Covered Call Strategy Can Reduce Volatility for Pensions

November 27, 2013 ( - Horizons ETFs Management (USA) LLC launched the Horizons S&P Financial Select Sector Covered Call ETF.

By Rebecca Moore | November 27, 2013
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The exchange-traded fund (ETF) uses a covered call strategy designed to potentially generate additional income from the option-eligible stocks in the S&P Financial Select Sector Index. Horizons USA has an exclusive agreement with S&P Dow Jones Indices LLC to offer an ETF in the U.S. based on the Underlying Index.

The fund generally owns all the securities of the Reference Stock Index, in substantially similar weights to the index, and will sell or “write” covered call options on up to 100% of each of the individual option-eligible securities in the portfolio. A covered call is an options strategy whereby an investor holds a long position in an asset and sells or “writes” call options on that same asset in an attempt to generate more income (the additional income from option premium) than the asset would otherwise provide on its own from dividends or other distributions.

“U.S. stocks have been a great place to be invested over the last two years,” says Howard Atkinson, managing director of Horizons USA. “Some Investors may feel that now is a good time to be looking at more defensive strategies to preserve some of their returns. A covered call strategy can keep you invested in equities and potentially lower the volatility of returns of those equities while attempting to generate additional income, which can mitigate losses, during certain market conditions.”

Generally speaking, a covered call strategy would be used quite differently for a defined benefit plan than it would for a retail investor portfolio, Horizons ETFs told PLANSPONSOR.