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.

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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