How High-Net-Worth Investors Combine Bonds and Calls to Pursue Smarter Growth

The Accelerator is perhaps the most exciting of the options I offer clients. By combining a high yield or other fixed income position with calls on a stock or market index, the investor can get up to about 2 times the return of the security or index, with downside about equal to the index, and perhaps a bit less. 

The bond position earns interest over the duration of the position that compensates for most or all of the cost of the call options, meaning that if the security is flat or down at expiration, the investor will suffer little or no loss if the options expire without value. If the market is down at expiration, the bond or fixed income positions will usually be down significantly less than the market for the security. 

This is an excellent risk/return profile for any growth investor. The alternatives to this are higher risk stock positions, just buying calls, or using structured notes. The negatives of these alternatives are that an individual stock is going to be riskier than the market, with no guarantee of outperforming the index (much less doubling it); just buying calls, which cost 20% or more of the position, opens up the investor to losses of that magnitude if the market is flat or down at expiration; and structured notes, in my experience, have full 1X downside market risk and rarely can compete with the upside potential (usually due to profits built into the structure for issuing and marketing the note).  

This approach can also be appropriate for a more conservative investor, who would otherwise accept market risk on an index position, when combined with more conservative positions.

Learn more about Structured Portfolio services.

Investment advice offered through Aurora Private Wealth, Inc. an SEC-registered advisor.

Securities offered through APW Capital, Inc. Member FINRA/SIPC/MSRB

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