This document summarizes an equity derivatives program that aims to generate income and improve risk-adjusted returns. It does this by systematically selling put options on stocks of fundamentally strong companies trading at attractive valuations, with a focus on those with conservative debt levels. The program targets annualized returns of 8-12% through option premiums of 7-15% and additional yield from cash investments, while providing downside protection of 15-30% and lower volatility than broad equity markets through this conservative equity exposure approach.

1. EQUITY DERIVATIVES PROGRAM
IMPROVING RISK ADJUSTED RETURNS AND
GENERATING INCOME
Current problematic macro environment combined with ultra-low interest rates create a hard choice for
investors: investment-grade fixed income with more risk than potential benefit on the one hand; and
outright long-only equity investments which might be too risky at present on the other. Our program offers
a viable alternative, and allows investors to implement a conservative approach to equity investments,
target attractive "bond-plus" risk-adjusted returns, and receive significant downside protection
APPROACH
The approach involves systematically selling "insurance policies" (put options) on stocks of individual
companies. The companies are chosen based on fundamental valuation criteria, while more technical
factors are used in order to identify cases where option premiums justify taking the risk and selling this
"insurance" as opposed to a more widespread idea and approach of buying "insurance"
FUNDAMENTAL INSIGHT
Fundamental valuation and research is conducted in order to identify attractive investment opportunities.
The focus is on strong, profitable companies which trade at value-oriented prices and valuations. Especial
emphasis is put on identifying companies with low or conservative debt levels and strong balance sheets,
stable cash flow generation, positive industry conditions, and shareholder-friendly management
(dividends, stock buy-backs)
IMPLEMENTATION
• Systematic selling of OTM put options on individual equities
• 10-15% OTM
• Maturity of 3-12 months
• Annualized premium of 7-15% or more
• Investment of available cash into short-term deposits and fixed-income for an additional yield
KEY BENEFITS
• Conservative approach to equity investments
• Clear and attractive return objective (8-12% per year)
• Lower volatility than of broad equity markets
• Significant protection during falling markets (15-30%)
• Diversified portfolio