About CSO
Investors may have significant exposure to particular equity securities that they are precluded from selling for a variety of reasons. Rampart’s Concentrated Stock Overlay investment program, driven by the Rampart Options Management System (ROMS®) can help investors monetize the volatility of these concentrated equity holdings by selling call options on the underlying securities. Rampart’s investment program can generate additional income, supplementing the total return of the underlying security, depending, to a large extent, on the Target Price of the underlying stock. Therefore, the amount of incremental cash yield is predominantly determined by investors’ individual risk tolerances.
We believe that one of our most important responsibilities is educating the prospective client on the investment program’s risks and rewards. Therefore, a structured communication process and interactive dialogue is important to the success of our investment approach. The concept call is a critical first step in this process.
On the concept call, Rampart seeks to understand the prospective client’s investment objectives and explains what the prospective client should reasonably expect from the overlay program. Using an Indicative Program Opportunity (IPO) projection for illustrative purposes, the relationship between the Target Price and the prospective client’s income objective is discussed. The following points are also covered:
- It is important that the prospective client understands the main risk of the program – there will be an opportunity cost if the stock appreciates beyond the Target Price.
- It may be difficult to achieve the projected annual income if the stock price declines significantly from its current level.
- We also discuss the ways an investor can raise or lower their Target Price, and the implications of such actions.
If the prospective client chooses to enter our investment program, a contract is completed whereby the client gives trading authority to Rampart and indicates the name of the stock and the number of shares that will be in the Rampart program. Many clients choose to contribute only a percentage of their shares to the program.
Once the contract has been received by Rampart, the next step in our structured communication process is the order call. During the order call we use real time stock data to establish a reasonable Target Price that is consistent with the client’s goals. Once a Target Price has been agreed upon and verified, Rampart is ready to trade.
