Connors Options-Overlay Strategy

Connors Investor Services, Inc. is a Registered Investment Advisor (RIA) based in Wyomissing, Pennsylvania, and has focused on research and managing money for clients since 1969. Jim Connors, founder and current Chairman, began publishing the Connors Option Service reports in 1974, just one year after the opening of the Chicago Board Options Exchange (CBOE(TM)). Connors was one of the early firms in the country to be granted the license to use the Buy-Write BXM(TM) Index.

OPTIONS-OVERLAY (for concentrated stock/ETF positions)

High net-worth investors often have a significant exposure of their assets, toward an individual or handful of stocks/ETFs. Often, due to possible tax concerns, they do not wish to diversify. The Connors Options Service can work with these concentrated holdings and manage an OPTIONS-OVERLAY strategy to complement the positions, potentially helping to protect, diversify and/or generate additional income. Connors does not take discretion over the underlying asset; the client keeps the stock and continues to receive the dividends. Each account is customized and managed separately.

  • COVERED CALLS

    • An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset in an attempt to generate increased income from the asset.

  • COLLARS

    • A protective options strategy that is implemented after a long position in a stock has experienced substantial gains.

  • PUT SPREADS

    • A type of options strategy that is used when the investor expects a moderate rise (or decline) in the price of the underlying asset.

NEW ACCOUNT PROCESS

We encourage a conversation with the advisor, the client and a Connors representative to discuss covered call scenarios in a rising, falling and sideways market. It is imperative to meet the long-term expectations of our clients and have open communications at all times.

If a client decides to have Connors write calls against their concentrated position (individual stock or ETF), a contract would be completed, whereby the client gives trading authority to Connors and indicates the name of the stock and the number of shares they wish to enter into the program. Signatures are needed on the Connors contract, an options agreement (level 1) and possible margin agreement.

Connors Investor Services will look at various factors and begin establishing a reasonable strike price for the given stock or ETF, that will best meet the expectations of the client. After verifying that authorization to trade is confirmed, Connors will begin to write calls on the approved position. Confirmation will be made with the advisor.

FOCUSED ON YOUR INVESTMENT

Connors Investor Services, Inc. monitors all open option positions on a daily basis and continually seeks to enhance income and protect the concentrated position. There may be times when it makes the most sense to only cover a portion of the position and allow the underlying holding to “run” with the market. We will however, target the most appropriate cash flow for each client, typically through calls with monthly expirations. As stocks approach their strike prices, we can sell shares or roll the options to a higher strike price.

While Connors takes considerable care in reducing the possibility of having shares called away, there can be no guarantee that the owner of the call option will not exercise the option prior to Connors’ repurchase of the sold option. The actual income from the strategy will depend to a large extent, on the strike price of the underlying stock. Therefore, the amount of incremental cash flow is predominantly determined by investors’ individual risk tolerances and willingness to sell the concentrated security.

Covered Call Writing can provide limited downside protection. It does not, however, eliminate downside risks. Options involve risk and are not suitable for all investors. Prior to opening an account with Connors Investor Services, Inc., clients are required to understand the risks associated with the purchase or sale of options by receiving the Options Clearing Corporation Publication, “Characteristics and Risks of Standardized Option Trading”. Copies of this document may be obtained by your financial Advisor or the Option Clearing Corporation, 440 LaSalle, Suite 2400, Chicago, IL 60605. Performance history is not available as a composite does not exist. The strategy is applied to a client’s existing holdings and Connors is not involved in the selection of the underlying stock positions. As such, performance for each client may vary significantly.

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