Blue Chip Shares & Options

One of the many attributes of blue chip shares is that most have Options associated with them.

When blue chip shares (or shares portfolios) are combined with Options, a vast array of new investment possibilities and opportunities emerge.

Sentinel closely understands this relationship and utilises a mix of shares and Options to bring its clients a range of benefits including:

Performance

Options can be structured to alter the performance of blue chip shares. For example, they can be used to accelerate returns or income. They can also be used to improve recovery from share prices which have fallen in value (stock repair).

Extra Income

Options can be used to generate additional income from blue chip shares. One of the most common strategies to do this is known as the 'Covered Call Option Strategy'. The effect of this strategy is to generate additional income from your otherwise idle existing shares – almost like an additional dividend several times a year. This strategy can be extremely effective and frequently utilised by Sentinel for its clients.

Activity

Because options create so many new investment opportunities for blue chip shares, they also increase investment activity. By their very nature, options have a limited lifespan and each time they expire, a new investment position can be taken. This means that as frequently as each month, blue chip shares have an opportunity for extra performance. This positive side-effect is particularly advantageous for those investors wanting to more actively manage their otherwise slow or stagnant portfolios.

Downside protection (insurance or hedging)

Options can be used to protect against falls in share prices. In fact, they can be used to protect entire share portfolios as a cluster. The technical term for this is ‘hedging’ but it can commonly be thought of as like insurance. The beauty of options is that you can structure a share/option position specifically to match your desired risk/protection outcome.

Structuring (Tax and Estate Planning)

Options can be used to lock in sales and purchases of blue chip shares at dates and prices out in the future. This is particularly useful for tax and estate planning. For example, an investor may want to wait six months until the next financial year before selling his or her shares - but wants to lock in a price and a definite sale now. Options can be used to easily achieve this.

Overall Portfolio Management

Options can be an integral part of an overall share portfolio. They can be used to improve portfolio returns (a strategy Sentinel employs frequently), protect against portfolio downside, gain additional exposure to certain investment sectors and manage tax obligations.

Sentinel Can Help

The range of opportunities from options is endless and the above list of advantages is only a small sample. If you have blue chip shares and would like to achieve a particular outcome, contact us here and we can advise you of the alternatives available.