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Profiting with Synthetic Annuities: Option Strategies to Increase Yield and Control Portfolio Risk by Michael Lovelady

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5. Managing a Covered Synthetic Annuity

The performance of a CSynA over time depends on how volatile the underlying security is and how it is adjusted. The goal is to maintain a reasonable level of exposure to the underlying security so that theta remains high and the level of price exposure remains consistent with your views on security valuation.

The first section in this chapter talks about the automatic exposure adjustments that happen as a natural consequence of the options components of the CSynA. Later sections cover cost basis adjustments that might be required as part of the risk discipline, tactical adjustments, and the monthly roll forward. The discussion ends with an example using the Deere & Company CSynA setup in the last chapter. ...

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