HOW DELTASHIFT WORKS

DeltaShift, a structured and rules-based process, can be flexible in its implementation based upon the client's investment objectives.

01 DESIGN
In the design phase of the DeltaShift covered call program, Parametric works with clients and advisors to understand the client's investment objectives, including: time frame, risk/return guidelines and income stream, as well as the dynamics of the underlying stock.

Prior to implementation, the client receives an indicative analysis outlining the stock's historical volatility, an estimate of the premiums to be generated, the statistical likelihood of achieving certain returns, and the expected quantity of shares to be sold during the period.

02 IMPLEMENTATION
During implementation, multiple short-dated call options are selected and sold. Listed options are most often chosen, due to greater liquidity and transparency than over-the-counter options, providing a cost-effective solution to the client.

03 RISK MANAGEMENT
On a continual real-time basis, all open option positions are monitored and evaluated in terms of their risk and return characteristics. Diligent risk management works to maximize profit realization and minimize potential underperformance.

As options expire, new options are sold, generating additional premium inflows.

For clients who wish to minimize the number of underlying shares sold, a "net share settlement" process is implemented to reduce the quantity of low basis shares sold (see sidebar at right) in the event of an exercise.

Over time, a cash reserve may build in the account from the call premiums received. This reserve can be withdrawn from the portfolio or maintained to reduce potential stock sales in the future.

04 REPORTING
Each transaction appears on the monthly statement generated by the account custodian. In addition, Parametric provides a quarterly review which includes a current market valuation, a comparison to benchmark performance, and a portfolio volatility analysis.