A plain-language guide to the strategy Oaktower runs — what a credit spread is, why the premium exists, how we harvest it, and how it relates to the promissory notes we issue. The strategy is the return engine that funds the note coupon; it is not itself what you buy.
Investors hold a promissory note with a stated 18–24% coupon paid monthly. The issuer takes the note proceeds and sells options credit spreads with them, aiming to earn enough to cover the coupon and its costs. The coupon is contractual; the trading results that must fund it are not — that gap is the central risk, covered below and in the risk disclosures.
A credit spread is an options position with two legs: you sell one option and, at the same time, buy a further out-of-the-money option of the same type and expiration. You collect a net premium — a credit — and the option you bought caps your loss.
Buyers of options are, in effect, buying insurance against market moves — and they tend to overpay for it. Across history, the implied volatility priced into options has, on average, exceeded the realized volatility that actually occurs. That persistent gap is the volatility risk premium. By selling spreads, Oaktower is paid that premium for taking the other side of the market’s demand for protection.
Selling options on their own (“naked”) exposes a seller to very large, even unlimited, losses. We never do that. Because every spread includes a long option as a protective wing, the maximum loss per position is fixed and known before we enter: it is the width between the two strikes, minus the premium we received.
| Instrument | Defined-risk options credit spreads |
| Underlyings | Liquid index options with daily (0DTE) expirations* |
| Tenor | 0DTE — same-day expiration* |
| Strike selection | Far out-of-the-money, low delta (high probability of profit)* |
| Overnight risk | None — positions open and expire the same session |
| Max profit / trade | The net premium collected |
| Max loss / trade | Strike width − premium (defined) |
| Edge sought | Implied volatility > realized volatility over time |
| Eligibility | Verified accredited investors only (Rule 506(c)) |
*Representative parameters for illustration. Actual positioning is set out solely in the note offering documents, which control.
Major index options now expire every trading day, which lets us run the strategy as a same-day cycle: we open far out-of-the-money spreads and they expire hours later. Two things follow. First, we hold no overnight risk — no gaps, no weekend or after-hours events sitting on the book. Second, we can select low-delta strikes far from the current price, so most spreads have a high probability of finishing worthless.
The trade-off is honest and important: far-OTM premiums are small relative to the spread's capped maximum loss, and 0DTE positions carry high gamma near expiration — their risk changes fast as the underlying moves late in the day. A sudden intraday move can take a comfortable, far-OTM spread to its full loss in minutes. High probability of profit is not the same as low risk.
Premium-selling has a distinctive return shape: frequent small gains and occasional larger losses. Far-OTM selection makes the wins frequent but small, while the capped loss is several times any single premium — so one bad day can erase many good ones. With 0DTE, high gamma near expiration means that risk arrives fast: a spread can move from safely out-of-the-money to full loss within the session. This “negative skew” is inherent to the strategy, not a flaw to be engineered away.