The Strategy – Foundation

“Effectively overcoming obstacles requires a smart strategy.”

You want a stable investment providing a solid return. The Foundation Premium Income Fund is focused on achieving these goals in the current investment landscape.

The Strategy Explained

An Opportunity

By utilizing options in addition to owning your stock, you as an investor create a more certain range of outcomes for your investment.

Hypothetical Option Premium Strategy

As you can see in the diagram below, the opportunity for a more appealing return is greater than with current standard bonds.

Source: Fidelity Investments as of September 9, 2020. Assumes call options are written approximately at-the-money with expiration as of September 17, 2021. Initial purchase amount rounded to nearest 100 shares.
Assumptions:

10,000 shares purchased at $100 per share
$3.60 per share annual dividend
100 call option contracts sold at $12.55 per share with a strike price of $100 per share and an expiration date of September 21, 2021
37 S&P 500 ETF (SPY) put option contracts purchased at $14.68 per share with a strike price of $270 per share and an expiration date of September 21, 2021. SPY trading near $337.50 at time of hedge purchase.

Result:

16.2% annualized yield on dividends plus net option income
-5.4% cost to hedge against a market decline of 20% or greater
10.7% net yield

An Opportunity

By utilizing options in addition to owning your stock, you as an investor create a more certain range of outcomes for your investment.

Hypothetical Option Premium Strategy

As you can see in the diagram below, the opportunity for a more appealing return is greater than with current standard bonds.

10,000 shares purchased at $100 per share
$3.60 per share annual dividend
100 call option contracts sold at $12.55 per share with a strike price of $100 per share and an expiration date of September 21, 2021
37 S&P 500 ETF (SPY) put option contracts purchased at $14.68 per share with a strike price of $270 per share and an expiration date of September 21, 2021. SPY trading near $337.50 at time of hedge purchase.

Result:

16.2% annualized yield on dividends plus net option income
-5.4% cost to hedge against a market decline of 20% or greater
10.7% net yield