Asia Financial Holdings, a Hong Kong-based financial holding company with HKD14.25 billion (USD1.8 billion) in assets, plans to start writing covered equity calls in the coming months to generate premium. James Lee, investment analyst, said the company will initially look at using exchange-traded instruments but will consider using over-the-counter derivatives if pricing and liquidity are competitive. Lee believes the strategy will be profitable because upside potential in the U.S. equity market is limited in the near term. The company is talking to Morgan Stanley Dean Witter and Goldman Sachs as potential counterparties. Spokespersons at the securities firms did not return calls.
Lee continued that Asia Financial Holdings expects to sell calls primarily on U.S. equities in typical notional sizes of USD1 million to USD5 million. He added that typical maturities would probably be no longer than two months. Asia Financial Holdings has a banking, insurance, and investment division and has an investment portfolio totaling HKD1.1 billion (USD141 million).
