Lecture Notes on Conversation with Jay Petrelli of Yield Max Funds

Introduction

• Jay Petrelli introduces himself as the CEO of ZEGA Financial.
  • ZEGA acts as a sub-advisor on Yield Max and Defiance funds.
  • The role involves executing strategies and trading on the funds, focusing on option trading.
• The sub-advisor executes trades, not algorithms, but actual people following set rules.

Structure and Roles

• Advisor Role: The advisor, Title Trust, sets the strategy and hires sub-advisors like ZEGA.
  • Title Trust manages aspects like hiring accountants, auditors, and lawyers.
  • They collaborate to create strategies, such as using options to generate premiums.

Trading and Strategy

• Funds are not templates; strategies adjust based on stock specifics (e.g., Tesla vs. Amazon).
  • Tesla's volatility makes covered call strategies difficult.
  • Adjusting strategies for stock volatility involves managing potential stock pops.

Fund Performance and Challenges

• The community views these funds as momentum plays, needing the right timing.
  • Concerns about covered call funds limiting upside potential.
• Long-term strategies often face challenges with stock volatility and missed earnings.

Community Perception and Feedback

• Concerns about dividend payouts and perceived performance issues.
  • Dividends viewed as punitive rather than rewarding due to market conditions.
• Discussions about capital erosion and expectations of fund performance.

Options Trading Insights

• Jay discusses the book "Buying Hedge" focusing on downside protection and managing volatility.
  • The book does not cover premiums extensively.
• Jay emphasizes option income as a reward despite underlying stock performance.

Reverse Splits and Fund Management

• Reverse splits viewed negatively by the community, seen as a failure of fund management.
  • Aimed at preventing delisting and maintaining trading accessibility.
• Discussion on the impact of reverse splits on dividend payouts and share values.

Fund Strategy Adjustments

• Introducing covered call spreads as a strategy to maintain NAV and enhance payouts.
  • Changes in prospectus to allow more flexible trading strategies.

AI and Analysis

• Use of AI (notably CHAT GPT) to screen stocks and avoid landmines.
  • AI does not pick stocks, only aids in screening.

Community Concerns and Suggestions

• Calls for yield max to avoid reverse splits due to their negative perception.
  • Suggestions for hybrid strategies focusing on both yield and NAV maintenance.
• Discussions on potential changes in fund management and strategy to improve investor confidence.

Conclusion

• Jay expresses willingness to return for future discussions.
  • Acknowledges community concerns about reverse splits and NAV erosion.
• Emphasis on evolving fund strategies and management to meet community expectations.