Call-writing strategy has the potential to enhance cash flow in down, flat and moderately rising markets, while attempting to maintain equity exposure in strongly appreciating markets
Overview
Franklin Managed Options Strategies offer investors access to specialized, risk-managed investment capabilities. Investors can implement custom options solutions to complement and enhance their existing portfolios and to reshape their portfolio's risk vs. return profile.
Strategies are available as overlays of investor-owned assets in separately managed accounts or as part of a Franklin Templeton managed integrated solution. Depending on the investor's goals and objectives, the option capabilities may be applicable to either concentrated equity positions or diversified equity portfolios (financial advisor managed or commingled funds across a wide range of investment vehicles).
What are options strategies?
Benefits
Strategies attempt to maintain upside equity exposure, while:
Generating incremental cash flow
Managing downside risk
Risk-managed equity strategy has the potential to help manage portfolio downside (and benchmark beta) while maintaining portfolio upside participation (and manager alpha)
Reducing risk to portfolio beta and concentrated positions
Call writing has the potential to reduce portfolio volatility; risk managed equity also has the potential to reduce volatility and provide downside risk management
A unique and innovative approach to managed options investing
| A risk, return and diversification solution | Throughout market cycles, options overlay strategies have the potential to enhance cash flow or mitigate downside risk while maintaining upside performance. |
| Rigorous, rules based approach | Strategies adhere to a transparent, rules-based investment process, designed with strict guardrails to attempt to deliver total return and manage risk through minimizing |the effect of directional movements in an underlying security. |
| Deep industry experience | Over 30 years of option experience, having helped create today’s “risk-managed” options asset management business, along with designing and implementing industry leading research, technology and strategies. |
Featured investment capabilities
| Equity call selling | Index call selling | Hedged Equity |
"We believe holders of equity, whether concentrated or diversified positions, are inherently owners of equity volatility. Managed option investing has the potential to monetize that volatility in the form of excess cash flow and attractive risk-adjusted total return.
Pioneers in managed options investing
The Franklin Managed Options Strategies team has over 30 years of options investing experience. As pioneers in the “risk-managed” options asset management business, the team also has a strong reputation for working seamlessly with client’s existing custodians such as trust banks, investment advisors, and broker dealers.
Jon Orseck
Senior Vice President, Co-Chief Investment Officer, Portfolio Manager, Franklin Managed Options Strategies
Brad Berggren
Senior Vice President, Co-Chief Investment Officer, Portfolio Manager Franklin Managed Options Strategies
Interested in learning more?
Take our 15-minute e-learning course “Explore your options: strategies for cash flow, risk management and diversification”.
Looking for more information?
Our team can help answer your questions about our managed options investing capabilities.
Important Information
The Franklin Managed Options Strategies Call Selling Strategy is provided by Franklin Managed Options Strategies (“FT-MOST”), an affiliate of Franklin Templeton, and an investment advisor registered under the United States Securities and Exchange Commission Investment Advisers Act of 1940.
Franklin Managed Options Strategies may rely on the investment objectives described in the call selling strategy investment management agreement and communicated to the Client until such time as it shall receive written notice of the modification, alteration, or amendment of such investment objective.
When determining which options to sell and/or repurchase, Franklin Managed Options Strategies will consider factors including (but not limited to) option liquidity, maturity, volatility, interest rates, underlying dividends, and time to maturity.
Fees:
The fee paid to Franklin Managed Options Strategies is separate from and does not include the costs of stock and option commissions, clearing member trade agreement fees, exchange fees, dealer spreads (which are embedded in pricing) and other costs associated with the purchase or sale of securities, custodian fees, interest, taxes, and other portfolio expenses, which shall be the sole responsibility of client and shall be paid to parties other than Franklin Managed Options Strategies. The custodian of the client account will debit the account for payments of any such fees payable to other parties.
Management fees will reduce the rate of return on any account or portfolio.
Tax Implications:
Selling call options, and any potential asset sales required to satisfy call option settlements, may have both intended and unintended tax consequences for the investors. Investors are encouraged to seek the guidance of their own independent tax advisor prior to implementing a call selling program. Under no circumstance is Franklin Managed Options Strategies offering tax advice.
Franklin Templeton, its affiliates, and its employees are not in the business of providing tax or legal advice to taxpayers. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties or complying with any applicable tax laws or regulations. Tax-related statements, if any, may have been written in connection with the “promotion or marketing” of the transaction(s) or matter(s) addressed by these materials, to the extent allowed by applicable law. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
What are the Risks?
All investments are subject to risk, including possible loss of principal. There is no guarantee or assurance that the Call Selling Strategy will achieve its investment objective.
In a stock or ETF call sale, the seller receives an upfront premium in exchange for the obligation to sell a fixed number of stock or ETF shares on, or in some cases before, a specified time (option expiration) for a specified price (option strike price). The maximum loss is unlimited (it may be limited and/or offset by gains in the stock or ETF if it is a covered call).
Risk of Loss /Opportunity Cost:
In a stock or ETF call sale, there exists the risk that:
i) some, or all, of the client's stock or ETF shares may be sold (including the obligation to deliver stock or ETF shares even if the client does not own them);
ii) the client's stock or ETF, if they own the underlying security, may be capped and/or materially limited.
Call selling may also result in the sale of some, or all, of the underlying shares or ETFs or equities owned by the client, or alternatively the requirement of cash being contributed to the account to satisfy account obligations related to buying-to-close call options.
No Guarantee of Performance:
Regardless of the appreciation or depreciation of the strategy's underlying security or securities, the call selling strategy may underperform a portfolio that is otherwise identical to the underlying securities or equities owned by the client but did not engage in the call selling strategy. The call selling strategy may underperform a portfolio that could be created by selling the equities owned by the client and re-investing the proceeds. There is no guarantee that the call selling strategy will be profitable on a gross or net of fees basis.
Call selling programs may result in losses during periods in which the underlying security or securities declines.
Liquidity:
There is no guarantee a secondary market in options will be liquid. If Franklin Managed Option Strategies is unable to close positions prior to expiry the risk management techniques described herein may not be implemented as described resulting in outsized losses or resulting in the sale of collateral shares.
Not a hedge:
Investors selling call options have a maximum profit limited to the value of the premium received. Beyond the premium received, investors retain all the risk of the underlying portfolios and could suffer a loss of 100% of their equity holdings.
Unlimited loss:
Investors selling call options accept the potential for unlimited loss as call options have no maximum value, or the risk of their shares being called away. For investors selling covered calls, their loss may be realized in the form of opportunity cost, with the possibility of their shares or
Options and Derivatives risk:
FT-MOST offers no guarantee that FT-MOST, or any of the strategies illustrated herein, will be successful or meet their intended objectives. Market movements or events, both foreseen and unforeseen, may render any strategy unsuccessful and may result in unforeseen losses. FT-MOST makes no representations regarding its ability to predict such movements.
The risk of the absence of a liquid secondary market related to any investment or strategy exists and such an absence of liquidity can result in significant loss. Client may be forced to liquidate collateral assets to raise cash to settle derivative positions.
Options are not suitable for all investors and carry additional risks. Investors must ensure that they have read and understood the current options risk disclosure document before entering any options transactions. In addition, investors should consult with a tax, legal and/or financial advisor prior to contemplating any derivative transactions. The options risk disclosure document can be accessed at the following web address:
For risks relating to options, please refer to the “Characteristics and Risks of Standardized Options” which is available upon request from Franklin Managed Options Strategies or at https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document.