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The Written Fund A Covered Option Writing Fund
An Equity based UCITS Fund with a difference. It uses options to redefine the Risk/Reward profile of the Fund's investments, in pursuit of more predictable returns.
Bruce has over 35 years’ experience in the Investment Management industry; specialising in the use of options as part of portfolio management for the last 30 years.
His career: Tilney in Liverpool, establishing Options Direct (ODL) and then 17 years building the derivatives department of Investec Wealth & Investment.
Bruce is a leading authority on Options and has managed equity portfolios incorporating options for institutions, pension funds, charities, regulated collectives and HNW private clients.
Simon Abel - Head of Research
Simon has 24 years’ experience in and around the listed equity markets in a variety of roles including: sales trading, equity sales, hedge fund sales and derivative sales. He has spent many years studying market cycles and finds that options are an excellent way to “time manage” one’s investments through the peaks and troughs for any financial instrument.
Former employers include Morgan Stanley, Nomura, and Monument Securities, where he developed a proprietary semi-quant economic model for investment target selection. Simon heads our research processes for the Proprietary Screening model and investment selection.
Options are highly versatile investment products and are often deemed to be high risk. However, it is not the options themselves that are risky but the way in which they are used. When carefully combined with equities, they can provide a way of reducing risk while increasing the probability of an acceptable return.
The Written Fund is an equity based fund with the objective of creating medium to long-term capital appreciation. To do this, The Fund will invest in an evolving portfolio of exposure to up to 40 predominantly large capitalisation stocks quoted in the UK, Europe and the US.
In this respect, the fund is very similar to many other equity funds. But where this fund differs is that we will wholly adopt an active option writing strategy over the entire portfolio, exploiting the risk defining opportunities that options provide and creating a different risk/reward profile to each of the underlying investments.
The Written Fund predominantly uses 2 option writing strategies. Covered Call Writing and Put Writing. Both strategies sacrifice some of the unlimited upside potential of holding equities in return for a cash payment now, which provides an element of downside protection. Thus, for the Fund, Risk and Reward become a matter of choice: The Fund Manager can choose how much or how little of the upside to participate in. The more potential return, the less downside protection and vica verca.
Using options in this way, in a diversified portfolio of equities, helps to increase the probability of a more predictable return overall.
Covered Call Writing
Covered Call option writing involves buying or owning shares and simultaneously selling or writing call options. By selling the calls, the writer assumes the obligation of selling the shares owned at a fixed price between now and the expiry date. In return, the writer receives a cash payment now as compensation for foregoing the unlimited potential upside of owning shares.
By taking into account the cash payment received, it is possible to calculate in advance the range of potential returns, arguably exchanging the opportunity of unlimited gains for a more scientific, predictable return.
Capping the upside doesn’t sound very exciting but it is all a matter of perspective. If the manager can achieve the desired return on capital, whilst reducing the breakeven point of the trade, and thus the downside risk, then better risk adjusted returns are achieved.
It's all about the maths.
Put Writing involves holding cash and simultaneously selling individual put options. The writer of the option receives a cash payment up front for assuming the obligation to buy the underlying shares at a fixed price on or before the expiry date. The potential return is limited to the premium received.
For the Fund, which is prepared to take on equity risk for a defined return, this is a way of being “paid to wait” to buy shares at the right price.
The Written Fund is available to a wide range of investors both Retail and Professional and is eligible for investment in ISAs SIPPs and SASSs on a growing list of platforms. It is also possible to apply directly using the Application Form.