Separately Managed Accounts
SHELTON FAQ
Can clients transfer stocks they already own into the Optima Equity Income Strategy or ETFs they already own into the Optima Diversified ETF Strategy?
Yes, if Shelton Capital believes these stocks/ETFs fit the objectives of the strategy and provide option-writing opportunities, existing positions can be transferred in.
Can clients avoid purchases of individual stocks they don’t want to own in the Optima Equity Income Strategy?
Yes. Some investors don’t want to add further concentration of stocks they may already own elsewhere in their portfolios. Others prefer to avoid stocks that don’t fit “socially conscious” criteria. We can likely accommodate such requests.
Do advisors have access to the Specialist Manager to obtain information or have questions answered?
Yes, the Specialist Manager, Barry Martin, CFA, is available by appointment to discuss specific strategy or to address any questions. Furthermore, he can also be made available to participate on a joint call with an advisor and his or her client to assist in understanding the client’s goals and to manage client’s expectations.
What is the minimum amount of assets required to open an Optima Strategy?
The strategy works best for all parties at a $500,000 minimum.
What are the main risk factors in Optima Strategies?
Compared to owning the underlying securities outright (without overlay), Covered Call Writing can limit upside potential for securities appreciation. If securities are called away, substantial capital gain tax could be incurred, particularly in the Single Stock Strategy. Optima Strategies do not protect a security from downside risk. Investors could lose up to the full current price of underlying securities, less option premiums received.
In Optima Single Stock Strategy, can the advisor provide input on the target strike price of options written?
Yes, the advisor is the person who is in the best position to understand the client’s objectives, and the strike price is an important decision in pursuing objectives. The higher the target strike price, the more capital appreciation potential the investor will have, and the lower option premium income will be. Higher target strike prices also will reduce the potential for stock to be called away.
Does Shelton Capital have full discretion in implementing Optima Strategies?
Yes. The Specialist Manager retains full discretion to trade options, as well as make changes in the underlying assets of the Equity Income Strategy and Diversified ETF Strategy. The Specialist Manager normally will not initiate changes in the underlying stocks held in the Single Stock Strategy, unless they are required to fulfill obligations.
Are all call options written on a “fully covered” basis?
Yes, to avoid the risk of “naked calls,” we only write options against long positions held in an underlying separately managed account (SMA) portfolio. All options are written in the same SMA, so the investor has minimal exposure in the hedged stock-option position. When clients wish to add protection against a market decline without disrupting their underlying holdings, we may buy naked put options in the SMA, on request.
How does Shelton Capital identify attractive call writing opportunities?
We use third-party research and proprietary analysis and tools to identify attractive underlying securities and option-writing situations. We may write calls out-of-the-money, at-the-money, or in-the-money. But in any case, we look for calls in which option premiums are attractive relative to their implied values, given the volatility of the underlying securities and time to maturity.
Why are some options mispriced, in favor of writers?
We believe that there are many more potential buyers of listed options than natural markets of sellers (“writers”). Most option-writing is performed by sellers who don’t own the underlying, with fully hedged covered option-writers making up a relatively small part of option trading volume. Because there is a risk in uncovered (“naked”) option-writing, this risk must be priced into premiums. However, the covered option-writer is able to capture these premiums without taking on the same risk.
Can retirees use option-writing premiums for income?
Yes. All dividends, interest and option premium income is paid directly into the investor’s SMA. Each advisor can specify whether this income is to be put back to work in the Strategy (reinvested) or paid out as current income.