Common use of Writing Options Clause in Contracts

Writing Options. If the Investment Guidelines allow the Local Manager to write an option for the Investment Adviser, the risk involved is considerably greater than buying options. The Investment Adviser may be liable for margin to maintain its position and a loss may be sustained well in excess of any premium received. By allowing the Local Manager to write an option on the Investment Adviser's behalf, the Investment Adviser accepts a legal obligation to purchase or sell the underlying asset if the option is exercised against the Investment Adviser, however far the market price has moved away from the exercise price. If the Investment Adviser already owns the underlying asset which the Local Manager has contracted on the Investment Adviser's behalf to sell as part of the Fund (known as "covered call options") the risk is reduced. If the Investment Adviser does not own the underlying asset (known as "uncovered call options") the risk can be unlimited. Only experienced persons should contemplate authorising the Local Manager to write uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure. 3.2.3 Traditional Options: A particular type of option (called a "traditional option") is written by certain London Stock Exchange firms under special exchange rules. These may involve greater risk than other options. Two way prices are not usually quoted and there is no exchange market on which to close out an open position. It may be difficult to assess the value of a traditional option or for the seller of such an option to manage his exposure to risk. Again, the Investment Adviser should only provide for the Investment Guidelines to permit the Local Manager to invest in "traditional options" if the Investment Adviser is fully aware of the risks involved. 3.2.4

Writing Options. If the Investment Guidelines allow the Local Manager to write an option for the Investment Adviser, the risk involved is considerably greater than buying options. The Investment Adviser may be liable for margin to maintain its position and a loss may be sustained well in excess of any premium received. By allowing the Local Manager to write an option on the Investment Adviser's behalf, the Investment Adviser accepts a legal obligation to purchase or sell the underlying asset if the option is exercised against the Investment Adviser, however far the market price has moved away from the exercise price. If the Investment Adviser already owns the underlying asset which the Local Manager has contracted on the Investment Adviser's behalf to sell as part of the Fund a Portfolio (known as "covered call options") the risk is reduced. If the Investment Adviser does not own the underlying asset (known as "uncovered call options") the risk can be unlimited. Only experienced persons should contemplate authorising the Local Manager to write uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure. 3.2.3 Traditional Options: A particular type of option (called a "traditional option") is written by certain London Stock Exchange firms under special exchange rules. These may involve greater risk than other options. Two way prices are not usually quoted and there is no exchange market on which to close out an open position. It may be difficult to assess the value of a traditional option or for the seller of such an option to manage his exposure to risk. Again, the Investment Adviser should only provide for the Investment Guidelines to permit the Local Manager to invest in "traditional options" if the Investment Adviser is fully aware of the risks involved. 3.2.4

Writing Options. If the Investment Guidelines allow the Local Manager to write an option for the Investment Adviser, the risk involved is considerably greater than buying options. The Investment Adviser may be liable for margin to maintain its position and a loss may be sustained well in excess of any premium received. By allowing the Local Manager to write an option on the Investment Adviser's behalf, the Investment Adviser accepts a legal obligation to purchase or sell the underlying asset if the option is exercised against the Investment Adviser, however far the market price has moved away from the exercise price. If the Investment Adviser already owns the underlying asset which the Local Manager has contracted on the Investment Adviser's behalf to sell as part of the a Fund (known as "covered call options") the risk is reduced. If the Investment Adviser does not own the underlying asset (known as "uncovered call options") the risk can be unlimited. Only experienced persons should contemplate authorising the Local Manager to write uncovered options, and then only after securing full details of the applicable conditions and potential risk exposure. 3.2.3 Traditional Options: A particular type of option (called a "traditional option") is written by certain London Stock Exchange firms under special exchange rules. These may involve greater risk than other options. Two way prices are not usually quoted and there is no exchange market on which to close out an open position. It may be difficult to assess the value of a traditional option or for the seller of such an option to manage his exposure to risk. Again, the Investment Adviser should only provide for the Investment Guidelines to permit the Local Manager to invest in "traditional options" if the Investment Adviser is fully aware of the risks involved. 3.2.4