Last updated: April 12, 2026

Risk Disclosures

1. Introduction

This document describes the material risks of using Navy, a platform that automates options collar strategies on high-yield stocks through Alpaca Securities LLC. By using Navy, you acknowledge that you have read and accept these risks. Navy does not provide investment advice. You pick the strategy, ticker, strike levels, and leverage. Navy executes.

2. Options Strategy Risk

Navy executes a collar options strategy: buy stock, sell a call option above current price, buy a put option below current price. Options involve substantial risk and are not suitable for all investors.

  • Short Call Risk. The sold call caps your upside at the call strike price. If the stock rises above the call strike, you forfeit the gain above that level.
  • Long Put Cost. The put premium is an ongoing cost. In quarters where the stock barely moves, the put expires worthless.
  • Roll Gap. Between closing the old collar and opening the new one, the position may be briefly unhedged.
  • Assignment Risk. Short calls may be assigned early if in-the-money before ex-dividend dates.
  • Expiration Risk. If not properly rolled, expiring options can leave you with unintended stock positions or cash.

3. Leverage Risk

Navy offers optional leverage up to 3× sourced from a USDC lending pool at 3–4%. Leverage amplifies both gains and losses.

  • Liquidation Thresholds. At LTV 90–95%, 30% of shares are sold and 80% of debt is repaid. Above 95%, full liquidation.
  • Loss Exposure. You may lose more than your initial deposit if the underlying drops sharply and the put floor is exceeded.
  • Interest Cost. Lending pool rates vary with USDC market rates. These costs reduce your net yield and may compress it materially in rising-rate environments.

4. Market Risk

  • Underlying Price Movement. The put floor caps downside but does not eliminate it. You can lose up to the put strike minus premiums received.
  • Volatility Risk. During vol spikes, put implied volatility may widen faster than call IV, making the collar expensive. Navy's VIX traffic light pauses new positions above VIX 25.
  • Dividend Risk. If the underlying cuts or eliminates its dividend, the collar economics change materially. Navy's auto-exit closes positions when net yield goes negative.

5. Execution and Slippage Risk

Real execution crosses the bid-ask spread. Backtests use mid prices and may overstate yield by 0.5–3% annually. During high volatility, spreads can widen significantly. Navy monitors spread costs and factors them into auto-exit logic.

6. Broker Risk (Alpaca)

Navy executes trades via Alpaca Securities LLC, a FINRA-regulated broker-dealer. Alpaca provides SIPC insurance up to $500,000 per account ($250,000 for cash). If Alpaca becomes insolvent or loses its regulatory standing, your access to the strategy may be interrupted.

7. USDC and Stablecoin Risk

Navy accepts USDC deposits. USDC is issued by Circle, a regulated US company. USDC may depeg from the US dollar under stress. Navy converts USDC to USD before trading through Alpaca, conversion is subject to a small spread.

8. Smart Contract Risk

Navy uses smart contracts on Ethereum to hold USDC collateral and route the lending pool. Smart contracts carry risk of bugs, exploits, or governance attacks. Navy contracts are pre-deployment and will undergo independent security audit(s) before mainnet launch.

9. Regulatory Risk

Navy is available to accredited investors under SEC Regulation D, Rule 506(c). Regulatory changes could affect product availability. Navy operates under the principle that we execute, we do not advise. If regulators determine that Navy is providing investment advice, the product structure may change.

10. Navy Does Not Advise

Navy provides infrastructure for executing an options collar strategy. You choose the strategy, ticker, strike levels, leverage, and auto-exit rules. Navy executes your chosen parameters. Navy does not recommend specific investments and is not a registered investment adviser.

11. Historical Performance

Yields shown are estimates based on backtesting with real option prices from Polygon (2020–2026). Past performance does not guarantee future results. In the worst quarter tested (2x leverage on ARCC), the strategy lost 3.5%. The 2020 COVID crash did not kill the strategy at 1.5x leverage but some positions would have been unprofitable at higher leverage.

12. Not a Complete List

This document does not describe all risks. Additional risks may apply. You should consult your own financial, tax, and legal advisors before using Navy. Do not invest more than you can afford to lose.