Spectrum Asset Management Corp.

Basic Options

Spectrum Options Programs. Basic Options Program. Clients may not open a managed option account with SAM unless they are familiar with the futures, forward and option markets. The minimum account size is $10,000, provided that SAM may in its discretion waive the minimum account size. The Basic Options Program charges $35.00 round-turn commission, where Spectrum takes part of these commissions. There is however no Management or Incentive fees. Please refer to Description of fees and expenses. The Basic Options Program never do unprotected writing so called naked positions. Credit Spread Strategy One of the more popular alternative option writing strategies is the credit spread, which involves selling an option (just as in the uncovered strategy) but also includes purchasing another less expensive option. When writing a credit spread, the writer is credited the difference between the premium collected from writing the option, less the cost of the option purchased. Unlike writing uncovered options, where the potential for unlimited loss exists, option credit spread risk is limited to the difference between the strike prices of the options written and purchased, plus commissions and fees. Any loss would be further reduced by the amount of the credit received. While the option credit spread clearly offers the advantage of limited risk, the writer must sacrifice some of his potential profit in exchange for acquiring a limit to the risk, i.e. buying the option that covers his uncovered position. SAM’s Basic Options program will exclusively trade put and call credit spreads. The program will not employ the writing of naked options at any time. Debit Spread Strategy. An option spread in which there is a net payout of premium. This program is a limited risk strategy, limited to the debit paid. Spectrum is also looking for buying opportunities to only buy (calls and/or puts) options in an attempt to profit from increased value of such options. The Basic Options program will not employ the writing of naked options at any time or stay in a naked position by exiting the buy side of a spread. SAM may also, from time to time, implement other strategies, such as but not limited to, buy calls and puts, straddles, strangles, ratio spreads, calendar spreads and other options strategies.