Fidelity Freedom Index Income Fund - Investor Class · NASDAQ:FIKFX
Fidelity Freedom Index Income Fund - Investor Class — Fidelity Investments — Investor Presentation (August 2019)
23 slides from Fidelity Freedom Index Income Fund - Investor Class's investor presentation, Aug 9, 2019
Slide 1: Managing equity risks using collars
Managing equity risks using collars August 9, 2019 Edward J Modla, Director Retail Education, Options Industry Council Michael Ruger, Regional Brokerage Consultant, Fidelity Investments www.OptionsEducation.org
Slide 2: Presentation Outline
Presentation Outline • Managing Risk • Traditional Options Collar • Choosing Strikes/Expiry • Staggered Collar • Put Spread Collar • Laddered Collar 2
Slide 3: Managing Risk
Managing Risk • Protecting against a market correction is one of the most important aspects of managing a portfolio • An investor can: • Size down • Use stop loss orders • Implement options strategies • Options offer FLEXIBILITY! 3
Slide 4: Long Stock vs. Short Stock
Long Stock vs. Short Stock In a world without options, stock investors have limited choices. Profit Profit Stock Stock Buy Price Sell Price Loss Loss Long Stock Short Stock 4
Slide 5: Traditional Options Collar
Traditional Options Collar A Collar can be considered to be two strategies in one: On the downside, it’s a Protective Put: • Provides protection against a decrease in long stock share price • Typically, an out of the money put is purchased • Strike selected determines exit price • Profit is in long
Slide 6: Protective Put
Protective Put Structure Long 100 shares of stock and long 1 OTM put Motivation Protection to downside of long shares Forecast Bullish but cautious Risk Deductible + Premium paid Reward Unlimited Assignment No risk 6
Slide 7: Traditional Options Collar
Traditional Options Collar A Collar can be considered to be two strategies in one: On the upside, it’s a Covered Call: • Generally used for income, can be used to offset cost of Protective Put • Typically, an out of the money call is sold • Strike selected determines where stock may be called away •
Slide 8: Covered Call
Covered Call Structure Long 100 shares of stock and short 1 OTM call Motivation Income, Increase stock returns Forecast Neutral to moderately bullish Risk Long stock minus call premium received Reward (Call strike + call premium) – long stock price Assignment Central to the strategy 8
Slide 9: Why Use a Collar?
Why Use a Collar? • Stock, ETF or Index buyer with unrealized gains wants • Downside protection – long put • Some upside participation – limited by short call • Key benefits • Put cost fully or partially paid by call premium received • Objectives met whether share price up or down • Receive any divi
Slide 10: What Does All This Cost?
What Does All This Cost? Stock price = $75, 45 day expiry Calls Strike Puts Looking for protection beyond a Bid Ask Bid Ask 10% move $8.75 $8.95 67.50 $1.25 $1.35 $75 – 10% = 67.50 $6.10 $6.30 70.00 $1.50 $1.60 Buy 1 67.50 put for $1.30 $4.40 $4.60 72.50 $1.90 $2.10 (Insurance Policy) $3.05 $3.20 75
Slide 11: Traditional Collar Profit & Loss
Traditional Collar Profit & Loss 10 Long 100 shares of stock at $75.00 • Buy 67.50 put for $1.30 • Sell 82.50 call at $0.90 Net DEBIT: $.40 67.50 82.50 65 70 75 80 85 Max Profit: Short call – share price +/- net debit or credit Max Loss: Share price – long put B/E: $75.40 +/- net debit or credit Bre
Slide 12: Managing the Position
Managing the Position What if the stock price plummets? • Close position and free up capital? • Hold shares and sell back long put? What if the stock price remains flat? • Still cautious? • Roll out? What if shares rally? • Is protection still needed? • Roll up and out? 12
Slide 13: Staggered Collar
Staggered Cost of trade Collar Risk of assignment What would happen if we bought longer-term Theta protection and sold Management shorter-dated calls? 13
Slide 14: Staggered Collar and Theta (Time Decay)
Staggered Collar and Theta (Time Decay) Advantages/Disadvantages of selling shorter dated options: • Faster time decay: Theta accelerates roughly 30 days out • Possibly larger pool of market participants may lead to more favorable pricing vs. longer dated calls • Less time = less premium • More chan
Slide 15: Staggered Expiry's
Staggered Expiry’s Scenario: Due to better than expected earnings, Tom has enjoyed a run-up in share price of BUBL. He’s long 100 shares from $82 and stock is currently trading $96. To protect some of the unrealized gains against future earnings reports, his broker suggests putting on an options col
Slide 16: Staggered Expiry's
Staggered Expiry’s To lock in some profit, Tom buys some “insurance” in the form of the Dec 92.50 put for $11.20. In the interim, he can also take advantage of further share price increases by selling the April 100 call at $2.75. • Can repeat sale of short calls each month generating additional prof
Slide 17: Staggered Collar Risks
Staggered Collar Risks • What if the stock moves sharply lower? • Exercise long put early or sell back to market? • Hold put and keep selling lower strike calls? (lowers potential assignment price) • What if the stock moves sharply higher? • Assignment will result in lower profit due to lower premiu
Slide 18: Put Spread Collar
Put Spread Collar Standard options collar provides protection (long put) down to zero What is the likelihood of the stock plummeting to zero vs. a minor downturn—but NOT to zero? Might be possible to save money (or increase credit) by selling a further OTM put also! Possible position: long stock, sh
Slide 19: Put Spread Collar Example
Put Spread Collar Example Setup: Long 500 shares from $105 with stock currently trading $120 Buys 5 45-day 115 puts for $3.60 Traditional Collar Sells 5 45-day 125 calls at $3.00, AND Sells 5 45-day 105 puts at $1.60 Stock Price at 115/105 Put Short 125 Call P/L Long $105 Stock P/L Net P/L + $1 Expi
Slide 20: Put Spread Collar Example
Put Spread Collar Example 25 Long 500 shares of stock from $105 B/E: $94 • Buy 5 115 puts for $3.60 • Sell 5 125 calls at $3.00 • Sell 5 105 puts at $1.60 Net CREDIT: $1.00 85 95 105 115 125 Max profit: diff. between long stock and short call + net premium: $21 Max loss: assignment value of short pu
Slide 21: Laddered Collar (Strikes & Expiry's)
Laddered Collar (Strikes & Expiry’s) Buying a put (long or short-term depends on protection desired) Sell calls at various strikes/expiry’s Example: Stock trading $100, long 500 shares • Buy 5 180 day 85 puts for $4.00/each • Sell 1 30 day 105 call at $.75 • Sell 1 60 day 110 call at $.80 • Sell 1 1
Slide 22: Laddered Collar (Strikes & Expiry's)
Laddered Collar (Strikes & Expiry’s) What if’s? • Stock makes a sharp move in either direction? • Sharp move down: Exercise put and buy to close short calls at a profit? • Sharp move up: Some or all short calls may be assigned and stock gets called away at various intervals Regardless, less premium
Slide 23: Disclaimer
23 Disclaimer Disclaimer Options involve risks and are not suitable for everyone. Individuals should not enter into options transactions until they have read and understood the risk disclosure document, Characteristics and Risks of Standardized Options, available by visiting OptionsEducation.org. To
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