Who might need income?
Income doesn't have to be spent. Use the cash generated from the strategy to reinvest in growth assets such as shares or listed property.
Retirees may find themselves selling down equity in their portfolio if dividends are not sufficient to fund their retirement. Generating additional income can replace some or all of this shortfall.
A layer of enhancement
Use your portfolio to generate additional income
Our income strategies are best conceptualized as another layer over your portfolio. The income generated is in addition to dividends, and is typically extracted by selling S&P/ASX200 index options or individual equity options.
By limiting the upside gains of a portfolio by selling calls or committing to buy new shares when they appear cheap by selling puts, we are able to extract regular payments from the market when conditions are favourable.
The first step is choosing your underlying portfolio.Choose a portfolio
Choose your underlying portfolio
How does it work?
The strategy itself is quite simple. When the market appears expensive and is high in its range, we take a view (using S&P/ASX200 index options) that we are happy to cap our portfolio gains at a certain distance from today's price. When the market appears cheap, we do the opposite and take a view that we are happy to add to our portfolio and buy the market at a certain distance below today's price. We are paid a small premium each time we take a view and this becomes our income.
Over a decade of refinement has led to development of statistical probability models allowing us to identify ideal opportunities.
Why Index Options?
Given most clients hold a stock portfolio containing ASX 200 shares, index options are a cheaper alternative to multiple trades in individual equity options.
The ideal time frame is around 2 months, however often opportunities arise anywhere between 1 and 3 months.
An adviser will be able to handle the process from identifying opportunities, implementation and ongoing management.
Everything comes at a price; the strategies can either increase or decrease risk on the portfolio, depending on its structure.
Why use us for your strategy advice?
I already get dividends from my portfolio, how is this different?
If you hold direct shares, chances are you already produce an income via dividends. Our strategies are quite different to dividend income as they use the options market as a way to generate cash premium in exchange for taking a view on future market movements and do typically add risk to a portfolio.
What are the risks?
We use options to hedge market risk of your share portfolio. Note that the Options may fall in value or become worthless. Changes in the underlying share price may change the Option price, but the option price change may be in a different direction or magnitude.
Options have an expiry date and therefore a limited life. An Option's time value erodes over its life and this accelerates as an Option nears expiry which can be beneficial or negative depending on the strategy.
Leverage can lead to large losses as well as large gains. When investing in options, your initial outlay is small relative to the total contract exposure, a small market movement may have a larger impact on its value.
Option writers may face losses
Selling Options involves risk. If you sell and the position moves against you, you may lose more than any premium received. Where the position is naked, losses are potentially unlimited.
Calls for additional capital
If the market moves against you or margins increase you may have to provide additional funds at short notice. If you do not, your position may be closed and you will be liable for any resulting loss.