When your available collateral is in the form of stocks or related securities that are marginable (qualify for margin loans) and have publicly traded options, you can discuss with the licensed advisor at your loan institutions the possibility of a hedged portfolio stock loan. A hedged portfolio stock loan is one in which you consent to the purchase of a stock option - either a Put, or both a Put and a Call for a collar arrangement - which is then structured to as part of your loan documents.

The benefit of doing this is that your stock-secured loan can be designed so that should you be forced to default on repayment, the option can be exercised. The exact option you choose will be a matter for your licensed account advisor and you to decide, but if structured properly, the exercise of the option in default can ensure that you loan obligation is repaid by simply surrendering the collateral securities - limiting the borrower's liability to the collateral shares alone and no other assets (e.g., home, other accounts), even if the collateral securities have fallen precipitously in value. This is what is referred by some as a nonrecourse stock loan, although the correct term is limited recourse.

Though there is of course no guarantee that every option purchased in every hedged portfolio scenario will be sufficient to cover the loan liability of the borrower in default, in practice the option exercise will be calculated by your advisor with the end goal of being sufficient to retire the debt with only the surrender of the collateral shares to the lender so as to prevent any further claim on assets in default.

Note that a list of publicly optionable securities can be obtained through the Options Clearing Corporation website.

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