Absolute Returns in an

Uncommon Market
10-CINV-00063
2

The proram consists o! "ritin short #sellin$ call an% put option positions "ith the oal o!
pro!itin !rom time %eca&' The approach( in an% o! itsel!( is similar to the one use% b&
insurance companies across the lobe' )ust like an insurance compan&( &ou "ill ha*e to pa&
out !rom time to time' Remember(ho"e*er( that insurance companies pro!it b& collectin
man& premiums( but onl& pa&in out on a !e"'
Option Selling Strategy

+hort term %ate% contracts "ith e,piration bet"een 2- to 60 %a&s

Taretin 1 to 20 positi*e premium collection per month

Utili1in 20 to 300 o! total account marin re4uirements

Use o! 5i*ersi!ication #more than 10 markets$

Mone& Manaement

I sell options onl& in +tocks an% 6T7 that I "ant to e*entuall& o"n'
Program Overview
+
Selling an Option Contract
is Like Selling Insurance

Insurance companies collect small,

certain amounts of money (premiums)
from policyholders who want to avoid
the possibility of a large, uncertain
financial loss

If a customer pays $250 when buying

insurance, but does not have an
accident, the insurance company
keeps the $250 and there are no
payouts !"tatistically#, the insurance
companies have probability on their
side

"elling options is similar to selling

insurance
It has often been said that selling options is similar to operating an insurance company. Buyers of car
insurance pay insurance premiums to an insurance company to insure their vehicles. They pay these
premiums month after month. In most cases, the driver never has an accident, and the insurance
company keeps the premiums as profit. If a driver does happen to have an accident, the insurance
company must pay up.
An insurance company tries to weed out drivers that it deems to be prone to accidents. Some of these
may get insured at higher premiums to account for the higher risk the insurance company is taking on
them!, and some may not get insured at all.
Our "ob as an option seller is to go through this e#act same process. $ust as most drivers do not have
accidents, most of your options will never go in the money. %owever, as in insurance, a few bad
accidents can be bad for the bottom line. An insurance company, therefore, tries to reduce the chances
that one of its drivers will have an accident by checking a number of factors such as driving record, age
of the driver, type of car, etc. As an option seller, you will go through this e#act same process e#cept
instead of drivers, you will be studying a market&s 'driving record,( historical tendencies, current and
future fundamentals, etc. )hile an insurance company can in no way guarantee that the drivers it
selects will not have accidents, it certainly can help its business by selecting only drivers who have
what it considers a low chance of being in an accident. Thus it can lower its risk and increase its
profitability.
,
Option Time Decay
Time 5eca& o! an option beins to accelerate in the
last 30 %a&s be!ore e,pir&
120
Days
90
Days
60
Days
30
Days
0
Days
Time Decay from Day 120 to Day 90 (Least Impact)
Time Decay from Day 90 to Day 60 (Slightly Greater)
Time Decay from Day 60 to Day 30
(Greater Still)
Time Decay from U!er
30 Days "rior to #$piry
(%ost &api!)
'ptio
(al)e
Time &emaiig Util #$piratio Date
7
Portfolio Strategies

$tili%e hedge strategies to manage risk and minimi%e

losses

&bsolute 'eturn "trategy ( &llowing for potentially

positive returns irrespective of market direction

5i*ersi!& 8loball& "ith no in*estment

t&in up more than /00 o! the total
in*este% capital
-
Portfolio Strategies
Contd

)nly trade in li*uid markets

+arget total invested capital re*uirements to no more than

20, of total account balances

&ctive risk management practices in place such that no

investment incurs a big drawdown
Strategy is targeted to hit consistent
singles every month and never swing
for the home run!

Taret !or consistent monthl&

positi*e returns o! 10 to 209

Capitali1in "ith market *olatilit&

This trading strategy that does not attempt to forecast 100% the market direction, even if we are wrong
in the direction, since we sell Deep-out-of the-Money options, the market need to make a major move
against our position in order for us to lose on the trade, and in this case we have to ways to protect our self,
uying the stock, or roll the contract!
"nformation used to influence the investing decisions includes#
$ "nterest rate and annual volatility
$ %roaility of an option eing at a specific price &touching', eing aove or elow it!
$ The historical pricing patterns of the pair
$ %rice movement
$ Money management
:ort!olio +trateies Cont;%
1.
!at is "#solute $eturn
Investing%

-otential to make money in all market environments

-otential to make money regardless of market direction

-otential to make money while managing risk

-otential opportunity to have positive returns in the e*uity

markets or underlying commodity markets via ETFs.

11
Investment Strategies &sed

"elling uncovered puts for the opportunity to buy

undervalue stocks

.ook for )vervalue -remium to sell

"elling /overed and uncovered calls

<e e,ecutes this in*estment strate& onl& on liquid +tocks an% 6T7
12
Investment Strategies &sed

Investing cycle
"ell put options to gain capital
0arn enough capital to pay for the stock ('oll )ut)
1uy the stock and then sell covered calls against the stock
1e e2ercised out of the stock
'epeat the investing cycle
13
Option Selling Strategy

02ecute the sale of short term date, far out of the

money in 0+3 or "tocks

02piration is between 25 to 60 days

+arget a win rate of 60, on all contracts written

+arget a 4 to 2, net monthly premium

$1207 8inimum investment

1+
Summary of Terms

Management fee 2%, Incentive 3ee 20,

"hort 60:;ay .ockup +erm

1/
!at *akes Our Strategy &ni+ue

8ulti market approach to option selling

02ecute only in li*uid e*uity and 0+3 markets

"tatistical advantage that most contracts will be profitable

(over 60,)

&dvantageous in that the underlying price can move

against us and the contract can still be profitable

;iversification within financial instruments to minimi%e risk

1,
$isk *anagement
Solid practices wit! clients needs in mind

-ro:active monitoring and management of investments in

relation to risk, return, capital re*uirements, and market
directions and policies in place to ad<ust as needed

/onservative money e2posure guidelines in place

Management Review
Analyze Liquidity and Leverage

Analyze Volatility
Consider and Account for Drawdown
Factors
Fund-level Review

Review Fund Performance on a Daily

Basis
Trac Correlation Regularly

!easure and !inimize "#$osure

Analyze %cenarios on a !ont&ly Basis

Fund-level Controls

Performed 'nly As (eeded

Focused on Ris)reduction and Cost)

effectiveness
17
$elia#ility ,
$esponsiveness
$especting our clients #usiness

=ighly seasoned, e2perienced, competent and professional staff proactively managing the day
to day investments

+imely, accurate, and thorough reporting to investors

>e have our own money invested in the same managed trading program as our clients, proving
we believe in it and risk our money alongside yours

>e are an alternative investment management firm seeking to make money for our clients
regardless of what the stock, bond, and real estate markets are doing

>e will not be able to access your funds >e only have the ability to trade within your account

)ur 1roker is 8ember of 3I?'&, "I-/, &80@, ?)8, /1)0, I"0, &rca0@, 1)@, -=.@, and
?3&
8R6AT =U>T6+
'I don&t look to "ump over *+foot bars, I look around for -+foot bars that I can step over.(
-<arren ?u!!et
.The important thing is to limit portfolio risk. The trades will take care of themselves.
-<illiam 6ckhar%
'The most profitable insurance to sell is insurance against something that doesn/t happen(
-The In*isible ?ankers
( "t is eing wrong and not cutting a loss that damages oth the pocket ook and the soul)
0The 1esse 2ivermore
'0ou will receive abundance for your giving. The more you give, the more you will have.(
-<' Clement +tone