Fidelity Advisor Energy Class C · NASDAQ:FNRCX
Fidelity Advisor Energy Class C — Fidelity Investments — Conference Presentation (2016)
24 slides from Fidelity Advisor Energy Class C's conference presentation, 2016
Slide 1: Writing Covered Calls
Writing Covered Calls Learn the advanced concepts of building, evaluating and managing a covered call strategy Fidelity Brokerage Services, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917. © 2016 FMR LLC. All rights reserved. 777868.1.0 1
Slide 2: Agenda
AGENDA 1. What is a covered call strategy? 2. What should you consider when choosing a strike price? 3. What should you consider when choosing an expiration? 4. How can you manage the strategy? 2
Slide 3: Before we get started…
Before we get started… • Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if app
Slide 4: What is a covered call strategy?
What is a covered call strategy? • The basics • Goals of the strategy • Risks of the strategy 4
Slide 5: The basics: Covered call strategy
The basics: Covered call strategy Outlook: Bullish neutral Construction: Buying (or owning) stock and selling call options on a share-for-share basis Max Gain: (Strike Price + Call premium received) – Cost of the long shares Max Loss: Cost of the long shares - call premium received Breakeven @ expir
Slide 6: Goals: Why do traders sell covered calls?
Goals: Why do traders sell covered calls? • Generate income – Take in premium on bullish neutral outlook – Enhance returns on a security that is not expected to move in the short-term • As a method of selling stock – Can be used as an exit strategy for a long position • To help manage a long stock p
Slide 7: Risks: Get to know the Greeks
Risks: Get to know the Greeks The Greeks (at time of trade) What are the risks? • Delta - rate of change (+) • The underlying price moves down • Gamma - rate of change of delta (-) • Increase in realized volatility • Theta- time decay (+) • Not applicable • Vega - volatility (-) • Increase in implie
Slide 8: What should you consider when choosing a strike price?
What should you consider when choosing a strike price? • Underlying security exposure • Rate of return potential • Key resistance levels • Probability of assignment 8
Slide 9: Underlying security exposure
Underlying security exposure Evaluate how the short call will affect your exposure to the underlying security: • Delta = 75 ITM • Net Delta (1 lot) = 25 share 92.5 Call exposure (100-75) • Delta = 52 ATM • Net Delta (1 lot) = 48 share 97.5 Call exposure (100 -52) • Delta = 18 OTM • Net Delta (1 lot)
Slide 10: Evaluate rate of return (ROR) potential
Evaluate rate of return (ROR) potential Covered call Break- Static Profit if Assigned Bid contract Even ROR Assigned ROR ITM 92.5 Call 6.4 91.32 - 1.18 1.29% ATM 97.5 Call 3.15 94.57 - 2.93 3.10% OTM 105 Call 0.7 97.02 0.72% 7.98 8.23% Example: • Assumes cost basis of the long stock shares is the cu
Slide 11: Key resistance levels
Key resistance levels Other factors to consider when choosing a strike price are key resistance levels… – Identifying price points where the security has had trouble breaking through – Using slow moving averages (more periods included) as a resistance level Image is for illustrative purposes. 11
Slide 12: Probability of assignment
Probability of assignment …or targeting an option with a specific statistical probability of assignment. Tells you that there is a 16.29% statistical probability that AAPL will be above $109.25 on 11/22/14 – the probability of assignment Image is for illustrative purposes. • 1 standard deviation cap
Slide 13: Use Delta to evaluate probability of assignment
Use Delta to evaluate probability of assignment Use Delta to evaluate your probability of being assigned: • Probability of being ITM at ITM expiration is approximately 75% 92.5 Call • Bid: 6.40 • Probability of being ITM at ATM expiration is approximately 52% 97.5 Call • Bid: 3.15 • Probability of b
Slide 14: Consider your goals and objective for the trade
Consider your goals and objective for the trade • Method of selling the stock • Higher premium received In-the-Money (ITM) • More conservative (less bullish) • Offers the most downside protection • Higher probability of being assigned • Offers the most exposure to time decay • ATM options have the m
Slide 15: What should you consider when choosing an expiration?
What should you consider when choosing an expiration? • Time decay • Rolling vs. selling • Shorter vs. longer-term expirations 15
Slide 16: Consider time decay in option prices
Consider time decay in option prices Time decay typically accelerates as expiration comes closer, meaning shorter-term options have the highest time decay. Image is for illustrative purposes. Image is for illustrative purposes. 16 16
Slide 17: Rolling versus Selling
Rolling versus Selling Rolling shorter-term contracts vs. selling one long-term contract Over a 6 month period… Write a 30 day option 6 times? $1.00 x 6 = $6.00 OR… Write a 180 day option 1 time? $2.75 x 1 = $2.75 17
Slide 18: Shorter-term versus longer-term expiration
Shorter-term versus longer-term expiration So why would anyone sell a longer-term covered call? • Offer the most exposure to time decay • Have the highest gamma risk • Allow for the higher return by continually rolling Shorter-Term Expiration (all else equal) • Higher probability of early assignment
Slide 19: How can you manage the strategy?
How can you manage the strategy? • 3 ways to manage any strategy • Use Fidelity’s tools 19
Slide 20: 3 ways to manage any strategy
3 ways to manage any strategy 1. Leave the strategy alone – Let the covered call(s) expire – Allow assignment 2. Close the strategy – Unwind – sell the shares, buy to close the covered call(s) 3. Adjust the strategy – Close the calls, keep the long shares – Rollout – same strike, up or down Image is
Slide 21: Find trading ideas with Fidelity's tools
Find trading ideas with Fidelity’s tools There are a number of resources available to help find covered call ideas: • S&P Best 10 – Covered Calls • S&P Intra-Day Trade Ideas • Strategy Ideas – Covered Call • Market Scanner Image is for illustrative purposes. Image is for illustrative purposes. Where
Slide 22: Key Takeaways
Key Takeways – Covered call strategies can be put on for different reasons: • Generate income • Method of selling a long stock position • Manage a long stock position – Properly identify what you’re looking to accomplish with the trade before implementing it will, this helps to easily choose the app
Slide 23: Use the Fidelity Learning Center at home to…
Use the Fidelity Learning Center at home to… Get more information Take a course Visit Fidelity.com - select Research > Complete a course online to learn more Learning Center and obtain even more about the basic concepts of covered calls information and insight about options Example: Generating incom
Slide 24: Important Information
Important Information Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact Fidelity for a prospectus or, if available, a summary prospectus containing this information. Read it carefully. Charts, screenshots, company stock symbols and examples contained
Fidelity Investments — Conference Presentation (2016) on 6ix