Common use of Writing Options Clause in Contracts

Writing Options. If the Investment Guidelines allow MSIM to write an option for VKAM, the risk involved is considerably greater than buying options. VKAM may be liable for margin to maintain its position and a loss may be sustained well in excess of any premium received. By allowing MSIM to write an option on VKAM's behalf, VKAM accepts a legal obligation to purchase or sell the underlying asset if the option is exercised against VKAM, however far the market price has moved away from the exercise price. If VKAM already owns the underlying asset which MSIM has contracted on VKAM's behalf to sell as part of the Fund (known as "covered call options") the risk is reduced. If VKAM does not own the underlying asset (known as "uncovered call options") the risk can be unlimited. Only experienced persons should contemplate authorizing MSIM to write uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure.

Writing Options. If the Investment Guidelines allow MSIM to write an option for VKAM, the risk involved is considerably greater than buying options. VKAM may be liable for margin to maintain its position and a loss may be sustained well in excess of any premium received. By allowing MSIM to write an option on VKAM's behalf, VKAM accepts a legal obligation to purchase or sell the underlying asset if the option is exercised against VKAM, however far the market price has moved away from the exercise price. If VKAM already owns the underlying asset which MSIM has contracted on VKAM's behalf to sell as part of the Fund Funds (known as "covered call options") the risk is reduced. If VKAM does not own the underlying asset (known as "uncovered call options") the risk can be unlimited. Only experienced persons should contemplate authorizing authorising MSIM to write uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure.