That the foregoing description of the investment strategy was what was told me is evidenced by contemporaneous notes -- which I still have -- of the meeting with DiPascali on April 3, 1995 -- the meeting with the number two man to a highly respected Wall Street figure. The notes of the meeting say:
"The program will work as follows: I will be long 30 to 40 S&P 100 securities. The portfolio is configured so there is a perfect correlation with the S&P 100 index. It is hedged using index options. So if market goes up and you are in a short position on options, it causes the long assets you own to go up."So you are long a basket of securities -- our core assets -- you have hedges. In a volatile market, you’ll do very well. In an even market or a down market, you’ll do okay.
"Your long position is protected against going down by being long on puts on the index. Flip side is you have short calls so there will not be unending appreciation.
"They are looking to hit lots of singles. It’s a leveraging type of game. If net goes up 10% you make 1 or 1.5%, while you are protected against losses on downside.
"Results vary from month to month -- some months you make zero, some 2%. The goal is to do twice the long term Treasury bill rate. So the goal now is about 15%. Last year just made it. Other years exceeded it. Doesn’t feel will exceed it now because more people (competitors) are doing it and this limits what you can squeeze out."
So the split-strike conversion strategy was what was described to me as Madoff investment strategy, was a system that made a lot of sense to me, was what I invested in, and was all I intended to invest in.*
TO BE CONTINUED.
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* This posting represents the personal views of Lawrence R. Velvel. If you wish to comment on the post, on the general topic of the post, or on the comments of others, you can, if you wish, post your comment on my website, VelvelOnNationalAffairs.com. All comments, of course, represent the views of their writers, not the views of Lawrence R. Velvel or of the Massachusetts School of Law. If you wish your comment to remain private, you can email me at Velvel@VelvelOnNationalAffairs.com.
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