing an investing portfolio of claim 1 which further comprises selling covered calls in which 1/3 of said covered calls have strike dates of six months or less, 1/3 of said covered calls have strike dates of greater than six months and less than 12 months, and 1/3 of said covered calls are LEAPS, with strike dates of 12 months or longer.

4. The method of managing an investment portfolio of claim 1 which further comprises periodically calculating an annualized yield on positions of currently held options as well as stepped up and rolled out positions on currently held options, and selecting among currently held options, stepped up, or rolled out positions, for a position of highest annualized yield.

5. The method of managing an investment portfolio of claim 1 in which said means of determining said at risk value of said stock portfolio is performed by adding purchase price of each stock plus commissions to a value representing all puts sold, and deducting an amount representing premiums received.

6. The method of managing an investment portfolio of claim 1 in which said means of determining an amount and strike price of insurance to be purchased, in the form of index put options, against a decrease is performed by calculating the formulas

7. The method of managing an investment portfolio of claim 1 which further comprises periodically calculating a time value for each option in said portfolio, and a cumulative time value.

8. A method of managing an investment portfolio which contains shares of stock purchased at various stock prices based on an index, and managed by an automated manager, comprising:

linking said automated manager by a data link to current stock information;

selecting an index which contains selected stocks in a ratio, against which to mirror a stock portfolio;

establishing portfolio parameters for need for and level of insurance protection, and mix of strike dates of options sold;

purchasing stock which is listed on said index to form an investment portfolio which is representative of said index;

selling covered calls on said stock in said stock portfolio to receive a premium;

using a means of determining an at-risk value of said portfolio which is to be insured from loss by a purchase of index puts;

using a means of determining an amount of insurance to be purchased to insure said at-risk value of said portfolio against loss;

using said premium from said covered calls to purchase additional stock, and selling covered calls on said additional stock to receive a premium;

using a means of determining a maximum amount to be borrowed against said portfolio;

borrowing said maximum amount against said stock portfolio by purchasing stock on margin and selling covered calls on said stock purchased on margin;

adjusting said at-risk value and amount of insurance to be purchased to account for additional stock purchased on margin;

purchasing index puts which if exercised will be worth at least said at-risk value plus a safety factor, as insurance against a decrease in stock prices;

periodically calculating an annualized yield on positions of currently held options as well as stepped-up and rolled-out option positions on currently held options;

selecting among currently held options, stepped-up, or rolled-out option positions, for a position of highest annualized yield; and

periodically monitoring said portfolio for compliance with portfolio parameters.

9. A method of managing an investment portfolio which contains shares of stock purchased at various stock prices based on an index, and managed by an automated manager, comprising:

linking said automated manager by a data link to current stock information;

selecting an index which contains selected stocks in a ratio, against which to mirror a stock portfolio;

establishing portfolio parameters for need for and level of insurance protection, and mix of strike dates of options sold;

establishing stock parameters for selected criteria, such as performance criteria, yield criteria, risk criteria, history criteria, growth history, and sector of operation;

generating a performance comparison of a number of stocks using a means of selection, the performance comparison to contain a first list of stock which meets said parameters, a second list of stock which comprises stocks which are in said portfolio, but no longer meet said portfolio or stock parameters, and a third list of valuable and over-priced stock which would be desirable to own at a lower price, the performance comparison to include the highest price at which said valuable and over-priced stock should be purchased;

purchasing shares of stock from said first list for inclusion in said stock portfolio, in a ratio which is representative of said stocks in said index.

selling stocks from said second list of stocks which are in said stock portfolio, but which no longer meet said parameters;

selling naked puts on valuable and over-priced stock from said third list;

selling covered calls on said stock in said stock portfolio to receive a premium

using a means of determining an at-risk value of said portfolio which is to be insured from loss by a purchase of puts;

using a means of determining an amount of insurance to be purchased to insure said at-risk value of said portfolio against loss;

purchasing index puts, if indicated, which, if exercised, will be worth at least said at-risk value plus a safety factor, as insurance against a decrease in stock prices; and

periodically monitoring said portfolio and stock for compliance with portfolio and stock parameters.

10. The method of managing an investment portfolio of claim 9 in which said means of selection is a relevance factor, which is a safety factor plus a timeliness factor divided into a weighting factor, with an annualized yield for each stock.

11. The method of managing an investment portfolio of claim 9 which further comprises using said premium from said covered calls to purchase additional stock, and selling covered calls on said additional stock to receive a premium.

12. The method of managing an investment portfolio of claim 9 which further comprises using a means of determining a maximum amount to be borrowed against said portfolio;

borrowing a maximum amount against said stock portfolio by purchasing stock on margin and selling covered calls on said stock purchased on margin; and

adjusting said at-risk value and amount of insurance to be purchased to account for additional stock purchased on margin.

13. The method of managing an investment portfolio of claim 12 in which said means of determining a maximum amount to be borrowed against said portfolio is performed by calculating a formula

14. The method of managing an investment portfolio of claim 9 which further comprises purchasing each stock of said selected index in a ratio equal to its representation in said index.

15. The method of managing an investing portfolio of claim 9 which further comprises selling covered calls in which 1/3 of said covered calls have strike dates of six months or less, 1/3 of said covered calls have strike dates of greater than six months to less than 12 months, and 1/3 of said covered calls are LEAPS with strike dates of 12 months or more.

16. The method of managing an investment portfolio of claim 9 which further comprises calculating an annualized yield on positions of currently held options as well as stepped-up and rolled-out positions on currently held options, and selecting among currently held options, stepped up, or rolled out positions, for a position of highest annualized yield.

17. The method of managing an investment portfolio of claim 9 in which said means of determining said at risk value of said stock portfolio is performed by adding purchase price of each stock plus commissions to a value representing all puts sold, and deducting an amount representing premiums received.

18. The method of managing an investment portfolio of claim 9 in which said means of determining an amount of insurance to be purchased against a decrease is performed by calculating the total at-risk value and purchasing long term index puts greater than or equal to said at-risk value.

19. The method of managing an investment portfolio of claim 9 which further comprises periodically calculating a time value for each option in said portfolio, and a cumulative time value.

20. A method of managing an investment portfolio which contains shares of stock purchased at various stock prices based on an index, and managed by an automated manager, comprising:

linking said automated manager by a data link to current stock information;

selecting an index which contains selected stocks in a ratio, against which to mirror a stock portfolio;

generating a performance comparison of a number of stocks using a means of selection, the performance comparison to contain a first list of stock which meets said parameters, a second list of stock which comprises stocks which are in said portfolio but no longer meet said parameters, and a third list of valuable and overpriced stock which would be desirable to own at a lower price, the performance comparison to include at what price said valuable and overpriced stock should be purchased;

purchasing shares of stock from said first list for inclusion in said stock portfolio, in a ratio which is representative of said stocks in said index;

selling stocks from said second list of stocks which are in said stock portfolio but which no longer meet said parameters;

selling naked puts on valuable and overpriced stock from said third list and using premium to purchase additional stock;

selling covered calls on said stock in said stock portfolio to receive a premium;

using a means of determining an at risk value of said portfolio which is to be insured from loss by a purchase of puts;

using a means of determining an amount of insurance to be purchased to insure said at risk value of said portfolio against loss;

using said premium from said covered calls to purchase additional stock, and selling covered calls on said additional stock to receive a premium;

using a means of determining a maximum amount to be borrowed against said portfolio;

borrowing said maximum amount against said stock portfolio by purchasing stock on margin and selling covered calls on said stock purchased on margin;

adjusting said at risk value and amount of insurance to be purchased to account for additional stock purchased on margin;

purchasing puts which if exercised will be worth at least said at risk value plus a safety factor, as insurance against a decrease in stock prices;

periodically calculating an annualized yield on positions of currently held options as well as stepped up and rolled out option positions on currently held options;

selecting among currently held options, stepped up, or rolled out option positions, for a position of highest annualized yield; and

periodically monitoring said portfolio for compliance with parameters.

21. A data processing system for managing an investment portfolio which contains shares of stock purchased at various stock prices, comprising:

computer processor means for processing data;

data storage means for storing data on a storage medium;

means for inputting of stock data to said data storage means;

means for selecting portfolio parameters for determining need for and level of insurance protection in the form of index puts, and mix of strike dates of options sold;

a portfolio manager which purchases stock for inclusion in said stock portfolio, sells covered calls on said stock in said stock portfolio to receive a premium, borrows at a maximum amount against said stock portfolio by purchasing stock on margin and selling covered calls on said stock purchased on margin, adjusts said at-risk value and amount of insurance to be purchased to account for additional stock purchased on margin, and purchases index puts as insurance and collects dividends;

a means of determining an at-risk value of said portfolio which is to be insured from loss by a purchase of puts;

a means of determining if market conditions require the purchase of index puts as insurance against a fall in market price of the portfolio stocks;

a means of determining an amount of insurance to be purchased to insure said at-risk value of said portfolio against loss;

a means of determining a maximum amount to be borrowed against said portfolio;

a group of purchased index puts which are purchased based on said amount of insurance needed to insure said at-risk value of said portfolio, which if exercised if the value of portfolio stocks is sufficiently depressed, will be worth said at-risk value plus a safety factor, as insurance against a decrease in stock prices;

a means for periodically monitoring said portfolio for compliance with portfolio parameters; and

a means for generating a performance comparison of a number of stocks, based on a safety factor, a timeliness factor, a weighted percentage each stock represents in said index, and yield of said stock and options on said stock, the performance comparison to contain a first list of stock which meets said parameters, a second list of stock which comprises stocks which are in said portfolio but no longer meet said parameters, and a third list of valuable stock which would be desirable to own if its price were lower than the market price, the performance comparison also to include a maximum price at which said valuable stock should be purchased.

22. The data processing system for managing an investment portfolio of claim 21 in which said means of determining said at risk value of said stock portfolio is a formula

23. The data processing system for managing an investment portfolio of claim 21 in which said means of determining an amount and the strike date of index puts to be purchased as insurance against a decrease in market price is performed by calculating the formulas

24. The data processing system for managing an investment portfolio of claim 21 in which said means of determining a maximum amount to be borrowed against said portfolio is performed by calculating a formula;

space="preserve" listing-type="equation">[(E-S)+PV]×

0.5×

(1.00-D)+0.90G-I,

where E equals long term market value of portfolio less U.S. Government securities;

S equals short market value of securities;

D equals percent of market theoretical drop possible under extreme conditions expressed as a decimal;

G equals total value of U.S. Government Securities;

I equals cost of insurance needed to protect said portfolio;

PV=Total underlying value of puts.

25. The data processing system for managing an investment portfolio of claim 21 in which said means of determining if market conditions require the purchase of index puts as insurance is a test which determines if a PE of the Dow Jones Industrial Average is greater than 13 and Dividend Yield is less than 4.00%, and requires purchase of index puts if these conditions are true.

26. The method of managing an investment portfolio of claim 21 which further comprises periodically calculating a time value for each option in said portfolio, and a cumulative time value.

27. A method of managing an investment portfolio which contains shares of stock purchased at various stock prices based on an index, and managed by an automated manager, comprising:

linking said automated manager by data link to current stock information;

selecting an index which contains selected stocks in a ratio, against which to mirror a stock portfolio;

establishing portfolio parameters for need for and level of insurance protection, and mix of strike dates of options sold;

generating a performance comparison of a number of stocks using a means of selection, the performance comparison to contain a first list of stock which meets said parameters, and a second list of stock which comprises stocks which are in said portfolio, but no longer meet said portfolio parameters;

purchasing shares of stock from said first list for inclusion in said stock portfolio, in a ratio which is representative of said stocks in said index;

selling stocks from said second list of stocks which are in said stock portfolio, but which no longer meet said parameters;

selling covered calls on said stock in said stock portfolio to receive a premium;

using a means of determining an at-risk value of said portfolio which is to be insured from loss by a purchase of puts;

using a means of determining an amount of insurance to be purchased to insure said at-risk value of said portfolio against loss;

purchasing index puts if indicated which, if exercised, will be worth at least said at-risk value plus a safety factor, as insurance against a decrease in stock prices; and

periodically monitoring said portfolio for compliance with portfolio parameters.

28. The method of managing an investment portfolio of claim 27 which further includes generating a performance comparison which includes a third list of valuable and over-priced stock which would be desirable to own at a lower cost, the performance comparison to include the highest price at which said valuable and over priced stock should be purchased;

selling naked puts on valuable and over-priced stock from said third list; and

using a premium from said selling to naked puts to purchase additional stock, and for selling covered calls.

29. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data;

data display means for displaying data;

a portfolio of stocks which represents a selected stock index, and which has an at risk value;

a portfolio of options sold on said stocks;

a means of determining an amount of insurance to be purchased to insure said at risk value of said portfolio against loss;

one or more index puts which insure said portfolio against a possibility of loss of value to a degree approximately equal to said at risk value; and

a means of specifying selected strike prices and strike dates corresponding to currently held options in said portfolio, and automatically and periodically calculating an annualized yield on positions of currently held options and comparing said annualized yield with yields of said selected stepped up and rolled out positions, and allowing a user to select a preferred position from among said compared positions.

30. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data; and

data display means for displaying data;

a portfolio of stocks and options;

a means of determining an amount and strike price of insurance to be purchased, in the form of index put options, against a decrease in value of said portfolio which is performed by calculating the formulas

space="preserve" listing-type="equation">AMV(1.00+SC)=strike price to buy index put option;

space="preserve" listing-type="equation">(A-P)(1.00+S)=value of index put to buy;

where A equals total value of all equities valued at a strike price;

AMV equals an "at the money" equals the current value of the chosen index;

S equals a first safety factor to cover a price increase of a limited number of stocks inconsistent with or faster than a stock index;

SC equals a second safety factor to cover a price decrease of a limited number of stocks insistent with or occurring more rapidly than said stock index; and

P=total premiums received from sale of options.

31. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data; and

data display means for displaying data;

a portfolio of stocks and options purchased with cash and on margin;

a means of determining a maximum amount to be borrowed against said portfolio on margin is performed by calculating a formula

space="preserve" listing-type="equation">[(E-S)+PV]×

0.5×

(1.00-D)+0.90G-I=Maximum Amount of Borrowing Allowed

where E equals long term market value of portfolio less U.S. Government securities;

S equals short market value of securities;

D equals percent of market theoretical drop possible under extreme conditions expressed as a decimal;

G equals total value of U.S. Government Securities;

I equals cost of insurance needed to protect said portfolio; and

PV=Total underlying value of puts.

32. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data; and

data display means for displaying data;

a portfolio of stocks and options purchased with cash and on margin; and

a means of selection of stock for said portfolio which comprises a relevance factor, which is a safety factor plus a timeliness factor divided into a weighting factor, combined with an annualized yield for each stock.

33. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data; and

data display means for displaying data;

a portfolio of stocks and options purchased with cash and on margin;

index puts purchased as insurance against loss of value in said portfolio;

a means of determining an amount and the strike date of index puts to be purchased as insurance against a decrease in market price which is performed by calculating the formulas

space="preserve" listing-type="equation">AMV(1.00+SC)=strike price to buy index put option;

space="preserve" listing-type="equation">(A-P)(1.00+S)=value of index put to buy;

where A equals total value of all equities valued at a strike price;

AMV equals an "at the money" current value of the chosen index;

S equals a first safety factor to cover a price increase of a limited number of stocks inconsistent with or faster than a stock index;

SC equals a second safety factor to cover a price decrease of a limited number of stocks insistent with or occurring more rapidly than said stock index; and

P=total premiums received from sale of options.

34. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

data storage means for storing database data; and

data display means for displaying data;

a portfolio of stocks and options purchased with cash and on margin;

a means of determining a maximum amount to be borrowed against said portfolio is performed by calculating a formula

space="preserve" listing-type="equation">[(E-S)+PV]×

0.5×

(1.00-D)+0.90G-I,

where E equals long term market value of portfolio less U.S. Government securities;

S equals short market value of securities;

D equals percent of market theoretical drop possible under extreme conditions expressed as a decimal;

G equals total value of U.S. Government Securities;

I equals cost of insurance needed to protect said portfolio; and

PV=Total underlying value of puts.

35. An automated portfolio management system comprising:

a computer for processing data;

a database which operates on said computer, for the manipulation and storage of data;

a means of populating said database with data from a network or Internet;

a portfolio containing stocks and options;

a means of periodically calculating the remaining time value of each position in said portfolio and a total time value of said portfolio;

a means of specifying selected strike prices and strike dates corresponding to currently held options in said portfolio and automatically and periodically calculating an annualized time value and yield based on time value only and comparing annualized yield on positions of currently held options and comparing said annualized yield with yields of selected stepped up or rolled out positions and allowing a user to select a preferred position from among said compared positions;

data storage means for storing database data; and

data display means for displaying data.