Option mutual funds
Can no-load mutual funds dealing only in options serve as a hedge against lower interest rates? D. M.
Mutual funds dealing in options seldom trade in options only. Usually, a conservative income fund will sell call options against their stock holdings to improve yield. This procedure is becoming more common among individual investors, pension funds, and others holding substantial portfolios of stocks on which call options are traded. Some funds may buy options with a part of their funds and use a money-market approach to the bulk of their holdings. One example is Gateway Option Income Fund (1120 Carew Tower, Cincinnati, Ohio 45202) , and another is Tudor Hedge Fund (30 Wall Street, New York, N.Y. 10005). For more information write for a prospectus and check their past record. Except for the varied effect of interest rates on stock prices, I see little connection with using options to hedge interest rates. Selling covered options for more income entails little risk, but buying options can be highly speculative. Thus, I see little benefit in attempting to hedge against lower interest rates with an option- oriented mutual fund.