Security lending

问题如下：

Of the three techniques mentioned by the potential investment manager, which would result in the greatest limitation to the upside return potential of the pools?

选项：

A.Technique 1 B.Technique 2 C.Technique 3

解释：

Solution

C is correct. Writing covered calls limits the upside potential of the pools, because the underlying shares will be sold if the share price exceeds the exercise price of the written calls.

A is incorrect. The dividend capture strategy is independent from the shares owed by the pool; shares that are about to go ex-dividend are purchased and sold following the ex-dividend date. The pool‘s return is not limited on the upside.

B is incorrect. Security lending does not limit the upside potential of the pool, because the underlying shares are retained by the pool.