Mutual Fund Manages Risk with Covered Calls

May 16, 2001 ( - Glen Rauch Securities, Inc has introduced a new mutual fund that uses covered call options, to hedge against price volatility.

The Buy-Write Fund, an open-end, no-load mutual fund, takes a conservative approach, investing in high-quality companies, and adding additional income by writing call options on these stocks, otherwise known as a covered call option.

The call option contract gives buyers the option to purchase a specified number of securities at a specified price on a specified date in exchange for a fee. The fund generates income from the premiums received regardless of whether the purchaser exercises the option.

This strategy generates a premium that provides the portfolio with the potential of a greater return than would be realized on the underlying securities alone, while decreasing the volatility of the portfolio.