Core-Satellite Theory

Core-Satellite Theory is traditionally known as an investment strategy that incorporates traditional Fixed Income and Equity based securities (i.e. index funds, ETFs, passive mutual funds, etc.) known as the “core” portion of the portfolio, with a percentage of selected individual securities in the Fixed Income and Equity based side of the portfolio known as the “satellite” portion. The Private Banker has made an adaptation of this definition and applied it to intra-day and swing trading. In this adaptation, the term “Core” refers to being the passively managed portion of a position that has an intended larger target while the “satellite” term reflects the actively managed portion of a position that is scaled in and out to add alpha while actively managing risk.

As example we can consider it as Active Risk/Position Management. This is achieved through adding and scaling out of a trading position throughout a move. The goal is to eliminate position risk by taking profit on part of a position while the market moves in the desired direction of the trade. By capturing profits, the core position is protected against the market failing to reach the desired target area and stopped out at a loss.