So, in your example, they would:
Short SPY 2016-01-15 call option with strike price at $235.00
Long SPY 2016-01-15 call option with strike price at $210.00
Short SPY 2016-01-15 put option with strike price at $178.00
The net cost of that (including commissions) would be $516.24
They'd also retain cash of $21,000
If the price ended above $235, you would exercise your option to Buy @ $210 (using the $21k cash), but would be forced to Sell @ $235, so you'd end up making a profit of $25 per share (i.e. $25,000 in total).
If the price ended below $178, you would be forced to Buy @ $178 (using $17,800 of your $21,000) and you would then sell at the market price, losing up to $178 per share. You'd also get back the unused $3,200 cash.
If the price ended between $178 and $210, you wouldn't do anything, nobody would exercise the options you'd sold them and you'd get back $21,000 in cash.
If the price ended between $210 and $235, you would exercise your option to Buy @ $210, and you would then sell at the market price, so you'd end up with somewhere between $21,000 and $25,000.
Looks like they only make money on asset management fees and also commission fees; not on the spread of the option positions.
I think how they manage their risk is buy buying a covered call and put for their customers on the open market:
e.g.,
To replicate their SPY hedging strategy by Jan 15th 2016 here: https://www.vestfin.com/build-strategy/?symbol=SPY&preown=fa...
SPY is trading at 209.93;
"Select how much upside gain you are willing to cap at (235)", so sell a covered call at 235 that expires by 1/15/16; current options market: $0.04 credit
"Select how much downside risk you are willing to lose to (178)", so buy a put at 178 that expires by 1/15/16; current options market: $2.02 debit
Cost basis to implement via open market: $1.98/share
Cost basis to implement via Vest: $5.11/share
So their profit margin should be: $3.13/share or ~$300/option contract (account $13 for their commission and margin fees); now add their 0.5% management fee for the dollar value of this 100-lot SPY position (21504*0.005) or $107.52.
So the total profit they make per 1 SPY option contract is: $407.52!
And their active management involves only and only buying and selling these two option positions at the get-go!
If so, this is a pretty good business to get into!
Can someone else enlighten me if I did the math wrong here or I'm missing something here that I didn't account for their active management?