Podcast appearances and mentions of michael hello

Thank you for joining us for our 2nd Cabral HouseCall of the weekend!   I'm looking forward to sharing with you some of our community's questions that have come in over the past few weeks…   Michael: Hello, Dr. Cabral, Thank you for all of the information you share on a daily basis. It is very helpful to many people. My question is regarding shipping labs to Washington State. We used to be able to order labs through Equi.life to the state of Washington, but over the last year or so we have been unable to receive labs. Awhile ago I heard you briefly mention the issue is due to state changes regarding labeling, I believe. I'm wondering if there is a timeline to a time we can start to have labs shipped back to to Washington. Is there someone we should be contacting to share how important at home labs are? Thank you for answering my question.     Diana: Hi Dr. Cabral. I've had an issue with mold toxicity for years after growing up and living in a very moldy house. I finally tested negative for mold after working with a functional medicine doctor. We started working on heavy metal toxicity directly after, which included taking a DMSA, and I felt worse. We retested for mold and my results were once again sky-high. The only explanation is that the DMSA promoted the release of mold toxins my body was holding onto. I know this is my body trying to protect me, but how do I get my body to stop holding onto mold toxicity so I can finally heal? It's a chicken-and-the-egg scenario: my body won't release the toxins because it's under too much stress, but my body is under stress BECAUSE of mold toxicity. Thank you for all you do, Diana              Dave: Hello. I bought the Theraozone module and am wondering the benefits of having this run while I am in the sauna, office, or car. A mold inspector came to the house and said that running ozone (on the AirDoctor) was terrible for the lungs and health in general. Is that true? Is the ozone on the AirDoctor the same as the Theraozone module? Are there different levels to ozone therapy? Thanks in advance!                                                                                           Marla: Good day Dr. Cabral…. I've had a very itchy rash on my back since July. It was recently diagnosed as Grover's disease. The only solution given was a topical steroid cream/ointment which doesn't really help. I'm going crazy with the constant itching.Any suggestions would be appreciated. I am planning a detox after new year. Best regards, Marla     Thank you for tuning into this weekend's Cabral HouseCalls and be sure to check back tomorrow for our Mindset & Motivation Monday show to get your week started off right! - - - Show Notes and Resources: StephenCabral.com/3271 - - - Get a FREE Copy of Dr. Cabral's Book: The Rain Barrel Effect - - - Join the Community & Get Your Questions Answered: CabralSupportGroup.com - - - Dr. Cabral's Most Popular At-Home Lab Tests: > Complete Minerals & Metals Test (Test for mineral imbalances & heavy metal toxicity) - - - > Complete Candida, Metabolic & Vitamins Test (Test for 75 biomarkers including yeast & bacterial gut overgrowth, as well as vitamin levels) - - - > Complete Stress, Mood & Metabolism Test (Discover your complete thyroid, adrenal, hormone, vitamin D & insulin levels) - - - > Complete Food Sensitivity Test (Find out your hidden food sensitivities) - - - > Complete Omega-3 & Inflammation Test (Discover your levels of inflammation related to your omega-6 to omega-3 levels) - - - Get Your Question Answered On An Upcoming HouseCall: StephenCabral.com/askcabral - - - Would You Take 30 Seconds To Rate & Review The Cabral Concept? The best way to help me spread our mission of true natural health is to pass on the good word, and I read and appreciate every review!  

https://theapsocietyorg.wordpress.com/news-and-events/suntree-retreat-2024/   Episode from 2022 Suntree: https://thewonderpodcast.podbean.com/e/live-from-suntree-retreat/   ----more----     Mark: Welcome back to The Wonder, Science Based Paganism. I'm your host, Mark, Yucca: And I'm Yucca. Mark: and today we have a really exciting group of people to talk about a really exciting upcoming event, which is the Sun Tree Retreat, which is the second of these retreats that we've held in person for atheopagans from all over the world who can come. Held in Colorado Springs, Colorado, and it's going to be over Labor Day weekend this summer. So, I'd like to introduce our two panelists here, who were at the last one Rana and Michael. Michael: Hello. Yucca: Rana, we Mark: I can't hear you at all. Rana: Oh, thank you for having us. Yucca: Welcome. And I think both of you've been on the podcast before, right? So, welcome back. Michael: Oh, thanks. Can Yucca: Yeah. Michael: put that Yucca: So let's, let's start with the, some of the details because that's coming up really soon, right? That's Mark: It is, Yucca: two months, which is not very long. Mark: nope, not very long, especially if you have to get plane tickets and that kind of thing, so, Really encourage folks that want to go to get registered and get organized around it, because it's going to be a really good time. So, details. The event is August 30th, which is a Friday starting in the afternoon through noon ish or one o'clock or so 2nd. Registration includes nine meals. As a part of your, your registration fee you also need to register for lodging, which is very affordable and you can find all the information about it by going to the Athe O Pagan Society website, which is the ap society.org, THE ap society.org, Yucca: And the lodging has several diff oh, Michael: notes as well for this Yucca: absolutely, yeah, we'll put that in the show notes so that people can just go ahead and click on it. I was gonna say the lodging has several different options including tent camping, and yurt and Mark: guest house, you're. Yucca: I think it's dry camping, but you could, if you have an RV and you're in the area, you can do an RV too, is that correct? Mark: Yes, there are no hookups, but but there is parking for RVs. We had a couple of people, at least one couple came last time, actually in a school bus, Yucca: was really cool. Mark: was converted. It was really cool. Yucca: Yeah, Mark: So, Michael and Rana we wanted to talk some about why this event was so cool last time and what we're looking forward to going into this next one at the end of this summer. So why don't we start with kind of golden moments. Michael, you want to go ahead? Michael: I wanted to just say beforehand, you mentioned the meals, and one of the high points of it was the options available. Like, every dietary requirement was accommodated, I think. Mark: Yeah, Michael: The catering team there are fantastic, and I think people shouldn't feel concerned about food at all because the options were great the food was really high quality I think everybody felt really good about the food, so that was an important, that was a real high point so just wanted to make sure we got that mentioned. And, Mark: Yeah, great. Thank you. And, and eating together was really a high point for me. Just sitting down for meals, you know, they had these round tables that I think seated eight or ten or something like that, and different combinations of people would sit together for different meals. And so we got to know one another better in those mealtimes. So that was a high point for me. Somebody want to go with another cool thing that they remember from Suntree in 2022? Yucca: well, I remember Robin led these I'm not sure what you would really call it,  Rana: yeah, the meal acknowledgement. We have talked about them in the group, but it was really different being able to experience it together. And it was things like bringing to mind the history of our food or thinking about the systems that brought it to us today or the hands that it passed through. And we've had some discussion in Mihal's full moon. We were doing like a full moon lunch thing for a little while as well where we kind of continued that conversation and, and thinking about that, which is something that I find really enriching and really enjoy. Also want to strongly second the dietary accommodations that they had. I really, really appreciate it because I have a little bit of an odd diet and I felt. Really good and definitely did not lack for good options for food. Mark: Mihal, you want to go? Michael: yeah, what I found really interesting about the, The whole experience was how quickly we created a community in space particularly when we did our Fire Circle get togethers. And the kind of spontaneous sharing that occurred at those events was really amazing. People really just suddenly kind of created this family. in situ and it was it was great to be part of that. Just sometimes if you go to other kind of retreats it can take a while to kind of break down those those barriers we put up. Just as just as being human but it seemed within a just a few hours we'd kind of already started to create a special Sun Tree community and I thought that was fantastic. Mark: Yeah, I really agree with that. I mean, I've been to a whole lot of various kinds of pagan gatherings and retreats of various sorts. And it seemed as though we just kind of got at this visceral level that we were among, you know, people that were of like mind and similar values. And so that we were safe. Right? We were all, we were all going to play nice with one another, and so we could talk about really deep stuff in our, in our lives, and in our, our experience. And I found that really moving throughout the whole long weekend. It was, it was, it came up over and over again. Yucca: I was also really struck just by the immediate level of respect and consent that was just part of the, Everybody had going in. So I had my five year old with me and in a lot of situations in our culture, people you know, will go up and touch five year old's heads and give them hugs and, you know, all of those sorts of things. And I remember it just being great because people automatically were so great with her about asking for her permission. Like, do you want a hug? And would you like to shake hands? And that was just the culture of it. And it was just so refreshing and wonderful to just be in that space, just from the get go. Like Mark: and I mean, we had, we had laid out guidelines around consent and around conduct because, you know, we wanted to be very clear about, you know, what the expectations are, but it seemed like people read them and were like, yeah, that's civilized behavior. That's how I'm going to be. And the subject Honestly, never came up. There was never a situation where somebody felt like they had been inappropriately touched or or somehow invaded in that kind of way. And I thought that was, that was really pretty amazing. Michael: I just wanted to talk about the actual place as well. The Retreat Center is Really, really phenomenal. There's this beautiful forest. You're kind of just on the edge of Colorado Springs, so it's not too far from any stores or anything that you might need. But once you get in there, you suddenly feel like The outside world has disappeared just in this beautiful forest really a fantastic place just to go for walks just to go into the forest by yourself if you want to go for I think one of the big highlights was that we had a lunar eclipse while we were, while we were there, and being able to all, for the whole, all of us to go out there onto this big lawn and just stare up at the, at the moon together, and people howling at the moon, it was It was just a really fantastic experience as well especially just having that, we, we had the the Ponderosa Lodge, which is this big log cabin lodge that we can use for a lot of our activities, for rituals, and for our workshops. And that's a real, that's, that's a really nice space as well, there are different rooms, so you can kind of break off and do different things with people, or you can kind of come to the main room and have a bigger discussion. We had dance parties there, we had the Carnival of Change, which was a chance to kind of take on a different persona, like dress up. be a different version of yourself for the evening. So I think the whole, the whole retreat center just kind of facilitates that. There's a, there's a labyrinth there as well, which we didn't really incorporate too much into any rituals the last time around, but I think we're going to try and bring that in more this time around. Mark: Yeah, it's a beautiful spot. Rano? Rana: Yeah, the, the shared experience of the lunar eclipse was pretty special and it, it just so perfectly aligned with what we were doing. It was the same night as the Carnival of Change and it just felt like great, like the weather cooperated and we got to see this cool celestial event. It wasn't even at a super late time, like it was, it felt like a Yucca: like eight or nine. Yeah, Rana: Yeah, yeah, it felt like started our evening, kind of, or, you know, it didn't, it wasn't, you know, too far on late night or anything. The Carnival of Change itself was really fun, just to be able to play dress up together and listen to some music and, and just have fun. And I also like, like Michael said being able to split off into other little rooms and areas. It And I think for me, something that I really appreciated was the ability to have these just kind of unplanned moments where so much of our online interactions are very scheduled and it, you just show up at a certain time and there's a group of people and that's kind of mostly how it's gone. But, like, I just remember some folks were up later one night just all chatting and hanging out. And I love that feeling of if you're up late and feeling a little bit chatty or sociable, you can just kind of see who's up and just take a seat and hang out for a bit. And that's something that otherwise has felt like not really something we have access to. So it was particularly nice just to be able to connect in a more organic way, depending on how you're feeling. Mark: hmm. Yeah. Nihal? Michael: Yeah I think we, there was a lot of, there's been some learnings from that event as well, and I think there, we were really concerned about accessibility this time around, because there was a lot of movement between different areas. And so this time around we are definitely going to be making it more accessible as well. There's going to be designated drivers, so we want to make sure that everybody feels comfortable and everybody's able to take part in all the different events that we're having. So, I, I know that there's going to be a lot of more accessibility this time around, especially just in terms of shuttling people around the property. Yucca: Because there were a few hills and we were moving from the bottom of the hill back up to the dining room and then back down. Michael: Yes, yes, yeah, but I think we, Mark: and we were at 7, 000 feet. Michael: that was another, yeah  Mark: yeah one of the things that we learned from the Sun Tree Retreat in 2022 is that we had programmed a lot of the time, but some of the most memorable and wonderful moments were the unscripted times. The, the, The break periods when we could just gather together and socialize, or plan what we wanted to do for a rite of passage during the rite of passage period that we had later on, which was one of the most moving things to me. That was really an experience. So this time we've programmed in more free time. There's still plenty of workshops and, and rituals and experiences to have, but we've made it a little bit looser so that people have opportunities just to hang out and experience the place and one another. Michael: yeah, yeah, I just wanted to I might talk about the rites of passage a bit more because that was quite a unique experience. I guess we didn't really know how that was going to go because it's kind of like, it's a make your own ritual event, basically. You, you just DIY it with some help from some friends. So I think people were, they had various things that they wanted to celebrate or commemorate and or mark the end of a period in their life, or the start of a period in their life. And we all came together and celebrated those those events together. And I think what was really amazing was just the creativity that people brought to their rituals. Really very moving and even though they were very personal, I felt that We all kind of, as a community, came together and it became something for all of us. Mark: Yeah. I felt so included in all of those rituals. I felt like my being there mattered. And even if just as a witness and that. You know, that there was room for everyone to have the kind of experience that they wanted to have. And it, and we, we ended the rites of passage with a wedding, which was sweet. It's kind of, you know, the classic act four of the movie, right? And that was really lovely. So, I was, I was super happy with that, and we're doing that rites of passage process again this summer. Michael: Maybe we could talk about some of the workshops that took, that people liked. Mark: Oh, yeah. Michael: I really, I think one of the highlights was the Cosmala workshop, bead workshop, which is basically making a bead necklace that, with each bead representing an important part of, in the life of the universe, or in your own personal life, or just various different events that you want to commemorate. That's, that's kind of right, isn't it? Or was there any Mark: John Cleland Host, who is our friend and a real innovator in the whole realm of naturalistic paganism, one of the earliest people to write about it in its new resurgence. He has this amazing more than a hundred bead string. Of, that all, it starts with the Big Bang and it works all the way until, at least until the Sun Tree Retreat, because he had special beads made for the Sun Tree Retreat that he distributed to people so they could put them on their own cosmola. That was very, very cool. And some of them are signed by people like Starhawk and Jane Goodall and just really a fascinating, wonderful ritual tool and evocative piece of art. Yucca: so there were a lot of different styles of workshops too. There was a, like a history one and there was a John did another one which was like the Wheel of the Year, which he had some really cool handouts for too for that. Mark: We live the year for families, which I thought was really wonderful. You know, a lot of people in our community have families that they're working to build traditions with together, and so, and John has really, you know, pioneered some of that, you know, working with his, with his wife and his sons. And just had a lot of great ideas about different things he could do at different times of the year and was, you know, freely sharing all that stuff. It was great. Rana: There was also a group guided meditation that we did outside overlooking Pikes Peak on their big, expansive, beautiful lawn with all the ponderosa pines, which I'd never, I don't think I'd ever seen them before. I'd never been to Colorado before. And that was really lovely just to kind of take a moment to be there and be present. And there was also a body painting. Which, I appreciated the, like, especially interactive stuff because it's something we're normally restricted about online. And I really loved Mihal's presentation about virtual meals because I think food is just such an integral way to connect with other people and you can infuse it with all this symbolism. And it gave me a lot of ideas. I need to revisit my notes on that and thinking forward to the next one a little bit too, just that ability to share food and those meal acknowledgements really adds to that feeling of making meaning with other people and making community. Michael: Yeah, we had a food altar as well, which was kind of cool. An abundance of food. People brought stuff to share. And I thought that was fantastic as well. Just, uh, one, one person brought some really good kimbap, which I love. So that, if you don't know what that is, it's Korean sushi, basically. And it was just really good. Mark: Yeah, there, there was there was just a vibe of generosity and mutual support. Mutual affirmation. You know, I came away from it feeling like, you know, I've got these amazing, super cool people in my world, and they feel the same about me, and that's just good for my life, generally. Even if I'm not going to see them for a couple of years, except online, just knowing that we shared this experience together just helps me to feel affirmed in who I am and what I do. And I, I, I think I think that was the general vibe that people got out of the event. Yucca: That certainly was, I felt that strongly as well. I was, you know, riding that for several weeks after coming home. Michael: Definitely an afterglow of, kind of like, hard to come down from the high of the event as well. It took a while because it was so special. Mark: yeah, absolutely. So we want to talk a little bit about some of the offerings we're going to have this time. Some of them are repeats from last time, but some of them are new. Let me see if I can pick one. Oh, go ahead. Michael: I was just going to say, maybe everybody's had a chance to look at the program and if you, if there's any particular highlights you want to, that you'd like to talk about that maybe you're looking forward to. Mark: There's so many things. Um,  Michael: Well, should we talk, let's talk about the theme first. Mark: sure, of course. That's a great Michael: we didn't, we didn't have a theme last time, but we do have a theme this, this time. Mark: Which is Solarpunk, a chosen family reunion. The idea being that Solarpunk being a very kind of optimistic movement for the betterment of the world, the betterment of our relationship with nature rather than kind of the doom and gloom that we, that we see everywhere around us now, Solarpunk is a, It's a genre of of writing and of art that is optimistic and looks to the future as, yes, filled with challenges, but also filled with opportunities for us to grow and change and do better. And the chosen family reunion part is I mean, I certainly felt and I think that a lot of us felt at the last Sun Tree Retreat that these, these people were my chosen family. It was, it felt like, oh, wow, all my cousins and uncles and, and nephews and nieces have all shown up and now we're having this great sort of family hoopla together. It was, it was great that way. Yucca: And one of the workshops is going to be on solar punk and atheopaganism more specifically, right? That's Mark: yeah. Michael: Yeah, Hanna is going to be leading that one. Mark: Mm hmm. I'm looking forward to that one as well. And of course we'll have some some elements that will be around, you know, learning how to organize rituals or to you know, to design them. Or you know, kind of learning the observational skills about getting more in touch with the processes of nature around you. Mm hmm. That was something about the, the lunar eclipse last time that it really dovetailed with something that, that Yucca and I talk about on here all the time, which is just about, you know, paying attention, about being present and experiencing the moment and observing what's happening in nature, and That was such a dramatic event. It really, really riveted our attention for about an hour or so. Michael: We're bringing back the Cosmala again, because that was so popular, and I think, I'm sure that new people are going to want to try their hand at making Cosmolas. Mark: I've never made one. I, I'm, it's an oversight. I have to do it now. Going to do a reader's theater. I'm organizing that of a reworking of the myth of Hades and Persephone and Demeter in Greek mythology. Because, even though that's a very popular myth in pagan, kind of modern pagan circles and a lot of different groups have done reenactments of the Eleusinian mysteries that enact that story, it's a pretty terrible story, really. I mean, Hades, Hades captures the innocent daughter Kore, drags her away and makes her his wife. That's terrible. Not so cool in modern, Yucca: way of putting it, Mark: yes, that is a very polite way of putting it, yeah. So, so I rewrote it. I rewrote it to have a different kind of ending and a different set of teachings than the original story did. And we're going to do a reader's theater where people who come to the workshop can pick up a script and take a part and we'll all read it together. And and it'll be fun and hopefully people will enjoy it. So that's another thing we're going to do. Michael: Yeah, we've occasionally done death cafes online which are kind of opportunities to talk about death and, you know, I think our movement's kind of a death positive movement, and we want to kind of honor that, and so something I'm going to be leading is an Irish wake kind of experience, and, you know, at an Irish wake, it's not just mourning the dead, it's kind of celebrating life. And kind of celebrating chaos and causing mayhem. So we're gonna have we're gonna have a bit of an Irish wake experience and I'm, people are gonna be invited to bury the things they want to bury, or remember the things they want to remember. And then we will also cause some mischief as well. Mark: Sounds great. I'm up for all of that. Yucca: And on Saturday, at lunchtime, we're planning to do the same thing that we did last time. to do a live podcast episode, and that may be an opportunity for folks who can't attend in person to zoom in and connect. Yes, Mark: Yes, cross, cross your fingers for the internet connection at the Retreat Center. Yucca: that's why we say May, we're going to try really hard, technology willing, right, Rana? Rana: So, the last time we had Sun Tree, we hadn't yet started our adult salon. Which we recently rebranded as Adult Forum, and I'm really excited to be able to have that in person for the very first time. I've really valued it as a space to connect and share resources and share a little bit about our experiences and our lives. And for folks that might not be as familiar with what it is, it is a peer support space to discuss adult topics openly, and it is, we consider it kind of semi structured. We usually start with a topic just as a starting point of conversation, and then we let things naturally flow depending on what the participants want to talk about, what's on their minds, can go through multiple topics in one session. It is a confidential and non judgmental setting where we're really there to learn from each other's experiences, share our knowledge, especially if you have a range of ages. There's folks that have just lived different lives or experiences that may have things to share feel less alone. In a lot of things that we encounter in life I know. There's a real epidemic of loneliness, especially in America, and it's something I always have felt really deeply about, but don't really know what to do about it, so I appreciate being able to be a part of this space and have this space together in order to continue that kind of connection and We're going to have a way for people to anonymously submit topics or questions while we're at the event so that the people that are there attending are really crafting what it is that we want to talk about and the topics have really ranged in the past and included things like money, relationship styles, aging, death, altered states, sexuality, and more and Yeah, I've just been really looking forward to it. It is an 18 plus event, and I just, I can't wait to have that in, in person. I think it'll be a great version of it, just because we've always had it remote. Mark: Yeah. Michael? Michael: I know there's one of the FAQs we get around this is that you know, is it going to be recorded? Am I going to be able to participate online? And unfortunately, no, it's just for some of the reasons we discussed. First of all, technology, it's not always reliable, so we can't really do live stuff. I think it's possible that some of the workshops will be recorded. That depends on the presenter. And, but we don't want to, we want to also, honor people's confidentiality as well. So it's possible that we can record some of them, but maybe some of them won't be recorded. But that's why we also offer our totally online conference every other year as well. So if you can't make it in person to SunTree, we will be doing our web weaving online conference next year. So that is just a way of bridging that gap where if you can't make it in person, there is still an online space for you to take part in. Mark: Right. Right. And I, and I should point out the adult forum will not be recorded. It's, it's a totally confidential, just live action space for people to, to have discussions about sensitive stuff. So you needn't worry that you're going to find yourself on the internet talking about personal things. Yucca: Right, and for any of the presenters who do choose to have their, their presentation recorded, it would just be of them, not of the audience. So there'll be the private, privacy for the folks in the audience. Mark: Yeah, because, I mean, there are, in our community, there are people who are You know, in various stages of outness in relation to their non theist atheopaganism, right? Some are out as atheists, but not necessarily the pagan part. Some are completely solitary in, in their You know, practice of their path, and we want to be respectful of all of that. So, it's really important to us that people be able to participate without endangering something that, that is important to them. Mijo? Michael: Something that's New this time around, as well, is that we will be kind of having formal vendors. I will be sharing a sign up sheet for people in the coming days, where you, if you want to, if you've got anything you want to sell, or products or services we will have a space for you to do that. So, if you're, it could be anything, you could be selling, selling your own craft, or, I guess, doing Readings or things like this. We'll just sign up and we'll we'll reach out to you if we need, if we have any further questions about the kind of stuff you're going to be sharing with us. Mark: We should say, though, that, that the vending is going to be during a particular window of time at the event, because what we don't want is for a vendor to be there stuck behind a counter, and for the entire event and unable to participate in the various activities, right? Because they're part of the community and we want them in with us doing all the stuff. So we're going to have a marketplace slot in the program, and that's when you can do your vending and, you know, promote your services and all that kind of stuff. So what else should we say about this? I mean, we know because we've been there, it's really cool. Hope that our listeners Yucca: to just put that out there for that part of the world. It's a nice warm time of year. Last time Michael: Will the swimming pool, Yucca: May, which was a little bit iffy, we got really lucky. last Mark: we did. Yucca: I think it started snowing right after we left, Mark: Yeah, something like three days afterwards it started snowing at the retreat center, but that's not going to happen this time, because we're on Labor Day weekend and it should be pretty temperate and nice. Michael: I think there's a swimming pool there as well. Mark: Oh, that's right, it was closed when we were there before, but there is a swimming pool there. Yes, Michael: We should double check if we have access to that, but I think we will, but we should probably double check that. Mark: yes, that's true. Ha ha ha! Michael: I guess you should definitely get booked in quickly if you are intending to come. Because we're, it's coming up fast. I can't believe it's only two months away, so you really need to start thinking about getting your, making your way there and booking your tickets. Mark: Yeah, yeah it's very affordable especially when you consider that it includes nine meals and the lodging for the, the Yurt guest houses is only 75 for the entire event. So it's you know, we, we, we set price points low because we wanted people to be able to access it and we know that there are travel expenses associated. We if you, if you want to come, but there are, you know, financial issues, we have limited scholarship support, so please contact us. You can use the the Wonder Podcast queues at gmail. com, podcast email address to contact us, and we'll get back to you about that. But we'd really encourage our listeners, you know, if you like what you've been hearing on this podcast for the last five years now come and, come and meet us. Come and, and, you know, meet the community and, and check us out. Michael: It was just, I don't know if I expressed how Amazing it was, but it was just such a unique, a singular event and kind of a highlight of my life, I'd really say. It was just spectacular, and I don't know if I, I don't know if I captured that before, but I just thought it was just an amazing thing to be part of. And I think it's going to be just as amazing this time around. Mark: Me too. Yeah. I, I, I can't wait to see you all. And and other folks that, you know, I met two years ago. I'm just, I'm so looking forward to it rana, I Rana: so for me, it, it really felt like coming full circle, like I'd connected with you all, and we spent so much time together during the pandemic. so much. My personal life was also going through some transition and Suntree was actually pretty emotional for me. It was good But I don't know it's a little hard to explain But it just felt like I did a lot of emotional processing while I was there But I very much felt like I was in community I was able to finally meet these people that I had connected with and So now it just feels like I have something to look forward to You going forward knowing that we're gonna do this with some regularity. And for myself as well, it also gave me some more confidence traveling alone because I'm used to traveling with a partner if I go somewhere, especially airplane travel. And so it helped me feel a little bit more adventurous and confident feeling like I went to a state I've never been to before and met up with some people and everything went great. Like, no, no complaints. Mark: really felt that same sense of just really being able to be myself. And I was surprised by that because as one of the organizers last time, I thought I was kind of going to have to be on and sort of be a host. You know, for the whole weekend. And that really wasn't the case at all. I, I, I just felt like, you know, I was, I was welcomed there, warts and all, and there were plenty of other people to help. And it was great. It was just really a good, good time. Well, listen, thank you. Oh, Michael: Hopefully we can do the, the firewalking this time, because last time we couldn't do it because there was a burn ban, but there is potential for doing a firework walk. So people are into that, that might be available. So we'll see what happens. Yucca: Keep our fingers crossed. Mark: that would be exciting. I've never done that, and I'd like to try it. I don't know why I'd like to try it. I, but I would. Michael: That's the ultimate ritual, I guess. And for anybody who's kind of, their ears are pricking up when they hear that the person leading that has got decades of experience. Mark: Yeah. And, you know, very, very careful rules around, you know, everybody having to be absolutely sober, you know, being, you know, a lot of focus, doing this in a really sacred kind of container, so that's that's That's all to the good. Let me see. So, we're gonna put the link to the the event in the show notes. You can go, you can read the program, you can read about the event, you can see a picture of the Ponderosa Lodge and Atheopagan Society website, there's also a gallery of photos that were taken at the last Suntree retreat. So you can take a look at that.  Michael: Could you add in the show notes as well? Could you add the episode we actually recorded? Yucca: Oh yeah, let's link to that because we, yeah, that would be nice to go back and listen to actually. And what was it like in the moment? So that'll be in the show notes too. Mark: yeah, yeah, I just, I just remember we're sitting there and we're talking and people would cruise up to the table glowing and sit down in front of the microphone for a little while and talk about the experience they were having and then toddle off and somebody else would come by. It was just, it was lovely. So listen, folks Sun Tree Retreat, you don't want to miss it. Please come join us, visit with us. We, we would so love to see you. And we will be back next week with another episode of The Wonders of Science Based Paganism. Thank you, Rana and Michael. Thank you for being here. Michael: Thank you.   

MICHAEL Hello and a very warm welcome to your weekly news review show on Colourful Radio. We call it Five in the Eye because we look back on five of the stories that have caught our eye over the past seven days and put them under the spotlight. This is episode 0447.    PHIL And joining Michael via Zoom this morning, it's Phil Woodford, our top story thus week the devastating report from former Prime Minister Gordon Brown poverty in Brtain today    MICHAEL A great taster of what's to come. And for story number two, we cross the Atlantic. A mother of a teenage killer has been found guilty of a crime herself, for supplying the youngster with the weapon he used to commit murder.      PHIL What's story number three? Well, Prime Minister Rishi Sunak accepted a £1,000 bet with broadcaster Piers Morgan over whether he could get Rwanda flights off the ground. What does this say about his judgment?    MICHAEL Our fourth story is from an archeological dig, where a flat-pack bed has been discovered. It was made by ancient Romans for use in the afterlife!    PHIL And to round off the Eye at number five, it's the assertion by a writer in The Guardian that game shows ain't what they used to be. At least in terms of what people win and how they use it.    MICHAEL The only prize here is making our way through to the end of the show! And that's this week's Five in the Eye! ++++ 

Last month Eenzy caught up with Atlanta-based chaotic hardcore luminaries Apostle for a heartfelt hobnob after a show. The band gets into how they adapted to losing a member and becoming a trio, how they support each other creatively and emotionally in the band, and they land some solid burns at the expense of jazz and black metal (genres famous for their sense of humor). They're currently supporting their latest release Liminal. Listen to the interview down at the bottom or on our Spoofy channel and read the edited transcription below. [Fan crashes interview to tell the band how great the show was] Eenz: Hey guys, Eenzy here outside 529 once again, this time with Apostle.  You guys wanna introduce yourselves? Michael: Hello my name is Michael and I play bass in the band. Murice: I'm Murice I do guitar and vocals. Evan: I'm Evan - I play drums. Eenz: I just sat through a pretty bitchin' show with you guys, Malevich which is another local blackened grind band, Hexis -  a great band from Denmark, and.. I forget the last band actually.  But I have questions about your band so it doesn't matter. My first question is about the name: where did the name Apostle come from? Is there a story behind it? Did you just pick a word out of the dictionary like Health? What's up? Evan: It was kinda something I was sitting on in my early 20's, I was going through my kind of angsty, atheist-phase. To be totally honest I was like 'Yeah, it'd be cool to have a band in a chaotic and abrasive style kind of tongue-in-cheek named Apostle'. Honestly, I just thought it sounded kinda cool at the time, and it stuck. When we started playing with Cam when the band actually formed, I had that name in my back pocket from over the years and was like 'what if we just named it Apostle?' and it just kinda stuck. Eenz: Cool, I like it - the bible's pretty metal in certain parts.  Other parts are pretty fucked up, but whatever [editorial note: dude, the metal parts are super fucked up too] Second question: You guys blend a lot of different metal genres. I hear like grindcore, maybe some crust, definitely blackgaze, maybe some mathy parts. How would you describe your style of music and the bands you're influenced by in this project? Murice: I always just like put us in the category of like chaotic hardcore, just cause it's an easy catch-all term. I'm sure all of our influences vary, but mine are stuff like Yaujta, Sumac, Infernal Coil, Iron Lung, Coke Bust, The Chariot. Just names like that - listening to them really pushed me to like try to do something more with the music I'm making. Michael: One of the cool things about this band is that we all have different influences and we listen to a lot of stuff.  For me, especially when I started playing bass instead of guitar, a lot of like Glassjaw - the Material Control record especially, and things like Botch and Russian Circles - just Brian Cook's bass tone and how he uses a lot of chords, even like Jawbreaker, how their bass player would use a lot of chords to get a thicker sound. When we went down to a three-piece I just wanted to fill as much sound as possible, so for me it was more of a tonal thing, like this band with just a guitar and bass player were able to bring a thick sound I want to try to bring to this band. Evan: Not to sound cliché, but it really is just like expression. I myself am a huge jazz nerd to a certain extent, I mean Tony Williams is my favorite drummer and probably my biggest source of inspiration. But like Murice was saying, the more extreme forms of punk - grindcore and powerviolence-type bands. You mentioned blackgaze, like yeah the atmosphere is indicative of a little black metal in there, but I'm really just trying to push myself as a drummer and get faster at playing blast beats cleanly just hoping to support the songs and further create an atmosphere for the melting pot of shit we have, the stew we have going. Michael: Just to jump in there,

As Devin and Chris make their way through the Top 10, they arrive at Goodbye Michael, Hello Pinsky. The Anawana crew is introduced to a new kid on camp and he comes bringing salami. 

Bar: Hello and welcome to the GolgiRadio I am here with Michael Nguyen. Hello, Michael! Michael: Hello.  Bar:  I met Michael in a pizza place, and this is a very improve podcast right now. we’re starting to talk about some stations, and Michael is aspiring to become a psychiatrist who’s working in Sutter Hospital. Putting ... Read more 7# Expansion of the 5 Senses ft. Michael Nguyen

Scrum: The Art of Doing Twice The Work in Half The Time Book Review Scrum is a framework for software development and project management which focuses on the team working as a unit to reach a common goal. Today’s podcast is a Book of the Week episode. Host Michael Pinkowski, introduces us to the book, Scrum: The Art of Doing Twice The Work in Half the Time by Jeff Sutherland. Here are some major key points on today’s episode: Scrum’s first concept - collaborate. The 3S words - Scrum master, Sprints and Stand Up. How Scrum relates to happiness. The questions to ask everyone at the end of each sprint. So jump aboard and learn how you too can use Scrum to improve productivity in your team. 01:15 (Michael Pinkowski introduces the Book of the Week, Scrum: The Art of Doing Twice The Work in Half the Time by Jeff Sutherland.) 04:34 (Scrum started when author Jeff Sutherland worked with the FBI on a project called Sentinel.) 24:37 (Time is no longer a linear arrow but a cycle.) 27:13 (Michael discusses some of the axioms in the book.) 40:24 (How to apply Scrum in your business.) Welcome to the Awesomers.com podcast. If you love to learn and if you're motivated to expand your mind and heck if you desire to break through those traditional paradigms and find your own version of success, you are in the right place. Awesomers around the world are on a journey to improve their lives and the lives of those around them. We believe in paying it forward and we fundamentally try to live up to the great Zig Ziglar quote where he said, "You can have everything in your life you want if you help enough other people get what they want." It doesn't matter where you came from. It only matters where you're going. My name is Steve Simonson and I hope that you will join me on this Awesomer journey. SPONSOR ADVERTISEMENT If you're launching a new product manufactured in China, you will need professional high-resolution Amazon ready photographs. Because Symo Global has a team of professionals in China, you will oftentimes receive your listing photographs before your product even leaves the country. This streamlined process will save you the time, money and energy needed to concentrate on marketing and other creative content strategies before your item is in stock and ready for sale. Visit SymoGlobal.com to learn more. Because a picture should be worth one thousand keywords. You're listening to the Awesomers podcast. 01:15 (Michael Pinkowski introduces the Book of the Week, Scrum: The Art of Doing Twice The Work in Half the Time by Jeff Sutherland.) Michael: Hello, my name is Michael Pinkowski and welcome to Awesomers.com. I am your sometimes guest host to give Steve a break from doing all these. And this is episode 82. We're going to do a book of the week, this week, if you are ready. And the book is Scrum: The Art of Doing Twice The Work in Half the Time by Jeff Sutherland, he is a co-creator of Scrum. Scrum is, this a development platform, it's a way of developing software, working on projects things like that, you probably heard about it, I'd heard about it. And number of years ago, I ran across this book and I just thought, man I really like these principles. I really want to know more about it and so I read it, I've listened to it again and again. And now in my current position of trying to get a company growing and do a lot of software development, it came back into my mind and I thought I'd share it with all of you. So let's get into a little bit, first of all they say in a small company that everyone is in sales and that's true, because you know, nothing happens until somebody makes a sale, but it's also true that everyone is a project manager, right? In a small company Steve and I used to say all the time, everybody's got three jobs you know, somebody would come in and say, “But, but, but, what about? I don't know how to do this.” We'd say, “Listen,

On today’s Book of the Week episode, we are joined by Steve’s friend and partner, Michael Pinkowski. Michael talks about the book, Good to Great by Jim Collins. This book describes how good companies transition to great companies. Jim and his team researched and identified 11 companies that made that leap. Here are more gold nuggets on today’s episode: The level 5 leadership - leaders that are humble, but driven to do what’s best for the company. The three buckets - disciplined people, disciplined thought and disciplined action. The Hedgehog Concept - the story of the hedgehog and the fox. Bonus - Michael talks about his favorite non-business book that also relates to these concepts. So sit back and listen as Michael presents one of the bestselling management books - Good to Great by Jim Collins. Welcome to the Awesomers.com podcast. If you love to learn and if you're motivated to expand your mind and heck if you desire to break through those traditional paradigms and find your own version of success, you are in the right place. Awesomers around the world are on a journey to improve their lives and the lives of those around them. We believe in paying it forward and we fundamentally try to live up to the great Zig Ziglar quote where he said, "You can have everything in your life you want if you help enough other people get what they want." It doesn't matter where you came from. It only matters where you're going. My name is Steve Simonson and I hope you will join me on this Awesomer journey. SPONSOR ADVERTISEMENT If you're launching a new product manufactured in China, you will need professional high-resolution Amazon ready photographs. Because Symo Global has a team of professionals in China, you will oftentimes receive your listing photographs before your product even leaves the country. This streamlined process will save you the time, money and energy needed to concentrate on marketing and other creative content strategies before your item is in stock and ready for sale. Visit SymoGlobal.com to learn more. Because a picture should be worth one thousand keywords. You're listening to the Awesomers podcast. Steve: Hello Awesomers! Today, we have a special episode for you and this is Episode number 46 of the Awesomers.com podcast series. And the great news is I've had my friend and partner Michael Pinkowski come on to join us to record this Book of the Week episode. Now, the book he's going to cover is called Good to Great by Jim Collins and it's a book that I've read a couple times at least and it's a book that I believe in. Even though it's a little bit of an older book, the lessons in there are quite timeless in my opinion. I think Michael does an excellent job of talking that through. You know, Michael is such a very smart presenter and teacher that he really gives a great rundown of this very important book. I do think it is a staple for any person who's serious about business and Jim Collins, his terminology and his concepts have stood the test of time. And things like saying you know should have BHAG right that's a Big, Hairy, Audacious Goal or the Hedgehog Principle, all these things you will find commonly referred to in today's business vernacular and it's all a result of this very important book, so I'm glad you're joining us. The book Good to Great is going to be presented by Michael Pinkowski in this very special episode. Michael: Hello. This is Michael Pinkowski and you are listening to Awesomers.com. This is Episode 46. So you can find show notes at Awesomers.com/46 and we're going to do a Book of the Week episode. Steve asked me to step in and bring one of my favorite books and I've done that. So, here we go. All right. So when Steven invited me to be a guest host and do Book of the Week I said, “Oh, the first one I got to do is Good to Great.” That's the one. This is a book I come back to - I've read three or four times probably, kind of reviewed it again in preparation

Michael: Hello everyone and welcome to your June edition of the Option Seller Podcast. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. James, a lot of talk this month about bull market in commodities. It’s been getting a lot of media attention, obviously crude oil has been leading the charge, but what are your thoughts on that? Are we in a bull market right now or is it just speculation? James: You know, most often, Michael, at the 3rd and 4th and 5th year of an expansion economically is usually when prices of commodities start going up. There’s usually a glut of commodities during a recession. As years go by, a lot of the excess commodities are then purchased and consumed, and usually that is when you start normally getting higher prices. I do believe we’re in a bull market in commodities. It is lead by energies, which of course was pretty much facilitated through OPEC cuts in production, but let’s face it, practically everything comes from a barrel of oil. Whether it’s cotton or soybeans or coffee or what have you, everything derives off of a barrel of oil or a gallon of gasoline. Of course, energy prices have really risen quite a bit over the last 18 months. That leads us to believe we are in a bull market in many commodities. There are 1 or 2 that have certainly oversupply in them, but the commodity market has been in a nice uptrend. Usually, this does happen 3 or 4 years after the beginning of an expansion and its kind of textbook so far. Michael: So, we have oil markets possibly leading the charge here. Some of the grains have been aided by some weather issues. Do you see this spreading to all commodities or is it primarily limited to a few sectors? James: I think it’s limited to a few sectors. If you look at the price of sugar or coffee, we’ve got just massive production expected in South America this year. The coffee market recently hit a 12 month low, the sugar market recently hit a 12 month low, so it is really a market that needs to be picked, if you will, to be in a bull market. A lot of commodities do have up trends, but some of the major commodities that we follow are over supplied. I think that’s why we really enjoy doing what we do best, and that is analyzing fundamentals on the different markets, simply buying a basket of commodities or selling a basket of commodities. I think you can be more sophisticated than that, and that’s what we try and do here, of course. Michael: Yeah, in the media they like to get a story line, “Bull Market in Commodities” and that’s what they tag and they really maybe only focusing, as you said, on a few markets, some of the other markets. That’s why you get that play within the commodities where they’re not really as correlated to each other as maybe stocks. James: Certainly not. That’s where diversification comes in. If you’re long or short the stock market, basically you’re living or dying by if it goes up or down. Of course, in commodities, we follow 4 different sectors about 10 different specific commodities and they really do have their own individual fundamentals, and that’s what makes following the same commodities for so long very prosperous, because you do get to know them. They all do have personalities. You don’t simply buy a basket of commodities like you do stocks. It’s different than that. Michael: So, the person watching at home now and they’re saying “boy, it’s a bull market in commodities. This must be a good time to sell options”… that’s really kind of irrelevant if you’re an option seller, isn’t it? James: You know, the interesting commodities, I think, is what bodes well for us. Whether you’re selling options on your own or you’re doing it with ourselves, it does increase premiums of options on both puts and calls. Certainly, the interest by the speculator, whether it’s a bank in London or whether it’s a hedge fund somewhere in San Francisco, it does increase the value of the options. If you are picking up bull or bear market, it allows you to get in at very good levels, sometimes 40-50% out-of-the-money depending on which market it is. Michael: So now matter which side of the market it’s on, the media coverage of prices going up brings in a lot of public speculators and that drives premium. James: Whether you’re selling options on your own or you’re doing it with us, it really plays into your hands… it really does. Michael: Great. We’re going to take a look at a couple of these markets that’ve moving pretty good to the upside or we feel we have some pretty good opportunities to look at this month. Why don’t we go to the trading room and get started? Michael: Welcome back to the market segment of this month’s podcast. We’re here in the trading room with head trader James Cordier. The title of this month’s podcast is taking advantage of the bull market in commodities, and we’re going to feature a couple of markets this month that are leaders, what’s driving the bull market in commodities, but how to take advantage of it might not be exactly how you think it would be. A lot of people might think, “Oh, well I’ll just go out and buy a commodities index fund or maybe I’ll buy some individual commodities stocks or what have you”, and the problem with that is, one, as James mentioned earlier, sometimes these commodities aren’t all going to move together. So, you may buy one commodity and it’s not going to participate in that bull market like other stocks wood. Also, we don’t know when this bull market might end, so we want to position ourselves so, yes, we can keep taking advantage of this if the bull market continues, but also if it stops tomorrow we still want to be able to make money. So, we’re not going to position how just a common traditional investor might try and position. We’re going to talk about selling options here. Let’s go to the first market for this month… the cotton market has been one of the leaders of the commodities bull here. Obviously we’ve had a pretty sharp rally here since last October, James. We’re up almost 25% in prices through this week. What’s going on here as far as prices go? James: Cotton’s another example of one of the bull markets of 2018. We do have some more demand out of Asia than we thought. They were speculators that thought that supplies in China were slightly less than what early was previously expected. Cotton production in China is supposed to be down slightly because of some weather. Of course, the big news is we had just an incredible drought to start out the planting season here in west Texas. Basically, commodities like soybeans and cotton, everyone’s so concerned about the weather and when they talk about dry conditions or there’s drought going on, speculators come and bid up the market. A lot of the end users then need to get insurance and they’ll buy futures contracts for cotton, as well, and that really boosts up the price usually right as growing season is beginning. That’s what we’re here looking at again today for the cotton market in 2018. Michael: Okay. So, that drought has been pushing up prices, but here in the last couple of weeks, that started to lessen a little bit. We’re looking at a map here of Texas, west Texas, big cotton growing region. If you would’ve looked at this map, the darker colors indicate a severe drought portion, so we still have some going up in northern part of Texas, but if you would’ve looked at this chart 3-4 weeks ago, almost half of Texas was in that red. So, this has mitigated quite a bit to where we are right now and that has allowed a lot of these planters to really make some progress in planting over the last couple of weeks. As a matter of fact, stats we just pulled today, James, at the end of the week of May 13th they were 28% planted. At the end of the week of May 20th, Texas farmers were 43% planted, so that’s a lot of progress to make up in a week and that’s due to that they finally got some moisture. They were able to get the crop in the ground. 5-year average is only 33%, so they’re actually ahead, quite a bit ahead, of where they normally are in a 5-year average, so that moisture they did get has really done a lot of good for the Texas crop. USDA just came out with their most recent/first estimate for the ’18-’19 crop. You’ll see here, James, ending stocks actually above last year is what they’re targeting. James: Really a weather market right now. Anyone who lives in the United States, especially in the eastern half of the United States, I know we have clients and viewers from all over the world, but here in the U.S. it’s raining all the time. Precipitation is just dominating the weather market right now and, in the chart you just mentioned, for the Texas state, that was truly an extremely dry condition and that has mitigated quite a bit. We’re now 5-6% above the 5-year average for plantings. We now have precipitation coming in. We’re going to wind up having a larger crop than a lot of people thought about and then we’re going to have carry-over in the United States, the highest level in 10 years. I know a lot of people are going to look at this, “well, the carry-over was much higher 8-9 years ago”, but cotton was also around $0.40-$0.50 a pound then, too. That’s a big difference. Michael: One other thing we should probably bring up that’s really carrying a lot of weight here is that cotton also has a very strong seasonal tendency. Actually, it doesn’t even really start to break until about mid-June. What’s usually behind this? What causes this? James: Just as we were describing, Michael, if there’s any type of weather fears in Alabama, Mississippi, this year it was Texas, generally speaking, until the crop is planting and until the weather conditions look favorable for production that year, generally speaking that’s going to be the high point of the year as planting’s taking place in the southern states of the United States. As the planting is completed, it’s 85-95% completed, which will be probably in the next 2-3 weeks, weather comes in, the dramatic dry conditions no longer are pushing up prices. Sure enough, as you start harvesting the crop in October, November, December, big crop once again, U.S. farmers are the best in the world, and once again we had a lot bigger crop than most people anticipated. That’s what’s winding up in timing right now looks perfect for the seasonal average and it’s setting up the same way into this year. Michael: Yeah, it does seem to be lining up pretty well. If the rains continue, we don’t have a big drought surprise, this seasonal looks like it’s set up to be pretty close. So, we’re looking at a trade here. I’ll let you talk about the trade, James, but you’re looking at a December call right now. James: Exactly. We have cotton trading in the low-mid 80’s recently. There was a recent spike up with a lot of discussion about the problems in Texas. Generally speaking, we do have the market rally May, June, and then July it usually rolls over. We are now looking at really decent call buying by speculators and hedgers alike at the $1 and the 105. There are no guaranteed investments in this world, but selling cotton at 105 looks like a pretty darn good one and if it does follow along with the seasonal, if it does follow along with the idea that supplies are going to be at 10-year highs at the end of this year, cotton will go from 80’s to a 105 looks very slim chances to us. We think this is going to be one of the better positions going into the 4th quarter of this year. Michael: So, when you’re talking about taking advantage of a bull market rather than buy into cotton, what James is talking about is the bull market creates interest in these deep out-of-the-money calls. So, how you take advantage of it and sell these deep out-of-the-money calls, we don’t know if the drought’s over. It sure looks like it’s taking a lot of big steps towards mitigating, but if we’re wrong and they don’t get rains and somehow the second half of the planting doesn’t go as well, cotton can still go higher from here. So, we don’t want to bet on that it’s going to turn around right now, right on seasonal. It could keep going. We’re just going to sell calls up here and it can do whatever it wants. It can keep going, it can mitigate, or it can roll over with the seasonal. Either way, there’s a pretty good chance these calls are still going to expire worthless. James: We really like that as an opportunity selling those calls. Michael: Okay. If you’d like to learn more about trading these types of markets, taking advantage of upward markets by selling calls, you’ll want to pick up a copy of our book The Complete Guide to Option Selling: Third Edition. You can get it now on our website at a discount than where you’ll get it in the bookstore or on Amazon. That’s www.OptionSellers.com/book. James, let’s move into our next market we’d like to talk about this month. James: Okay. Michael: We’re back with out second market we’re going to talk about here in our June Podcast- How to take advantage of the bull market in commodities. That second market is one we talked about here last month… that’s the crude oil market. We’re going to update this trade a little bit to give you some insights into how these type of strategies work. James, last month you talked about selling a strangle on the crude market, the February 45/90 strangle. Why don’t you update us on how the market has done and how that trade is doing? James: Let’s talk about both sides of this investment. Just 6-12 months ago, there was considered a 300 million barrel oil surplus globally. That has evaporated to approximately 30 million barrels. The market is practically absolutely flat right now. Every barrel of oil that’s being produced right now has an owner before it even comes out of the ground. That fundamental will not be changing in the next 3-6 months. They’re not just going to find oil, it’s not going to go from a 30 million barrel surplus to a 300 million barrel surplus overnight. That’s not going to happen. That’s going to keep oil well above the $40 level. The $45 put that we sold, I think, is excellent sales-ship, not ownership… you don’t want to own those. Crude oil over the next 6 months is likely not going to this level. The call side, what’s developing over the last 60-90 days really is what’s going on in Europe. Basically, the European Union has been dealing with quantitative easing for as long as the United States have. Of course, now we’re no longer doing QEs. The U.S. economy is doing extremely well. Europe? Not so much. We have quantitative easing still in Europe and PMIs in Germany, England, Italy are going straight south. Consumer confidence in Germany is at one of its lowest levels in years. The European economy is starting to roll over while it has quantitative easing. Europe produces practically no oil whatsoever and they are very susceptible to oil shocks. Oil at Brent commodity is up to $80 a barrel. In the United States it’s around $71-$72. That level is practically double of where it was 12 months ago and Europe is really feeling a brunt about that. What OPEC is very keen to know is to not kill economic growth. Oil just went from basically $45-$50, recently now up to $80 on Brent, and economies in Europe, especially, can’t sustain that. We’re looking again about discussion about Greek bonds and if that market rolls over again, and if Europe goes into slight recession going on in the next say 4th quarter of this year 1st quarter of next year, stock markets start to slide, U.S. economy starts to slide. Then, OPEC can basically claim a big part in slowing economic growth. They don’t want that. OPEC is producing oil for $35-$40 a barrel. Rent is up to 80. They’re likely going to start rolling back some of the production cuts and that’s what makes the $90-$95 calls a great sale, as well. Oil is likely not going to be hitting $90 going into the 4th quarter of this year. That’s the shoulder season, that’s when demand worldwide is at its lowest. That should make the $95 a very good sale. We like being short in 90 and 95. We love being long at 40 and 45. This is probably one of the best strangles available right now in all of commodities and the reason why those premiums are so high, as you mentioned Michael, is because the bull market in commodities. It gets people out buying options that they normally wouldn’t, reaching out for higher levels than normally they would, and that’s what makes cherry-picking in puts and calls, selling commodities in options right now, I think, the timing is just about perfect. Michael: Yeah, the trade we recommended last month, you were talking about this trade… 45/90 February. You’ll notice last month we were about here, so the market has bumped up about $3 a barrel, but it’s still right in the middle of the strangle and this strangle is actually profitable now from where we recommended it. So, just what we talked about last month, we’re not trying to pick highs or lows or guess what the market’s going to do. We don’t care as long as it stays between these levels. This strangle is performing just about optimally as how you’d want it. James: This form of investing is much more simplistic than trying to pick exactly where all these markets are going. This could look like Apple stock and trying to figure out what Apple is going to do next week or next month. Basically, selling options, especially on a strangle, you’re throwing the football to where you think the market is going to be. So, if you’re in the lower 3rd of the trading range and you still think the market has got a little bit higher to go, look where we’re winding up right now with the $2 or $3 rally. We’re right in the middle of the strangle… right where we like to see it. Michael: Okay. Now you did mention you think oil prices could be starting to slow here over the next several months. Again, we’re not calling a talk, but you think as it goes along there’s going to be a second conversation here with OPEC as far as their quotas. James: I really think so. 2 years ago, Saudi Arabia and Russia got together and said, “We’ve got to try something. We just saw oil for under $40 a barrel, we’re basically making little money.” They basically said, “Let’s try and reduce production by 3%, 4%, 5% and see what happens. The U.S. is now the largest producer. We have to do something or the market’s going to stay low.” That conversation worked extremely well… oil at Brent to $80. The second conversation now is let’s not get greedy. If the oil goes up another $2, $3, or $4 a barrel what difference does it make to you as a producer? If you’re making $40 a barrel or $42, it doesn’t make that much of a difference, but to consuming areas like the Euro area, another $3, $4, or $5 can tip that economy over and that is a big deal. I think that’s the conversation they’re going to have in June when OPEC meets. Michael: James, you just gave this talk you had on the oil markets to TDAmeritrade and they’re, what, 11 million trading customers? James: Yeah, we had a lot of investor eyeballs on us today. It’s quite interesting how many people actually do invest in commodities. There is an advertisement on TV recently… people aren’t investing in this and they aren’t investing in that and they aren’t investing in commodities. They really are investing in commodities and we certainly saw that this morning with the viewership that we had talking strictly about options on commodities. We really blew it off the charts today. Michael: Great. You can see that interview on our website probably later this week or early next week. It’ll be on the blog. The full interview will be posted there and you can take a look at that. If you’d like to learn more about some of the things we’ve been talking about here, you’ll want to take a look at the June OptionSeller Newsletter. That should be out on or before June 1st. If you’re already a subscriber, it’ll be in your e-mail box and your physical mailbox around that time. Let’s go ahead and move into our Q & A section and see what our readers have to ask this month. Michael: Welcome back to the Q & A portion of this month’s podcast. James, we’re going to take some questions from some of our viewers and readers here and see if you can answer what they have to ask. Our first question this month comes from Omar Fallon of Galveston, Texas. Omar asks, “Dear James, I am currently selling options with the assistance of your excellent book, The Complete Guide to Option Selling. I’m also following your 200% rule that you recommend. My question is, do you still follow the 200% rule when you’re writing a strangle or is there a different risk strategy for a strangle?” James: Okay. Omar, thanks for the question. We often consider that every time we do write a strangle. From time to time, of course, one side or the other goes against us slightly while we’re waiting… patiently waiting in most cases. I do like using the 200% rule on the total value of the strangle itself. If you take into consideration the fact that both sides of the put and the call combined premium has to first double before you exit the trade, that is truly putting a lot of room between you and the market and giving you a lot of time, hopefully, to hold onto that position. I do recommend using a 200% rule on the total value of both the put and the call sale. Michael: And that’s primarily because if the market starts moving against one of your strikes, that option on the other side of the market is balancing that out. So, you can afford to let it go a little further because you’re making some of that up on the other side of the market. James: Exactly right. Omar, if you sold your option fairly well, you’re going to have a really good opportunity for the market to stay inside that strangle and, as you approach option expiration, if you choose to hold on to it the very last day, we don’t always do that; however, that window should be extremely large and I do like giving the whole 200% risk tolerance on both the put and the call. If you sold the option fairly well, the market should wind up inside that window when it is time to close them out. Michael: Let’s go to our next question. This one comes from Jonathan Hartwig from Springdale, Arkansas. Jonathan asks, “Dear James, I’ve noticed from your videos that you seem to focus more on some commodities and less on others. I traded commodities about 11 years ago and did markets like hogs and orange juice, even pork bellies. Is there a reason you don’t feature these markets and how many markets do you actually trade at your firm?” James: Jonathan, great question. It sounds like questions from my favorite movie, Trading Places… orange juice and pork bellies. Those are certainly near and dear to our hearts here. Basically, we ant to be in the most liquid commodity markets that there are. Pork bellies, lean hogs, orange juice is a very domestic trade here in the United States. Orange juice, of course, is produced 90% in the United States, pork bellies is certainly a U.S. domestic commodity in market. Lean hogs, of course, is a U.S. domestic market. What that does is it allows the fundamentals to change dramatically in a very short period of time. We like investing in crude oil produced in so many nations. Gold, silver, sugar is produced in over 2 dozen different nations and coffee is produced all over the world. Wheat is produced in almost every nation of the world. So, if the fundamentals or dry conditions in one zone of the United States or in part of Asia, 90% of the world is going to have a different weather pattern or a different structure that’s causing the market to move. That’s going to give the commodity a lot more stability. We always want to sell options based on fundamentals, and the fundamentals in every sector of the world rarely are going to change at the same time. Where if you’re trading a domestic market like orange juice or pork bellies, a small freeze, a terrible draught in a certain location, swine flu in Iowa can determine the entire investment. Here at OptionSellers, we want to be in markets that are extremely liquid and will not have changing fundamentals on a small whim. We sell options based on a 3, 6, 12 month time period. If you’re trading and investing in options that are based on commodities that are grown all around the world, produced all around the world, you’ll rarely have a really brief quick change in fundamentals. Right up our alley for the way we do things. Michael: Yeah, a lot of people are surprised when they’re asking about what commodities you actually trade. There’s really only about 10 or 12 that we follow and those are those high volume markets you’re talking about. It’s not like we’re following 500 stocks here. There’s 10 or 12 markets, you just get to know them really well. James: They all have personalities, Michael. I’ve been trading silver and gold, coffee and sugar, natural gas and crude oil for decades. That doesn’t mean we’re right all the time, but they do have a personality. You get to know the fundamentals and when there’s a little headline or blip here or there it really doesn’t rattle you, nor should it with your investment. Michael: So, the point is, Jonathan, if you’re selling options you’ll probably want to stick to your highest volume markets that are going to have the highest volume, most liquidity in the options. That’s where you’re going to get the safest type of trades. If you’re watching this at home, thank you for watching this month’s podcast. I hope you enjoyed what you learned here today. James, thank you for your insights on the markets. James: Of course. Always. Michael: If you’d like to learn more about managed option selling portfolios here with OptionSellers.com, you’ll want to be sure to request your Option Sellers Discovery Pack. This is available on our website for free. It comes with a DVD. You can get that at www.OptionSellers.com/Discovery. As far as our account openings go, we still have a couple openings left in June for consultations. Those would be for our account openings in July and August. So, if you’re thinking about possibly, you want to make an allocation this summer, now is the time to give a call and get your consultation/interviews scheduled. You can call Rosemary at the office… that’s 800-346-1949. If you’re calling from outside the United States, that’s 813-472-5760. Have a great month of option selling and we’ll talk to you again in 30 days. Thank you.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. We are here for your monthly May video podcast from OptionSellers.com. James, welcome to the monthly show. James: Thank you, Michael. Can you believe we’re going into May already? Michael: It sure went fast. This last month here we saw some key developments in the markets. We have a lot of tensions between China and the U.S. over trade, and then we’re, lately, looking at 10-year treasuries going over 3%. A lot of people are wondering how this may affect commodities. What’s your take on that? James: Well, the trade wars that are supposedly about to take place, I think, are simply negotiation. President Trump mentioned many times going into the election that he was going to do “the art of the deal” and get us some more fair playing field, especially with China. Certainly the deficit that many goes out to China and doesn’t come back is something that he’s going to work on and, I believe, it’s more negotiating than it’s actually going to be major changes, as far as trade tariffs and such. Will some be put in place and some enacted? Probably so, but I know Mr. Mnuchin is going to China I believe in the next week or two, and he’s going to have probably the checkbook ready so he can basically get an olive branch going out. Needless to say, everybody wants a strong economic global growth and a trade war is not going to help that; however, getting a more fair and balanced trade, especially with China, I think is a really good idea and I think that’s what we’re going to get over the next month or two. All the discussion about it, I think, is going to be more of just that: just discussion. Michael: So, you don’t see any major changes in any commodities in the immediate term? Any immediate strategies people should be doing right now or as a result of that or, primarily, do you just see things leveling out here? James: Michael, the discussion of a trade war, like in soybeans or something that’s going to affect the demand for oil, I think a person or an investor should use that to look at the idea that it’s going to be settled. It’s not going to be a large disruption to production or demand in any of these commodities. When the price of a commodity is affected by discussion of it, I think you should take advantage of that. 3-6 months later, the fundamentals that we see now are going to be in place then, and basically it was hype that was going on and I think it’s going to offer opportunities. For markets that you’re following, if there’s trade discussion that’s going to move up or down the market that you were hoping to sell either puts or calls on, I think that’s going to be great picking in order to do that. Michael: Okay. Well, for those of you watching, we have an exciting show for you ahead this month. We’re going to be addressing a very common question we get. A lot of times, people sell an option, they get into the trade, the option moves a little bit against them, and then the question is “Well, what do I do now? Do I adjust the trade? Do I get out of it? If so, where do I get out of it?” What we’re going to do this month is we’re actually going to take you into some of our real trades we are doing in portfolios. Some of these, you’ve probably seen us talk about before. Pull back the curtain a little bit and show you a risk-parameter we might use and then recommend something you can use at home, as well, if you’re trading on your own or just get a little bit better insight into how we might do it professionally. A good analogy, and, James, I know you can comment on this, is we all saw the incident with Southwest Airlines this month where they had the problem with the engine. Certainly a tragedy for the people involved that it effected; however, one thing that really stuck out to me is the pilots that landed that plane and saved all those people. Have you heard the transcripts? They’re just cool as a cucumber. They knew exactly what to do, they had processes in place for every situation or condition, and you pilots out there that are clients, you know exactly what I’m talking about. When people are trading, and you know this more than anyone, James, you should have a contingency. Anything that happens, you should have a plan for that happening and have that type of control. That’s how you avoid that “what should I do” when you get into certain situations. When you’re trading, you deal with the same thing, James, am I right? James: I certainly do, nothing like that pilot was facing this past week, but in a similar note, you do have a plan. We are generally positioned in anywhere from 8-10 commodities and when one is causing the plane or the bow to veer right or veer left you simply need to make the adjustment. It shouldn’t be a huge deal to your portfolio. You should really be able to make a minor adjustment. If you’re in 10 commodities and 1 is going really in a direction you weren’t thinking, you should have a plan for that. It shouldn’t be a panic. It shouldn’t be large turns like this. You should just be turning the wheel like this and we’ve got an adjustment that needs to be made, the cocoa market or the coffee market or the silver market, and you just steer the plane and get it flying level again. Your portfolio, whether you’re having a portfolio with us or you’re investing with one on your own, you should never have a position that makes that much variance to your account. If you have 1 position in your account, name the commodity- it doesn’t really matter, and if it moves 5-10% in a short period of time, if that makes your account move larger than it really should be, it shouldn’t have a large variance because the market moved 5% or 10%. If it is doing that, you’re simply not positioned correctly. Always have in your portfolio 8-10 commodities and if 1 is making the plane go like this then you just pull it back like that. You should never have a position on your account that you can’t, in order to make the plane fly smoothly again, if you would. It happens all the time. We’re not right all the time. We’ll have 8-10 commodities in a portfolio and by-goodness, 1 is going to be causing this to happen and you just straighten the plane. Just like that brave pilot did, he knew exactly what to do. My goodness, 1 engine went out and he was able to do that. We have 10 engines on our plane. We should never have one commodity or another commodity make the plane go like this. It really shouldn’t happen. For your investors at home, if that’s happening to your portfolio you don’t have a diversified portfolio, and that is something that we at OptionSellers.com always strive to have so that when something happens that was unexpected, there’s a big headline in a certain commodity, you just straighten the plane and that’s what we do. Michael: That’s what we’re going to talk about today. If you’re trading at home or you’re checking out this strategy, one of the biggest advantages you have as an option seller is that flexibility James was talking about where if you’re trading, and say you are worried about a Chinese trade war or this or that, you have the ability to build out a strategy that can benefit from nearly any type of economic condition. It’s one you should use if you’re an option seller. We’re going to address and use a specific example this month from a market we talked about. We’ll show you how to adjust a trade if you do get into those type of situations where it’s not working exactly the way you hoped it would, and we’re going to give you a couple examples here of how to do just that. James, why don’t we move into the trading room and we’ll talk about our markets this month. James: Sounds good. Michael: Welcome to the markets segment of the OptionSellers.com May Podcast. We are going to talk about a market this month that we featured in last month’s podcast and that we’ve got a lot of questions on over the past month so we’re going to talk a little bit about it. This does go into the topic of this month’s podcast, which is how to turn a losing trade into a winning trade. So, first let’s talk about the market… this is the cocoa market. You saw us feature this market in last month’s podcast. Cocoa we talked about selling the 32 December call options. The markets rallied a little bit since then, did not threaten a strike, but it’s up a little bit. James, do you want to tell us what’s going on with this trade and this market? James: Michael, what’s going on with cocoa right now is the last several years we’ve had a production surplus worldwide. In 2018 and 2019, some of the largest cocoa analysis around the country is predicting the first deficit in quite some time for world production. Basically, high prices cure high prices and low prices cure low prices. The initial trade is that we’re going to have a production deficit this coming year and then the market must go much higher because we’re running out of cocoa, but in all actuality what happens when the price of something is rising that is dampening down demand. So, for example, when cocoa was trading around $2,000 and $2,100 a ton, chocolate manufacturers were purchasing cocoa. As it rallies, they purchase less and less and less, and the demand has already taken place. So, when we do get an announcement of a production deficit, that usually gets the last of the buyers, the headline traders, to get involved with the market. We saw a spike here recently in the last day or two where cocoa was threatening $2,900 a ton. Keep in mind that’s up almost 50% in price over the last few months. Basically what that does is commercial demand then starts to fall and then basically it’s a speculatively driven market. Usually a market that has moved 50%, we have just a couple percent difference in production, 2-3 years ago up until now, and yet we’ve had a 50% increase in price; thus, we think that’s a temporary move in the market. While we were suggesting selling the $3,200 calls last month, the market did not get anywhere near that level but, as some of the viewers and readers have mentioned, the price of those options are up slightly from, maybe, when we discussed selling them. Michael: Sure. I think that goes back to a good point is, we always say this, we don’t know where the top or bottom of a market’s going to be. That’s why we are selling options in the first place. We’re not trying to pick that anymore. You don’t have to pick that either as an option seller. It’s an important point to make as an option seller… you’re not trying to call the market, you’re just picking a window where you think prices should remain and then selling options outside that range. James: Exactly right. Fundamentally, the price of cocoa over the next 3-6 months should be at this level. The price of coffee or crude oil based on fundamentals will be at a certain level, as well. Basically, you’re selling option premium that puts you out-of-the-money sometimes 40-50-60%, and some 8 times out of 10, that leeway is all you’ll ever need. As a matter of fact, anyone listening to us right now and, of course, our clients are long-term investors. So, if you are, like we discussed just recently, you are flying a plane and you want it to have several engines, okay? Your portfolio should have several commodities; however, when one does exceed a level that you thought it would, you can roll up your position. For example, each day that cocoa gets more and more expensive, the likelihood of it staying above its fundamental value diminishes. So, if you did short cocoa prices at, for example, $3,200 a ton by selling the $3,200 call, you may choose to roll it up to the $3,400 or the $3,500 if in fact it’s something that if you want to stay with the market or you want to stay with your position, but speculatively the market is driven higher than we thought it would do. That is certainly one approach that we often take and someone who maybe has that position on right now might want to take that, as well. Michael: So, what you’ve just explained is how to turn a losing trade into a winning trade, the title of our podcast here today. Let’s go back and just explore that briefly. When we talked about selling the call here, we talked about selling it and we were right about here, now the market has rallied a little bit. As you said earlier, it really hasn’t threatened the original strike. In fact, I don’t even think the original premium has doubled yet. James: No, they hadn’t. Michael: Yet, we got a handful of people writing, “Ah, I sold a cocoa call. What do I do now?” Well, there’s 2 points to that. One, we’re not really an advisory service, we are managed fund here, so we can’t really instruct you all the way through the trade. The bigger point here is when we went back to the beginning of the podcast that James just referred to, we talk about the pilot steering the plane. If you’re putting a trade like this on, you better have a plan for what you’re going to do for when you go into that trade if it doesn’t move the way you think. Now, the movement in cocoa right now, it hasn’t really been extreme, it is pressuring the strike price a little bit. James feels it’s still fundamentally justified trade, but if you’re getting uncomfortable or it keeps rallying or starts pressuring that, he’s talking about rolling the positions up. James, do you want to explain the mechanics of that if you were, or if somebody was holding a 32 call what they would do to recapture that premium? James: Okay, so let’s say you sold 10 contracts of the 3,200 December call strike and the price is now exceeding your risk tolerance. Let’s say you sold them for $500 or $600. Let’s say you have the 100% rule for your portfolio, so the option has now doubled to approximately $1,000-$1,200. Now what I would do, if you were considering staying with a fundamental trade, which I think cocoa will probably be in the high 20’s at the end of the year and nowhere near 3,200; however, you buy back your $3,200 call and you can sell 20 now of the $3,400-$3,500 call. Eventually, the fundamental factors are going to slow this market down and we think that come November, when the December contracts expire, we’ll probably be in the high 20’s… like 2,800-2,900 at the most. So, if we do exceed 3,000 for a brief period, I would use that certainly as an option selling opportunity in cocoa calls. 3,400-3,500, I think, the market will not exceed that level in our opinion. We’ll have to wait and find out, but come November I think the market will be much below that. Michael: So, you’re doubling up on those strikes. So, you sold 10 and then when you roll you’re selling 20. That allows you to, one, get back your original premium, but it also allows you to recover the loss. James: That’s exactly right. Keep in mind as we discuss this, we always want to be in 8-10 commodities. We are selling options sometimes 40%, 50%, 60% out-of-the-money. You can’t, or you probably don’t want to, base your entire investment and the viability of this type of investment for you based on the idea that you sold 10 contracts of cocoa. Okay? We are selling commodity options in approximately 8-10 different sectors and, over the long-term, selling options 40%, 50%, 60% out-of-the-money is going to work out quite well, but, by all means, we stub our toe. We get kicked in the shin once in a while, but if you’re a long-term investor, and everyone should be, whether you’re long stocks or the real estate market or you’re selling options as an investment portfolio, you just know that 1 or 2 may not go your way and you definitely need to manage your portfolio. This is one way to do it. Another idea is, you know, taking a losing trade. If the investment idea wasn’t correct, we’ll take a look at it again. Let’s see if the market continues to rally, we’ll sell options on another day, or we’ll come and visit cocoa again next year. Have that ability to do that. Michael: That’s an excellent point. If you’re watching some of the things we do and you’re trying to trade just at home online saying “Oh I like that trade. I’ll sell this and see how it goes”, that’s really not how these are meant to go. When we are putting trades on a portfolio, we are putting them on as part of an overall portfolio of, as you said, 6, 8, 10 different positions. Sometimes they’re hedged on the other side of the market, sometimes they’re balanced by a long or short position somewhere else. So, these are incorporated into a much bigger scheme. If you’re just taking them and you’re really selling them out of context, so if something like this does move against you it’s a big deal for your portfolio, where for us is just like the captain of the plane. It’s a flip of a switch, just something different you need to do to adjust the position. James: Exactly, Michael. You should always be able to have both hands on the wheel and just make small adjustments. If you sold cocoa calls recently, your positioning should only be going like this and you shouldn’t be turning the wheel like this. If you’re doing that with your portfolio, you’re not doing it right. Michael: And as we talked about earlier for managed clients, we are going to be taking a closer look at this market this month. It is starting to get interesting and maybe look to see what we can do there in the coming weeks here. Let’s talk about another market here for our second part of the podcast this month. That will be the crude oil market. If you want a market that has been in the news lately, one that has been in the headlines has been the crude oil market. We’ve been closing in on the $70 mark for the first time in 2014. It’s been one of the strongest commodities on the board since last fall. James, you want to tell us what’s going on here? What’s behind this rally? What’s been pushing prices higher? James: Michael, Saudi Arabia has done just an incredible job leading the OPEC nations, as well as Russian production. Someone sat down with members of OPEC and said, “Listen. We cut production by 2-3%, we’re looking at the possibility of a 20%, 30%, or 40% gain in crude oil prices.” Lo and behold, that math sounded good to the OPEC producers, they did start cutting production, not a great deal, just a couple percent. Basically, we were looking at a 300-400 million barrel of surplus floating around the world, both in tankers and at storage facilities in some of the OPEC nations. After some 18 months of oil production cuts by OPEC and along with Russia, that 300-400 million barrel surplus is down to some 30 or 40 million barrels… just a huge gain for OPEC. Their ability to cut production has just paid off in spades. We have approximately 35-40% increase in oil prices. OPEC is very cohesive right now, something that a lot of analysts are quite surprised at and we are surprised at it, as well. The ability to keep that production offline when prices are going up, my hats off to OPEC, they’ve done a very nice job in order to do this. The market is now balanced. Basically, for every barrel that is being produced there is a consumer right now. We have a very balanced market and, as you can see, it’s up some $20-$25 from where we were just not that long ago. Michael: Yeah, compliance has been surprising, too. I read somewhere that they’re at like 138% compliance. Before, they used to have trouble even getting half the members to hit their quotas, now they’re above 100%. James: Someone did the math for the OPEC producers and said a small 2-3% cut can possibly increase the prices 20-30%. They nailed it. Here are the final results. Michael: As you mentioned, that’s taking quite a bit of oil off the market. OPEC production down 11.4% since these started in January 2017. So, that’s a pretty good drawdown. That’s really, what James is saying, is behind this rally right now. That and we have a pretty good seasonal in effect that’s helping drive prices now, as well. James: Basically, as we get into driving season in the U.S., the largest consumer of oil and gasoline in the world, you have a ramp-up of production where you’re cracking oil into gasoline and, generally, that happens between the months of March, April, and May getting ready for summer driving season. So, that cracking of oil takes oil production and supply off the market, turns it into gasoline, so you have, once again, a temporary shortage of oil as not only OPEC taking barrels off the market but also you have the largest refining season coming up going into driving times of June, July, and August here in the United States. This takes barrels of oil off the market, they are cracked into gasoline, and that’s why you usually have this seasonal rally going into May and June. Michael: Which seems to be following it very closely this year, the seasonal tendency. Now, one thing we’re seeing this year, and you and I were talking about this earlier, is refineries are operating at a torrid pace right now. They’re really hitting it pretty hard as far as production goes. Right now, gasoline production running about 4.2% ahead of pace for where it normally is. So, you’re thinking that they may hit those levels earlier this year and we may see a topping action in crude a little bit earlier this year? James: You know, consumption for gasoline in the United States peaks in June and July right around the 4th of July, or so it seems, but the price of crude oil will often top before then. Crude oil is clearly where gasoline comes from, and as those barrels come offline, in other words, they’re cracked into gasoline, the price of oil will often top before gasoline does. So, the demand is still there but it has already been produced. So, while the greatest demand in the United States is around the middle of the summer holidays, the demand for oil to produce that gasoline has already taken place and thus the seasonal comes down sooner than you would think. Michael: Sure, and this chart’s showing you can see a top in crude any time between mid-May to early-July, as you said; however, if refineries are hitting those levels where they deem supply adequate, they’re going to cut back production sooner and that will hurt demand for crude. James: And then the crude barrels start to accumulate more. Michael: Okay. So, we have that and then also, on the other side of the coin, what we have coming up or what’s even surprised OPEC is the level at which the United States has been able to ramp up production. They’re taking advantage of these higher prices and you referred to high prices carrying high prices earlier. We’re seeing U.S. production just blowing up, going up about 10.5 million barrels a day. Is this having an affect right now on the supply? James: Well, basically it’s balancing… the additional barrels coming from the United States is balancing what OPEC’s not producing. The fact that production in the United States is going to probably exceed 11 million barrels a day coming up in 2019 and 2020. We do see this plateauing and the excitement in oil right now is probably going to be rolling over. If the United States wasn’t the largest consumer, let’s say all these barrels were being produced on the opposite side of the globe, getting them to the United States would be difficult and then maybe the largest producer, now the United States, wouldn’t be such a big deal, but the fact that we’re producing it exactly where we need it, here in the United States, that will offset some of the global demand and price shock around the world. Everyone always talked about, “The United States is susceptible to what OPEC does”… well, we’re producing all the oil we need now, so the fact that oil is approaching $70 and here in the United States we can produce it for between $35-$45, how long is it going to stay above $70? It can only exceed it by a certain amount of dollars per barrel and for a certain period of time. If this level gets to 11 million barrels a day or 11.5 million barrels a day, oil will be coming back down into the low-mid 60’s at the very least, and probably setting up a sale here that’s looking like in May or June for option sellers. Michael: Okay. So, your outlook for the intermediate turn, obviously we talked earlier and we’re not trying to predict what prices are going to do, only what they’re not going to do, but do you see a little more strength coming in and then weakening, or what’s just the general outlook for that window? James: What’s so interesting right now is in some global economies, especially throughout Europe, they are going to feel this large gain in the price of oil. Japan is going to start feeling this large gain in the price of oil. Basically, they are 100% consumers and produce nothing, so oil going from $45 up to $70 will start slowing demand from these major consuming nations. At the same time, when the United States is now producing the most they ever have and now the largest producer in the world, we see oil kind of plateauing here this summer right around maybe June or July, but not falling a whole lot. The fact that we had a 400 million barrel world surplus and it’s not approximately 40 million barrels, the market’s extremely well balanced right now. So, we see some of the excitement that’s going on now in crude oil plateauing somewhat, maybe coming down some $3-$5, but not falling through the floor by any means. Oil production right now is down with OPEC. They have been rewarded for keeping barrels off the market, and I don’t think they’re going to forget that any time soon. I don’t see them going back and ramping up production. They’ve been rewarded so well, they’ve learned a great lesson by keeping, at first, some 3% oil barrels off the market, now it’s up to some 9%, 10%, or 11% of barrels off the market. They’ve learned a great lesson and they’re being rewarded for it, so we don’t see production swamping this market. We see oil possibly trading at about a $10 trading range from where it is now throughout the end of the year. Michael: All that media coverage and, of course, the price rally has increased the volatility, which is what we like to see as option sellers. Taking a look at a trading strategy, how to trade that exact scenario you just described, you’re looking at one of your favorite strategies, a strangle. James: It certainly is. You discussed, just now, headlines and OPEC and trade wars with China and the value of a dollar. All of this really has the volatility of petroleum, especially crude oil, at record levels that I haven’t seen almost since I’ve been investing in commodities, but right now you have put premium extremely high, even with a bullish fundamentals, and you have call premium through the roof right now. My favorite position in crude oil for the rest of the year is practically a $45-$50 strangle around the price of oil. So, in other words, we would be selling calls at the $90 level and selling puts at the $45 level. We think that the idea that strong fundamentals right now will keep the market from falling, but yet the fact that prices are high right now and that’s going to start curtailing demand. My prediction for the rest of the year is about a $10-$12 trade range for crude oil and here we have one of the best opportunities I’ve seen to position in crude oil in a long time. That’s putting a $45-$50 strangle around oil. We’re not right all the time and every once in a while we don’t get it right, but for oil to stay between 45 and 90 through the end of the year, I think, is an incredibly high probability position and that’s something that we’re taking advantage of, as you know, Michael, right now. Michael: You couldn’t do that a year ago. You didn’t get that wide of window, and now we have it, it’s on the table, and you want to take it. James: Michael, that volatility is your friend. I know when it first happens and you already have positions on, “Oh, it’s too volatile for us”… that’s what you like. A year ago, 2 years ago, 3 years ago, the widest strangle you would write on crude oil was approximately $15-$20 and now you’re writing a $45 strangle. We, as well, are going out slightly further in writing and $50 strangle around crude oil. We’re pretty confident it’s going to stay inside that window. We’ll have to wait and see. Michael: And again, watching this at home, this is an example. We are not recommending this to you personally as the perfect trade. In our portfolios, we are diversified over December, January, February, and March. Different strategies and different risk management techniques, but in going out to a month like February, a lot of people think that’s a long time out. We’re about 9 months out, but your plan isn’t to necessarily hold these until February or March or whatever you’re writing out there. Often times, with the right decay, you can be getting out of these a few months early. James: Michael, as we discuss with our clients when they first become clients, we will sell options 6 months, 9 months, 12 months out into the future, but not with the idea that we’re going to stay into that position until the very last day and try and collect the very last dollar. It’s really not important to do that. If we select options fairly well, for example, on the position that we’re looking at right here, after maybe let’s say you sell options 9 months out, if you selected them fairly well, 5-6 months later you should have collected about 85-90% of the potential premium. That is a great place to ring the register and lower your risk and be happy with the position and get out of the trade and buy it back early. Often, we look at February or March or April when we’re talking about selling options. Basically, you’re Tom Brady and you’re throwing it to where the market is not going to be. That is what we’re doing. So, when Michael discusses layering different months and different commodities that’s what we’re doing. To own a portfolio like that, it looks like a great deal of layering in the market and that is what it is and it allows you to have 10 engines on your plane so that when one goes a little bit awry you have other positions to make sure that 80% of your portfolio is going the right direction. This is a great example of doing that. Michael: Great advice. If you would like to read more about the crude oil market, what we’re recommending there this month, or going into our managed portfolios, you will want to read this month’s newsletter… that’s the May edition of the OptionSellers Newsletter. That comes out May 1st. It should be in your e-mail box or showing up in your hard copy mailbox a couple days after that. Of course, if you want to learn more about the strategies we discussed here or the rolling or strangle or some of the other concepts James mentioned, if you don’t have it yet, The Complete Guide to Option Selling: Third Edition, you can get it on our website at a discount, on Amazon, or the bookstore. The link to that is www.OptionSellers.com/book. Let’s move into our closing section for this month. Michael: Thank you for watching this month’s edition of OptionSellers TV. James, thank you for those insights on the cocoa and the oil markets. You have any predictions for the upcoming month? James: The month of May 2018, Michael, I think is going to be the realization that the U.S. dollar is not the weakest currency in the world. The U.S. is looking at probably 2 or 3 rate hikes this year. The U.S. economy is still doing quite well and its counterparts, especially in Europe, the economies in Germany, Italy, France, and England have been doing pretty well over the last 12-18 months, but the expansion in countries like Germany especially, the major driver of the European economy, is showing signs that it may be peaking already. Consumer Confidence in Germany is down, a lot of the sales in Germany is down right now, and not that it’s going into recession, if it does that would be the shortest-lived recovery ever, now don’t see that happening, but the U.S. economy still is on this footing and the European economy is fluttering already. That is going to make the U.S. dollar more buoyant than a lot of investors thought it would be and that is going to stabilize a lot of the commodities. So, getting into short options right now, whether it be puts or calls on precious metals, energies especially, and some of the foods, I think it will be a great calming effect in the 3rd or 4th quarter of this year. So, any discussion about the U.S. dollar isn’t doing so good, any discussion about inflation, I would fade those ideas and sell options on those ideas and, I think, later on this year you’ll be well rewarded. Michael: Sounds like a good outlook. We’ll have to keep an eye out for that. Also, May is a very active month in the grain markets. We have corn and soybean plantings going on here in the United States, so that can often create opportunities there, as well, for option sellers, sometimes on both sides of the market. James: Practically every year we have large influx of volatility in corn, wheat, and soybeans and we are ready and waiting for that to happen. Michael: Excellent. For those of you interested in finding out more about managed option selling portfolios with OptionSellers.com, you can call to request a consultation. At this point, we are booked out through July for our upcoming consultations; however, I believe we still have some spots left for consultations in June for those July account openings. I believe I misspoke there. The consultations are open in June, the account openings are for July. So, if you are interested in those upcoming openings, feel free to give our office a call here and speak with Rosemary. The number is 800-346-1949. If you’re calling from overseas, the number is 813-472-5760. James, again thank you for your insights this month. James: My pleasure, Michael. It’s always great to give our wisdoms and our insight. We’re not right all the time, but I do like the landscape for selling options here in May and June. Michael: Perfect. We’ll look forward to the month of May and we’ll talk to all of you again in 30 days. Thank you.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com here with head trader James Cordier here for your April Option Sellers Video Podcast. Well, James, we didn’t see any abatement in the volatility in the stock market this month. In fact, Fed chairman Jerome Powell last week coming out, maybe spooking investors, talking about asset prices and maybe even financial markets being overvalued here… a little ghost of 2007. What do you think is going on here? James: Michael, it’s interesting... for the first time since quantitative easing was first announced practically a decade ago, investors and money managers now actually will have an option of not just pouring money into long stocks but fixed income is going to now be some of the talk. The tenure is approaching 3%. With what Jerome Powell said this past week, we will be reaching 3%, possibly 3.25 and 3.5 coming up over the next 6-12 months. With that in place, does the stock market have now still a free ride to the upside? Investors are going to be putting some of their money into fixed income and for the first time in practically a decade there’s an alternative from just being long the stock market. Michael: Obviously at this point, a lot of investors, especially high net-worth investors, are always looking to diversify into alternative asset classes. Physical commodities as hard assets always seem to have an appeal in any type of environment really but especially in this type where you have a lot of the jitters about paper assets. James: There’s probably more jitters now than I can think of over the last decade. As you know, we have investors contacting us on a daily basis, I think, just for that reason. Investors wanting to diversify right now from the stock market, I think, is hitting a really great stride right now. Wanting to get into markets that are uncorrelated to what the DOW does and what the S&P does is not only really popular right now but a lot of the real investors, you know, the people with millions of dollars under management, they are looking for alternatives now and I think they’re going to find some, not only in yield bearing accounts like fixed income but certainly in commodities like what we do, as well. Michael: Of course, we are in springtime now in the commodities markets. That means there’s a lot of things that happen in a lot of the physical commodities in the springtime, especially the agriculture markets and energy markets. We have some great seasonal tendencies, as well, in the spring. James: We do. Needless to say, a lot of people look at commodities and they think about the weather. Over the next 90 days the weather will be a really big factor. Quite often, end users for soybeans, corn, and wheat, they need to get insurance and make sure that they’re going to have these products for what they do and basically for animal feed. Of course in the United States, the largest producer of corn and soybeans, the weather is key. Often, they build in a certain premium during the months of May, June, and July just in case the farmers in the United States don’t do exactly what they would have hoped each year. Of course, later on in the year, once again the U.S. farmers are the best in the world and the spring rallies that often happen normally are just great sales for doing what we do. Michael: Speaking of those rallies or markets, we have a couple we’re going to feature this month that are maybe a little ahead of themselves. Now we have some of that inflated call premium. If you are one of those investors, it’s just learning how to sell options or learning how to sell options on commodities, these are two markets we think are really going to help you... Good opportunities, actually markets we are taking advantage of now in our management portfolios. We are going to cover those for you here in just a minute. Thank you. Michael: Okay everyone, we are back with our Market Segment for this month’s podcast. The first market we’re going to discuss this month is the soybean market. Soybeans have been in a strong rally the past couple of months primarily as a result of some things going on down in South America. James, do you want to talk a little bit about that and what’s driving prices right now? James: Michael, corn, soybeans, and wheat are all about the weather. The third largest producer in the world is Argentina. They’ve had a very dry growing season this year. For that reason, they do have reduced yields and we’re going to have a little bit of tightness out of that South American country. They are the third largest producer in the world and basically the U.S. weather is normally the big catalyst for the market moving up or down. This year, Argentina, which of course they have the opposite season here in the United States, their summers/our winter of course, and while there’s not much to talk about in the United States, traders look elsewhere. In South America, especially in Argentina, they had a really dry season. For that reason, the soybean prices have been bumping up to nearly 12-month highs over the last couple weeks. Michael: Yeah, we have seen some reduced yield expectations right now. We were at 60 million metric tons out of Argentina just a couple of years ago, now we are hearing it might be down as low as 40 million… it’s not reflected yet here. I guess that has been driving prices substantially higher, but we’re nearing the end of that growing season there now, aren’t we? James: We really are. Quite often, traders and investors will price on the worst-case scenario, so then once the corn and soybeans are actually harvested, often the weather wasn’t as bad as people thought and then the market readjusts to the current level of the production it actually turns out to be. Michael: So what you’re saying is although we’ve had some problems out of Argentina, they do about 50% of the production done in the U.S. or Brazil. From what I’m hearing, they’re thinking that production out of Brazil may make up some of those losses out of Argentina already. Is that correct? James: Unlike Argentina, just to the south of Brazil, Brazil has had just wonderful growing conditions for cocoa, coffee, soybeans, orange juice, sugar. Brazil is just a wonderful garden right now for growing soybeans. I think the Brazilian harvest will be larger than expected and that will make up probably a quarter and a half of what we’re going to be losing out of Argentina this year. Michael: Of course, as South American harvest is under way, we get started with planting here in the United States. The market probably starts focusing on what’s going on with the U.S. crop here pretty soon. If they do, the United States has some pretty big supplies heading into the planting season this year. James: We’re certainly going to have harvest pressure probably starting September-October of this year, and the Argentinean drought it probably going to be a forgone memory at that point. Supplies are going to be more than plentiful in the United States, and of course the U.S. is going to be the supplier to the world because of our ending stocks here in the United States, which is something I know we want to talk about as well. Michael: Starting off the year, we have the second highest ending stocks in the last 30 years and the highest in over a decade, so we’re already starting off the year with big supply. Now, the planting intentions, which we’ll know more for sure the 29th of March when that report comes out, but right now estimates are we’re going to have at least as many acres planted as last year, 90 million with estimates now at 90-92 million, so if we even have average yields we could be looking at all-time record ending stocks for next year. Like you said, that harvest pressure coming in… if they’re harvesting that size of a crop you’ll get some pretty substantial harvest pressure. So, the trade you’re recommending here right now, you’re thinking that this rally is probably going to fizzle and we’re going to see steadier lower prices. What are you looking at to trade here? James: Michael, we think that come October-November, soybean prices will probably be below $10 a bushel. We’re trading around $10.40-$10.50 right now. Basically, on the dry conditions in Argentina, we’re thinking that soybeans have a little bit of a chance to rally another 20-30 cents. They could get to the mid-upper dollar region. We love the idea of selling soybeans at the $13 level, so we’re going to be recommending soybean calls at $13 and $13.25 thinking that while soybeans might have a big of a rally going into May and June, we love the idea of being short in fall. So kind of like football, we’re not exactly throwing the ball to where we think the market is right now, but we’re selling options to where we think the runner’s going to be, and the runner being a huge harvest in the United States come September and October. $13 level for soybeans, you’ve got to bet on something, and boy we don’t see that happening nowhere being near that price. Michael: Yeah, that’s a pretty big cushion there to be wrong. The USDA itself has average on-farm price this year at $9.25, which is down here. So, that seems like a pretty safe bet. Let’s go ahead and move on to our next market right now, and that would be the cocoa market. Michael: James, cocoa is another one of these markets that has had a pretty good run here over the last several weeks. What’s going on here with prices? James: You know, similar to soybeans that we just talked about, one of the main producers of cocoa is the Ivory Coast. They are the largest producer in the world. They’ve had dry conditions this past year and, while those dry conditions certainly will reduce some of the pods yielding this year, we have what’s estimated to be 2% less cocoa being produced worldwide in 2018; however, a 2% drop in production has now caused and created a 30% increase in price. The balance doesn’t quite weigh out but we do have speculators buying, we have commercials buying on the idea that the Ivory Coast crop is going to be smaller, and it is certainly trading above what we think is going to be fair value in price later this year, probably be a couple hundred dollars a ton. Michael: So, while this west African crop got hit somewhat, you’re saying global production is probably going to make up for a lot of that? James: It is. A lot is always made at the Ivory Coast because they are the largest producer. Sometimes they have political turmoil. Sometimes they have the weather that’s not quite right. 2018 and 2019 there’s supposed to be a world production surplus for cocoa. So, all this discussion about the Ivory Coast being too dry is eventually going to take the back seat to the fact that the world does have enough cocoa. It’s not as tight in supply as a lot of people think. Rallying from $2,100-$2,200 a ton all the way up to $2,600 a ton, we think that the rally is overblown and probably, starting in August and September, we’re going to be quite a bit lower than where we are right now. Michael: There’s the numbers you were talking about. That’s the latest from the ICO (International Cocoa Organization) and it’s showing only 2.3%, so that’s a pretty good rally for the bigger picture short fall. James: It’s interesting. Commodities do have a reputation for overshooting on the downside and overshooting on the upside, and I think cocoa is a prime example of that here in 2018. Let’s say the cocoa production falls off 2.5-3%... we’ve had a nearly 30% increase in price and I think things will come into equilibrium the 3rd and 4th quarter of this year. Michael: So, how do you recommend that option sellers at home take advantage of this? James: You know, like we’re looking at on the chart here, $3,000 a ton, $3,100 a ton, yet a large leap above where we are right now, those options right now are fetching $500, $600, $700 each. We think those are a great sale. The market, needless to say, is still in an uptrend. It could still go slightly higher, but as harvest around the world starts taking place we will have harvest pressure again and a lot of the commercial and speculative buying will probably back off. We expect cocoa to probably be around $2,300-$2,400 later this year. If we’re short from $3,100 by selling those calls at $3,000 and higher, we think that’s going to be a really good way to position in this market. Michael: Yeah, especially I see the speed this moved up… probably really goosed those option premiums up there. Maybe just like the market, they’re probably overpriced too now at this point. James: Michael, it’s interesting. As you know, we follow 10 commodities. We don’t trade all 10 all the time. Cocoa is on our radar screen. It is one of the markets we follow extremely closely. When you have extremes in this market, cocoa is an absolute necessity to many households and many consumers around the world. Cocoa is not so much an exotic. It is a market that everyone is in touch with and the fact that we’ve had that large increase in a very short period of time, those options now open up to large premium and, we think, we’re going to be taking advantage of those in a very good way over the next 30 days. Michael: I know for me chocolate is a necessity, so I know how those people feel. Okay, let’s go ahead and move into our Q&A session now and answer some of our questions from readers. Michael: We’re back with out Q&A with the Trader section and, James, our first question this month comes from Orson Falck of Manchester, New Hampshire. Orson asks, “Dear James, I noticed when you talk about positioning an account, you say you keep a large cash reserve for your client accounts – fifty percent I believe. Are your published results based on the entire amount in the account, including the non-invested cash, or is it based on the amount you have invested?” James: Orson, that’s a good question. If you’ve been following our materials over the last period of time, we follow 8-10 commodities. We rarely find opportunities in all of them at one time. Therefore, Orson, what we do, for example, we want to keep our margin levels at 50% or lower so that when we do have an opportunity in cocoa or soybeans or coffee positions that we don’t currently hold, we have dry powder in which to take advantage of them. Even when we are fully positioned and we are in 2 energies, 2 metals, 2 foods, and 2 grains, we still don’t raise our margin level to much more than 50%. There’s not a right way or a wrong way to do this. For us, that’s been the sweet spot for margin and leverage. I know how we did last year, I know how our returns were last year, and that was on less than 50% margin. Our client is never going to receive a margin call, we’re never getting shaken out of the market because one market or another market moved a certain level. We like the comfort of that. That allows us to make the yield curve as flat as possible so that we have smaller equity swings in people’s accounts that have invested with us. To answer your second question, the published results last year and years prior is on the total amount of money invested, not just the amount of money that is put up as margin. It is the 100% of exactly what the client invested. Michael: Very good. I get that question a lot. People, especially stock investors, that aren’t used to how those margin fluctuations, they aren’t used to that big cash cushion, and knowing how to use leverage in commodities is really one of the biggest keys to being successful in it. This is how you use leverage properly, by keeping that cushion there. James: Absolutely. There’s no reason to push this type of investment product. I know how we’ve done the last several years, being invested less than 50%, I know what the results were, and I don’t feel the need to really push that envelope. I like the ability to be nimble in the market. If we have something on that we need to add to, we have extra cushion to do that. If a market moves against us slightly it doesn’t really mess up a portfolio to any great extent, and that is why we utilize the 50% rule. We rarely are going to be invested above that. Michael: Let’s go to our second question. Our second question this month comes from Harold W. Corson. Harold is writing in from Monterey, California. Harold asks, “Dear James, Thank you for your outstanding book that introduced me to selling options on commodities contracts. So far, I’ve sold options in oil, gold, and just started out in wheat. So far, so good. I’ve noticed some commodities don’t have much trading volume. How many commodities do you typically recommend trading in an option selling account?” James: The four sectors that we follow are energies, metals, foods, and grains. Generally, we’re watching about 8 or 9. We are often in 5 or 6 of these commodities, as I mentioned in the last question. Rarely are we in all 8 or 9 at a time. I like being in all 4 sectors. We definitely want to be in the grain market, that is the main staples, of course, in the world. Precious metals, energies are extremely high-volume trades. Great liquidity there, very large premiums generally, and in the foods, as well. Basically, volume is going to be mostly in these 8 commodities. We don’t like straying outside of them. Liquidity and volume is very important. Basically, you want to look at the round strikes. For example, if you’re managing your own portfolio and you’re looking at crude oil you’re going to be looking at the $70 strike. Don’t look at the $71. In gold, don’t look at the $1,825 option, look at the $1,800 or the $1,900 option. Easy tricks like that to find the volume in the open interest will help you get in and out of the market if you choose to do this on your own. Michael: Yeah, I mean, it’s a great point you make that, again, going back to stock traders and stock option sellers, they’ve got 2,000 or more stocks they can pick from. We’ve got 10-12 commodities we watched and maybe 6-8 you’re trading at any given time. So, there’s not a big universe there. You focus on the ones with the highest volume. Obviously, there are markets like lumber and aluminum or what have you that there’s really no volume there for option sellers, so you don’t have to bother with them. James: Right. The 8 or 10 that we follow are just absolute staples of life both here in the United States and abroad. They have excellent volume and excellent open interest, for the most part, and that’s where you want to be. The exotics so much, you know, every once in a while there’s an opportunity there, but having liquidity for our clients is of the utmost importance and it should be for you, as well. Michael: A couple resources if you are interested in learning more about selling options on commodities… obviously our book, The Complete Guide to Option Selling. You can get it on our website at a discount to where you’ll get it at the bookstore or Amazon. That link is www.optionsellers.com/book. If you’re not yet a subscriber to our newsletter, you can get a free copy by going to www.optionsellers.com/newsletter and get some of these trades we’ve been talking about and also more answers to option selling questions. That does it for our Q&A section for this month. We’re going to go ahead and move into our final section of the podcast. Michael: Thank you for joining us for the April podcast. We hope you’ve enjoyed what you saw here today. Next month, we’re going into May and we have even more seasonals coming up. James, some of your favorite markets come into some major seasonals next month. James: We will look at an active calendar starting in May, certainly. Soybeans and corn are probably the main feature. We’re selling options and call options during the next 60 days. Of course, cocoa is on our radar screen right now with 2% smaller production and an increase of 30% in the last several months. We’ve got a lot of activity going on in the next May, June, and July it really looks like. Michael: We also have the energy markets coming into play, as well, so there’ll be a lot to talk about next month. We’ll probably continue talking about some of these great seasonals that happen during the spring and how you can take advantage of them here. For those of you that are interested in how the accounts work here or may be interested in becoming a client of OptionSellers.com, we do recommend you get our free Discovery kit. That’s an information pack for investors. It’ll tell you all about our accounts and how you can invest directly with OptionSellers.com in a managed option selling account. If you’d like to get that, the website link is www.optionsellers.com/Discovery. Speaking with Rosie, we do have all our April consultations booked, so there is no further availability for them; however, we do have consultations still available in May. If you’re interested in discussing an account with OptionSellers.com, you can call Rosemary at the main office. That’s 800-346-1949 or Internationally at 813-472-5760. Depending on availability, Rosemary can get you scheduled with a consultation. As a reminder, our minimum account level did go up this month. The minimum account level is now $500,000. James, thanks for all of your insights this month. James: My pleasure, Michael. Always fun and very insightful to help our viewers and listeners out with this. Michael: We’ll talk to you right here in 30 days. Thank you.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com here with head trader James Cordier. We’re here with your March OptionSellers.com video podcast. James, as we head in to March here, what’s on everyone’s mind is the obviously the big development we had here in February. Big stock sell-off, it’s on everyone’s mind right now… stock investors are busy brushing themselves off, wondering what’s next. Over here in commodities, we didn’t really see a lot of movement in the markets themselves, but we had some developments in the option and option volatility. Why don’t we start off this month by maybe just talking a little bit about what happened in stocks themselves. James: Michael, it’s interesting, a couple of years ago we had BREXIT. We had Switzerland leaving the European Union, we also had the election outcome a year and a half ago. All these events didn’t really change fundamentals on a long-term basis, but what they did do is they injected a lot of volatility. The 3,000 point drop in the Dow Jones here just a couple weeks ago did exactly that. It turns out that there’s something called the volatility index in stocks. There was an instrument that was built for people to go short or long on it. It seems as though everyone was way short volatility. In the stock market, that got unwound, it developed a 3,000 point drop in the Dow Jones, and now we’ve got to the stock market recouping quite well. It’s probably going to continue to rally everything as far as we can tell. The U.S. economy looks good, the global economy looks good, stock profits look excellent right now. Volatility spiked in a dramatic way. For ourselves selling options on commodities, we saw volatility index spike as well. Precious metals, energies, and some of the foods did have a spike. In many cases, a lot of the positions we had did increase in value during this large increase in volatility. It’s not always fun when this happens, but it is absolutely a key ingredient in option selling. It allows us to sell options, as you know, 40-50% out-of-the-money. Without that creation that happens every 6-12 months in the volatility index in commodities and in stocks, we wouldn’t be able to do what we do. It’s a key ingredient and it did happen this past month. We’re very excited about the opportunities that it has now in selling options. Michael: It was kind of ironic, James, because you and I were watching this unfold, we were watching the stock market take a nose-dive, and we’re watching our commodities boards and basically nothing is going on. We have gold and silver prices staying silver, the grains and foods were business as usual, crude took a little bit of a sell-off, tied into stocks, but that was really the only one. Over in natural we had to sell off, but that was really already under way. It didn’t have much to do with stocks. Yet, you saw option volatility spill over from that stocks and it increased the value of those options temporarily, but now you’re seeing that come off a little bit. Is that right? James: It is. The volatility index in the stock market is practically to the same level as it was prior to the 3,000 point sell-off. In commodities, it has now come back about 75% of the level that it was at. The fundamentals never really changed at all, especially in commodities, and I think it sets up a great landscape for doing what we do. We’ll find out relatively soon. Michael: You know, a lot of people, they want to get diversified from stocks. That’s one reason why they’re interested in selling commodities options in the first place. You know, it was interesting… on CNBC they had an article about on the biggest day down in the Dow it was down, what…1,075 points or something like that? They ran an article that there was only 7 stocks higher that day and 2 of them were cereal and tobacco. It was Kellogg and one of the tobacco companies- I forget which one. CNBC’s analysis of that was, “well, even when stocks are down, people will still eat and they’ll still smoke”. That’s a point we make constantly is that no matter what’s going on, people still need to eat, they still need to drink coffee, and they still need to put gas in their tanks. James: The breakaway from the correlation from the stock market was very evident on that day. Gasoline and crude oil and soybeans and coffee… business as usual. That’s why a lot of our clients like being diversified away from the stock market. On that occasion, we did see the volatility index increase options on commodities, as well, and that’s just a key ingredient for us doing the business that we do. They did increase while we were in them. We just see, going forward, just a great opportunity to use that additional premium to position clients. Michael: So, we got a little bit of a surge in volatility, that pushed premiums up, and now that’s coming off. The premium is coming back down a little bit, but now we’ll have that historical volatility in the market. One thing you and I have talked about is now that opens up opportunities for us to do some strategies that maybe we weren’t able to do before. James: Right. In 2017, we saw volatility come down steadily the entire year, which really produced a great return for a lot of option sellers last year. Chapter 10 in the Third Edition of our book, we talk extensively about credit spreads. We haven’t had the opportunity to do that the last year or two because volatility has been low. The influx of volatility that happened over the last 30 days now allows us to do this. It is probably the most safe, sound option strategy there is. With the additional premium now, we’re looking forward to positioning in that fashion the next 6 months or so. Michael: Okay. One observation we were making as well is when volatility is up in options, obviously that’s when we want to sell them, but when the volatility is higher there can actually be less risk in selling the options because you’ve already had that surge in volatility. So, often times the path of least resistance is to come back off that volatility after you sold them. James: We saw that the months after the BREXIT, we saw that months after the Trump win during the election of 2016, and, boy, we did quite well right after that period. We expect that to happen again this year. We’ll see if that’s how it plays out. Michael: All right. As we head into March, we’re going to show you a couple ways maybe you can do just that. We’re going to move on to our feature markets segment and we will cover that in just a couple minutes. Thank you. Michael: All right. So, we’re back with our markets segment this month. The first market we’re going to talk about this month is the natural gas market, a market that’s near and dear to our hearts. Natural gas, if you’re unfamiliar with commodities, it’s a great market for selling options. There’s a ton of liquidity there and also you can sell options very far out-of-the-money, so it’s one of the core markets you want to focus on if you’re building an option selling portfolio. One of the first fundamentals that we look at when we look at markets like natural gas is going to be the seasonal tendency. As we know, seasonal tendency charts are not guaranteed by any means, but they do give you an average of what prices have tended to do in past years at different times of year. What we find is there are underlying fundamentals that tend to drive these every year. We’re going to take a look at the ones in natural gas right now. James, do you want to talk about that and why we see this type of movement in gas prices often in the past? James: It’s interesting, Michael. Often, suppliers want to bulk up for seasonal demand in winter, and everyone is basically building supplies going into December, January, and February. If the winter, especially in the Northeast, falls just a little bit shy of expectations or it’s 5 degrees cooler or warmer than normal, the supply actually is more than ample and prices usually start coming down in January and February as we see that we’re going to have enough natural gas and we’re not going to be running out. Again, here in the United States, we’ve had an extremely mild winter. Philadelphia, New York, and Boston, it has been some 10-15 degrees warmer this year than normal, and prices have come down just like seasonally they do. Supplies of natural gas this year are surprisingly low. Right now, we are approximately 23% below the supply of last year. We’re 19% below the 5-year average. That is because we’ve been exporting natural gas, something brand new to the exporting ability right now here in the United States. It’s setting up really nicely for the seasonal rally that we’re expecting. Natural gas right now is near it’s 12-month low here as we end February, often where it is this time of the year. Seasonally, what then happens is suppliers start building supplies then for summer cooling needs, which is like May, June, and July, and that often will give us a price spike starting in March and April. Michael: So, what you’re saying is this is really a factor of distributors accumulating that inventory, driving demand at that wholesale level, which is really what’s pulling prices higher… at least it has in the past. James: Exactly right. If we get through the winter, and it looks like we are again this year, prices usually come down because we are more than well supplied this time of the year. What wholesalers do for summer demand for cooling needs, especially in the Northeast, is they start building supplies and that demand boosts the prices starting in March, April, and May, and it’s setting up quite well to do that again this year. Michael: You know, it’s interesting, James, we talked about stock prices coming down earlier and a lot of people noticed a correlation and said, “oh, natural gas prices came down with stock.” That price really had nothing to do with that move in stocks. Natural gas prices were already coming down as a result of just normal seasonal tendencies. Wouldn’t you agree with that? James: Right. The natural gas market is so liquid. It takes no cues from any other market. The price of Apple stock has absolutely nothing to do with the supply of natural gas, the demand, or the price. It was in a downtrend here in the last few weeks just as the seasonal entails, and it was again this year. Natural gas definitely uncorrelated from the stock market and this year proved it as well. Michael: Let’s take a look at some of the fundamentals of where we find ourselves right now at the end of February, as far as supply goes. First of all, we’re going to take a look at the current chart, which looks a lot like that seasonal one. It looks like we may be at a low right now, technically looks like we’re a little bit set up for a rally here. Is that what you would expect it to look like this time of year? James: Michael, we could almost overlay the seasonal that we were just looking at and it lines up extremely well with this year’s pattern. The market is oversold right now, as the stochastic on the bottom of the chart describes. We really like the idea of the fundamentals being slightly bullish right now. We have nearly 20% below the 5-year average on supplies here in the United States. We’re going to be exporting more natural gas this year than ever before. As we get into the spring and summer cooling season, we do expect a nice bump up in natural gas prices, setting up, what we think, is a very good put sale for new option traders. Michael: Okay, good. That supply situation James was referring to, this shows the last 4 years. You’ll notice this line here is indicating this year where supply levels are. We are, as James mentioned, about 19% below the 5-year average as far as supplies go. So, this is where we are now. It sets up a fairly bullish fundamental supply picture, as you mentioned, James. There’s another side to that equation and that’s also the demand side. Why don’t you talk a little bit about that? James: The country is trying to get away from coal - electric power plants. We’re switching off into more cleaner utilization. Natural gas is going to be a big winner with that. Starting this year, having more so in the coming 3 or 4 years, but we are looking at record demand here in the United States for natural gas, combined with the fact that we are some 20% under the 5 year average on supplies sets up a nice bullish situation here for the next 3-6 months. Michael: I noticed, too, when we were looking at this bump for projected record demand in 2018, that came evenly from both residential and industrial demand sides… possibly speaking to a stronger economy, tax cuts, what have you, that are maybe at least partially driving that in addition to what you mentioned with coal fired plants switching over to electricity. James: Right. Definitely a push for greener production of energy here in the United States, and I think this chart shows it really well. Michael: Let’s take a look at a trading strategy here for those of you that are watching this. You put together a strategy here for, and obviously we’re doing a number of different things in our portfolios, but for the person watching at home that maybe wants to try it out or at least just see how it works… this is the strategy you suggested. James: We like the idea of selling September natural gas puts at approximately the $2.25 level. You can see where we’re trading right now. Often, with a seasonal rally that may or may not take place, we think it will this year, I think it’s set up quite well, natural gas is probably going to head up towards $3… maybe $3.10 or $3.20 this summer. We’re going to be some 30-40% above this strike price. We should have very fast decay in selling the $2.25 put. The market should stay a long ways away from it. The whole idea about trading seasonalities or trading fundamentals using short options is look at the variance you have in the market. This is a very large window for the market to stay above. If we have strong fundamentals and if we have a strong seasonality, can natural gas fall below $2.25? Of course it can; however, we really like the odds of this position going forward over the next several months. Fundamentally, natural gas should not fall below this level. Seasonally, natural gas shouldn’t fall below this level and we have record demand this year. It’s definitely a trade that we like going forward. I think it’s a great investment. Michael: So, what you’re saying for those viewing this at home, yes everything looks bullish here. That doesn’t mean it still can’t come down in the meantime to here, here, or here. That’s why you sell the option in the first place. You’re not trying to pick the bottom, you’re just saying it’s not coming here. So, we can go down here and it doesn’t matter what it does, even if we’re a little early or late on the trade, you still win at the end of the day if it stays above that strike. James: All investors know that timing the market is practically impossible. Trying to pick these small swings in the market are very difficult. All we’re simply doing is saying the market’s not going to fall below this level. As long as natural gas stays here, here, or higher, these natural gas puts expire worthless. Of course, as a seller, we get to keep the premium. Michael: Very good. Let’s go ahead and move into our next market, which will be the cotton market. Michael: Okay, we’re back with our second market this month, which is going to be the cotton market. Before we talk about cotton, there’s something I wanted to point out form our last segment in natural gas and the cotton market. These strikes we’re talking about right now have been made available by that last burst of volatility we got from the stock market. These strikes we are looking at probably weren’t available a couple weeks ago. When we’re looking at them now they are. So, this is kind of the fruits that option sellers can benefit from, from these little inputs of volatility into the market. So, let’s talk about cotton. It’s our next market for this month. The first thing we’re going to look at is the seasonal tendency for cotton. Obviously, we tend to see a rally up through the springtime months and then we see a sharp drop off. James, do you want to explain that or why that has tended to happen historically? James: Michael, this chart you can almost mirror over the grains of the United States. Basically, corn, soybeans, and wheat often planted in the spring and then harvested in summer and fall, and as the angst of the weather problems subside, so does the price. Cotton is planted in the south and, of course, it’s planted early in the year. So, as we’re planting in February, March, and April, there’s possible excitement about not exactly perfect weather. Users want to get insurance and they want to purchase cotton prior to planting season. As we reach April and May, we have a very good idea about how much cotton we’re going to be producing that year. End users get to stay off as far as needing to get a lot of cotton around them. So normally, once the commercial buying stops, the market usually starts coming down in May, June, and July. Interestingly, this formation so far has mirrored almost perfectly with what’s going on so far in 2018. We have a really nice setup looking just like this with a decent rally that started about 3 months ago. It’s starting to look like this already. Michael: Similar to that natural gas trade where you have the seasonal pattern tending to line up very closely with what we’re seeing in the actual price chart this year. Let’s take a look at where our fundamentals are this year as we look at the cotton market. The big story, ending stocks, stock/usage ratio… looks like they’re pretty healthy levels this year, James. James: They are. Cotton supplies in the United States are going to probably be exceeding the 10-year level that we had. In other words, we have cotton stocks that are going to be highest since 2007. Supplies look more than plentiful. We’ve planted just a great deal of cottonseeds so far this year in the south, and we’re probably going to have a bumper crop, the weather looks ideal, and planting went extremely well. With supplies in the United States at a 10-year high, the chance for a large rally going into harvest seems quite low. We really like the idea of selling calls. Michael: Yeah, that stocks/usage ratio at 30%... if you’re unfamiliar with the importance of these 2 figures, ending socks and stocks/usage ratio in agricultural commodities, we do have a piece on that on our website. It’s a tutorial. It’s at www.OptionSellers.com/agriculture. There’s just a brief video but it shows you the importance of these 2 figures. They’re the core measurements of supply and demand. They’re both baked into these things. With the highest in 10 years and, James, you alluded to it, next year, if they harvest all the acres they’re planning on putting in the ground this year, we could see these numbers even climb more. Outlook for cotton is somewhat bearish fundamentally, lining up well with that seasonal. Let’s go to the strategy we’re talking about this month. You’re recommending a call selling strategy. Do you want to talk a little bit about that? James: We are. We have cotton trading in the middle 70’s right now as planning season starts wrapping up. We’re probably looking at price pressure in the 3rd and 4th quarter. We really like the idea of selling cotton as high as the $0.90 level. The fact that we’re going to have practically a record supply and a record production this year at a time when supplies are nearing a 10-year high, the chance for approximately 20-25% rally going into harvest seems quite small. Cotton can fall, it can stay the same, it can actually rally quite a bit between now and harvest season. It has certainly a long way to go before we get to our strike price. This option at the $0.90 call strike price is trading around $700-$800. We think that is a very low hanging fruit for later this year and we think that we’ll probably be covering that position around $100 well before option expiration. The decay on that option looks terrific and the odds of cotton reaching that level is quite miniscule. Michael: Excellent. Part of the benefit if you’re using seasonals when you’re deciding which option to sell, these 2 things are almost perfectly matched because seasonals are not a perfect recipe. For right now, the seasonal tendency for cotton, it may not start declining until March or April, if it does at all. Even if you’re here and even if it does rally a little bit more and you’re not right at the beginning, that’s okay because, as James is saying, your strike is way up there at the $0.90 level and you’ve got plenty of wiggle room here to be wrong for a while, so to speak. James: That’s exactly right. That’s why we sell options on commodities and we don’t try and predict the small moves, just based on fundamentals, levels that the market cannot reach and will likely not reach. We’re not correct all the time. Every once in a while, the market might move in that direction, but selling options that far out-of-the-money using the fundamentals is a very good long-term strategy. Michael: If you’d like to read more about our research pieces on these 2 markets, of course they’ll be available on the blog. You’ll also want to make sure you get this month’s Option Seller Newsletter. That should be out at the end of this week, which would be March 2nd. The newsletter will go in the mail and that’s when the e-copy will go out. We will be featuring the natural gas market and trade strategies there. The cotton market will be on the blog, so if you want to read more about those be sure to get them. Let’s go ahead and move into our Q and A section and we’ll answer some questions for our viewers. Michael: We’re back with our Q and A session for this month. Our first question comes from Rob Reirick of Ithaca, New York. Rob asks, “ Dear James, you refer often to credit spreads in your book; however, I rarely hear you mention them in your market segments. Do you still recommend option credit spreads and, if so, why not features on them?” James: That’s a very good question. The layout and the description of our trading philosophy in our book is very detailed. When we’re giving examples for option sales in crude oil or cotton or anything else, we’re basically just laying out primary examples of where we think the market probably won’t reach. We often don’t talk about a more elaborate trade, which is a credit spread. We feel that credit spreads are probably the most opportune way to take advantage of high premiums and, at the same time, have a very conservative position where it locks in certain types of risk as involved with not just being a naked put or a naked call. We are looking at the next 5-10 years of utilizing credit spreads. We don’t talk about them a lot. They are something we’re going to be utilizing a lot in the future. Basically, when we’re talking about examples for option selling, we’re basically talking about straight fundamentals and levels that the market won’t reach. We are absolutely huge proponents of credit spreads and for our clients we will be doing those often now and in the future. Michael: This isn’t the only letter we got on this, James. Because you may want to read more about credit spreads and see examples, maybe we will start incorporating some of those into some of our examples in the future and showing you, the viewer or the reader, how to actually do it. James: As our viewership gets more further along with understanding option selling, I think that’d be a very good idea to elaborate a little more on the actual positioning that we do at home for our clients. Michael: Let’s get to our next question here. This is from Kevin Woo over Cupertino, California. Kevin asks, “Dear James, with the outlook for inflation growing, do you see a favorable outlook for commodities ahead?” James: Good question. As a basket of commodities for 2018 and 2019, we do see it in uptrend in primary prices. Basically, picking out a particular one that might outpace the other ones, I think that’s difficult to do. We’re looking presently at some of the best demand for raw commodities that we’ve seen for probably the last 10 years… from China, from Europe, from the United States. Of course, there’s some infrastructure spending ideas that are coming down the pike here in the United States. We do see commodity prices probably increasing this year anywhere from 5-15%. That might be led by precious metals, that might be led by energies, but, as a whole basket, we do like commodities going forward in the next 12-24 months. Of course, as option sellers, it doesn’t really matter if the market has inflationary factors that do increase commodity prices; however, if we do see that developing and we do see that on the horizon, we simply change our slant to a slightly more bullish factor as opposed to selling calls that are going to be out-of-the-money that are probably not going to be reached. We might utilize more 60% of our option selling as a bullish structure. In other words, selling puts under what we think might be a slightly higher commodities market in 2018 and 2019. I think that’s a great question and we are somewhat favorable on commodities. As a general theme, we do see the market going slightly higher this year and next year. Michael: That’s a great point you made there as well, James. I’m glad you addressed this, because this is a question we get often… “What do you think commodities will do? Is it a good time to be investing in commodities?” The point you made is as option sellers it doesn’t really matter if it’s a bullish or bearish year for commodities. We’ve had some of our best years in bear markets. James: Absolutely. Michael: It kind of goes back to one of those points we’re always making about diversifying your assets. If you have some of your assets in equities, real estate, or what have you, most people invest by buying assets hoping for appreciation. It goes back to that importance of diversification, not only of asset class into that commodity asset class, but also diversification of strategy, where as in what you described, you can benefit even if prices are moving lower, so you have a strategy equipped even in a bear market and you can potentially benefit from that. The importance of diversification is strategy. James: As option writers, you can be diversified to where part of your portfolio is looking for a slight uptick in prices while other markets that, whether you’re in stocks or commodities, and then other commodities might have bearish fundamentals and you might take a slightly bearish stance to those 2 or 3 markets. The idea of being diversified and having a portfolio that doesn’t necessarily need the stock market to rally, the commodities market doesn’t have to rally, this really gives a lot of versatility for a client or ourselves to diversify a client and have them be profitable, whether the stock market or commodities market goes up, down, or sideways. Often the market does go sideways. Right now, we have a very strong stock market, but over the last 10 years it normally doesn’t do that. In commodities, we normally have 1 or 2 really banner years out of 10 but, for the most part, commodity prices realize fair value, and selling puts and calls far above those markets can be very fruitful as we found out. Michael: Of course, if you want to learn more about the entire option selling strategy, you’ll want to read our book The Complete Guide to Option Selling. It’s now in its Third Edition through McGraw Hill. If you want to get a copy at a discount, or you get it at Amazon or in bookstores, you can buy it through our website… that’s www.OptionSellers.com/book. Thanks for watching our Q and A session, and we’ll now wrap up our podcast for the month. Michael: We hope you’ve enjoyed this month’s OptionSellers.com Podcast. James, we have in March, coming up, possibly our first interest rate hike. Do you have any comments on that or things investors might want to watch out for in the upcoming month? James: I think the realization of interest rates going up is going to really hit home. In March, we’re going to have the first rise of interest rates in 2018. There’s a lot of debate whether it’s 3 rate hikes or 4 rate hikes. It’s not going to matter that much. The dollar should be on more firm footing after the 1st hike, and then we’ll see where it goes from there. Higher interest rates are in the future and, we think, the U.S. economy and economies around the world are probably very well ready for that to actually take place. We think that’s going to create more opportunities in some of the strategies that we’re implementing. We’ll see. Michael: For those of you that are considering managed option selling accounts with OptionSellers.com, you probably saw the announcements over the month that as of May 1st, we will be raising account minimums to $500,000 for new accounts only. So, if you currently have an account under that level it’s quite all right. You’ll be grandfathered in, but as of May 1st, all new accounts will have to have $500,000 as the minimum. We are almost fully booked through April, so if you want to grab one of those last consultations through April to try and get in ahead of that minimum change, you can call Rosemary at the office. The number is 800-346-1949. If you are calling from overseas it’s 813-472-5760. Of course, you can always send an e-mail as well to office@optionsellers.com. If you’re watching our podcast today and you like what you read, be sure to subscribe to our YouTube channel. You can also get us on iTunes and, of course, you can subscribe to our mailing list on our website at www.OptionSellers.com. If you request any of our free materials there you’ll automatically get on our list and we’ll send you a notification any time we have new videos or podcasts. Thank you for joining us this month. James, thank you for your analysis on the markets this month. James: Likewise, Michael. Always happy to. Michael: … and we will talk to all of you in a month. Thank you.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier. Welcome to your first OptionSellers.com Podcast of 2018. You’ll notice we are doing this in video format this year and we’re hoping we can use some video accompaniments to help you understand some of the concepts we’re talking about. We still will be doing some audios throughout the year, but we hope you’ll like the new format. Here we are in 2018. Stock markets are raging. Global economies are doing pretty well right now. So, we have a lot of global growth going on right now. We’re going to talk about, starting off, what that might mean for commodities. James, maybe you want to lead into that a little bit. What do you see for commodities going on this year? James: Michael, it’s interesting. Over the last several years, quantitative easing, here in the United States and across all of Europe, was thought to eventually make economies stronger. A lot of people were kind of not so hot on that idea, but certainly that has turned the corner. European economies are doing extremely well. China is bolstering once again. Here in the United States, along with some tax implications, the sky is the limit right now on economies worldwide. Of course, the stock market is doing great. Demand now for raw commodities look like it has finally turned the corner. There has always been too much supply. Needless to say, we had the Chinese economic boom of infrastructure spending several years ago. Basically, the market just came down from that and it has been waiting for real demand to finally develop and now we’re here. Copper prices, crude oil prices, some of the energies are making 2-3 year highs based on stronger economic growth throughout the globe right now. Chances for a weaker dollar look pretty special right now for 2018. All systems go right now for commodity prices, probably trending higher maybe throughout the year. Michael: Okay. So, you see this as, at least partially, a demand-led type strength possibly into commodities as a whole in possibly 2018. I know you’ve been talking recently about inflation creeping back in to the conversation here. Let’s talk a little bit about that. What role do you see that playing in 2018 and how might that affect commodities? James: Michael, 2% inflation has been the unachievable mark for several years now. Janet Yellen was trying to produce that. We’re finally there. A lot of some of the most brilliant people who do the bean counting for us for inflation are looking now at 2-½% inflation for 2018. The price of crude oil is such a dramatic input for different price costs throughout the world. A barrel of oil goes into grains and clothing and manufacturing. The price of crude oil has increased some 35-40% recently. That is going to start showing up in the inflation rate. We expect to see that probably the 1st and 2nd quarter of 2018, but investors are getting ahead of that right now. They’re not necessarily waiting for this 2.5, 2.75 inflation number to come out. They see it already and investors and traders want to get involved with it before the “white of their eyes”, they used to say. Michael: Okay. So, many of the people watching this show are interested in option selling or selling options on commodities. Obviously, inflation doesn’t necessarily mean every single commodity is going to be rising in price in 2018, the core fundamentals are really going to be the determinative of that, but it is a supportive factor and something to keep in mind. As an option seller, as somebody that sells commodity options, or you’re thinking about selling commodity options, how does inflation, the possibility of maybe the index as a whole being a little stronger, what affect does that have for commodities option sellers? James: Commodity option sellers can get into a market that has already taken off. For example, the price of oil was recently at 50 and it’s up at 65. A lot of investors are going to say, “Well, how do I get involved with oil? It has already made quite a move.” That’s the beauty of option selling. A person or an investor can still sell a $50 crude oil put just as though their break even was $50 where this bull market in oil started. That is one way an option seller can take advantage of a market that’s already moving… already left the station. With $50 oil right now, everyone would love to have that back. The writing was on the wall with OPEC production cuts… the more demand here in the United States and abroad. Basically, as an option seller, you can get in on that ground floor price that so many people missed out on. The price of gold recently has rallied $100. Do you want to buy gold here at $1,375 an ounce? Maybe, maybe not. We just rallied $100. By being involved with option selling, you can sell puts at the $1,100 mark, so you have nearly a $300 cushion for the market to do a variance. As the market goes higher, if in fact it does, option selling allows people to get in on what was the ground floor, but you get to wait to find out and see if it actually develops or not. The gold market has been trending higher, the crude oil market has been trending higher, a lot of the foods have, and some of these markets you can sell options 30-40% below the current price… A great way to still participate in inflation hedge for investors the rest of the year. Michael: Then you have the other side of the market, too, where often times when markets are rallying they get in the news crude. Perfect example. The general public wants to get in on it and what’s their favorite strategy? They want to buy the calls. So, all of a sudden demand for the calls goes up and people start rushing in and those premiums start going up, and there can be opportunities on both sides of the market. James: Exactly right. So often, the market will overshoot because of hedge funds that are pushing the market up. Then, of course, the public wants to get in and they don’t’ want to trade futures contracts so they want to buy call options. What that winds up doing is pushing call prices way about the fair value of where the market is likely going to reach. Basically, it sets up the perfect strangle, something that we’ve talked about often in our books and some of our material that our readers enjoy so much, I think. Michael: So, overall for 2018, what’s your take on commodities? Do you see this as a favorable environment for selling options? James: Michael, over the last 3 or 4 years, we’ve been involved with option selling on commodities without the volatility, without the public’s participation, without hedge funds participation, so the premiums on both the call and put sides have been slightly tight over the last 2-3 years. That’s about to change. We’re going to see inflated premiums on both sides. Explaining why put premiums inflated in a market heading higher is a little difficult for the laymen, but basically it is blowing up the volatility. It allows you to sell puts at a much greater value than normally you would, but the thing is, as the public comes into commodities, as investors come into commodities, often they want to be involved with the options, and often they want to be involved with the call options. So, while we do see an up market in oil this year and in gold and silver this year, the levels that the public and investors are willing to pay, we’d be happy to take the other side. We’re probably going to see options on commodities inflate to the tune of 30-40% this year, so not only are you picking levels that the market is likely not going to reach, but now we’re going to add just that much frosting to this cake as far as being able to sell options, I think. Michael: If any of you are interested in reading some of our research on some of the markets James is talking about, you’ll want to catch our upcoming edition of the Option Seller Newsletter. That will come out on February 1st. If you’re not already a subscriber, you can get a sample edition at OptionSellers.com/newsletter. James, we’re going to go ahead and move into our next section now and talk to you about some of the markets James is referring to right now and show you some strikes we are looking at. Michael: We are back with the markets segment of the podcast this month, and what we’re going to do is talk about a couple markets that you can follow at home. These are real markets we are looking at for our managed portfolios right now and we are going to talk about some things you can possibly do if you want to try some of these on your own or just maybe get an idea of how we do it when we’re looking at a possible trade. The first market we’re going to look at this month is the wheat market. This is really just a straight-ahead play here this month. It’s a bread and butter market. We’re looking at a market with clear cut fundamentals, discernable seasonal tendencies, we’re not looking for any big moves in the market, we’re just looking for the market to keep doing what it’s doing. Let’s take a look at the fundamentals first. When we look at it right now we are looking at World Wheat Ending Stocks. If you don’t know the importance of ending stocks or stocks to usage ratio in grains, I encourage you to go on our blog and look at our seminar on this… it is OptionSellers.com/agriculture. Ending stocks really measure the supply at the end of the crop year after all the demand has been taken out. It has a really big influence on price. 2017-2018 is expected to be an all-time high in World Wheat Ending Stocks. We’re also at a record level on stocks/usage ratio from a global basis. So, what this tells you is supplies for 2018 look to be very burdensome for wheat for the major part of the year, so that’s a key fundamental you need to keep in mind because what you want to look at is supply and demand and this is telling you that this is going to be weighing on the market all year long. James, you follow this quite a bit. What do you think about the supply this year? James: Michael, it really seems difficult to fathom a really large rally in the wheat market. What’s so interesting about different commodities is copper is produced in Chili, and oranges are produced in Florida, and coffee is produced in Vietnam. Wheat is produced in so many regions of the world and, generally speaking, when they’re all doing extremely well for production it’s very difficult for one crop in a certain country to really shape that idea. Wheat is grown practically in so many different nations around the world. Very large producers are Russia right now is just doing extremely well with their wheat production, here in the United States a lot of production here is winter wheat. Quite often, there’s a lot of grain movements in spring and summer with hot dry weather in Iowa or Illinois. Here in the United States, a big portion of the wheat is produced throughout the entire year. Basically, it is winter wheat. If you look at the other countries around the world that are big producers, another bumper crop again coming up chances are with World Ending Stocks at the level that they are, a little rally in wheat certainly could happen, but the 25-30% increase in prices does not look like it’s in the cards for this year. Michael: Especially with what we’re going to look at next here, which is the seasonal tendency for wheat prices. Now, anyone who follows us knows we do follow the seasonal tendencies closely. These are not guaranteed. What this really is is just a historical snapshot of what prices have tended to do over different parts of the year. It’s not guaranteed it’s going to do it this year; however, in looking at this, what this chart tells us is prices tend to start declining at the beginning of the year and decline through the fall. James, do you want to talk a little bit about why that has tended to happen historically? James: Generally speaking, Michael, the wheat market might have some favorable ideas. People might be looking at possible weather conditions or something like that. Generally, that’s in the winter of the year. It is winter wheat here in the United States, so based on how cold it might be or how much snow they might get, there’s worries about that. So, that does build in a slight premium in the months of January and February. As we go through the winter season where they’re not going to have an incredible amount of harsh cold, the conditions for winter wheat production starts abating. As we see how much wheat we’re going to produce, as we see us getting through this critical of time, the premium comes out for insurance buyers that are making sure that we’re going to have a big enough wheat crop will come March, April, and May. We know what the wheat crop is going to be. Here in the United States, we know that come March, April, and May the crop is basically made, there’s not going to be any weather conditions like there are with some of the other grains, like soybeans and corn. Come March, April, and May, we know how big the crop is and this year it’s probably going to be one of the record crops here in the United States, in addition to what we’re looking at as far as global supplies. As we get into the summer and fall of the year, basically wheat is looking for a home. It has a lot of competition around the world, and that’s generally when prices are at the low in the 3rd and 4th quarter of the year, and I think this chart on seasonalities diagrams it extremely well. The seasonality is extremely bearish as we go throughout the rest of the year. Michael: So, what you’re saying is a majority of the crop is coming in in the spring because it’s winter wheat and in the summer time when corn and soybeans sometimes rally, most of the wheat is already in the barn. James: Right. Whether it’s in the barn or whether we know it’s going to be harvested in a very large crop, we know that in April and May and at that time, then we’re looking for competition from many different areas. The bidders for wheat come July, August, and September few and far between because there is so much of it. In 2018, once again, we’re going to have much more wheat than the world needs and as we get later into the year, as harvest is full blown here in the United States, of course the prices are at their lowest when the crop is the biggest, and at harvest time is when it really has the pressure. It looks like we might get that again in 2018. Michael: Let’s take a look at a strategy here. We’re looking at December 2018 Wheat. James, these are strikes you’ve been looking at, but do you want to talk a little bit about this strike or why you like that strike? James: We do. The wheat market trading just north or south of $5 right now, we’re looking at a slight rally, possibly, in either February or March. If we get a small rally in wheat, we’re going to be looking at selling the $6 calls for December wheat. The chances of a 20-25% rally under these conditions seem quite slim to us. Of course, there’s a large variance. We’re not trying to pick these small moves in the market. Here’s where the current price is. If we do get a small rally, we like selling the calls at $6 and $6.20. It just gives us a huge variance of space for us to be right. Even if the market rallies a little bit, it’s just a far cry from the $6 call strike price. We’re looking at putting this on, possibly, in the month of February or March on a slight rally in the market. We always get gyrations in the market. As you can see, the $6 strike price is very attractive is we get an opportunity to sell those, and I think we will. Michael: If you’re at home and you’re trying to figure out this trade, you still have a $6 call. Prices can do a whole lot of things as long as they stay below that $6 mark. That option is going to expire and you keep the premium as the seller. That’s what we want. Prices don’t necessarily have to go down; in fact, we don’t necessarily think they will. We’re looking at fundamentals right now. We think prices are low and they’ll probably stay low. It can fluctuate a little bit either way, but we think they’ll probably stay low. The right strategy for that is selling deep out-of-the-money calls. A lot of people talk about volatility. Volatility in wheat isn’t extremely high right now, but, at the same time, if you can sell calls up there that’s a fundamentally based trade. You don’t need that volatility. You can still sell the call way above the last summer highs. That was kind of an aberration last year when we saw that rally, but it can still happen. Nonetheless, still below that strike, even in a weather scare. It’s something to keep in mind. Let’s go ahead and move on to our next market, which is the crude oil market. Our next market is one of our favorite markets: The crude oil market. It’s a great market for selling option premium. It’s one we like to trade all year long. The story this year, at least in 2017, was OPEC production cuts. James, those have been having quite an impact on the market here the last several months. James: Michael, it’s interesting… OPEC was really losing a lot of its great reputation that it had back in the 70’s and 80’s. When OPEC spoke, the market moved. When they cut production, the prices went up. They really lost that savvy in the early 2000’s. Here in 2017, this past year, and 2018, someone sat the group down, locked the door, and said, “Listen, guys. If we cut production 2-3%, we can have a 40% increase in prices.” Someone got their calculator out and said, “That makes sense.” We actually have a great deal of compliance right now with OPEC nations. The compliance is thought to be as high as 95-96% going into 2018. That has taken 2 million barrels out of the market recently. The fact that right now we have a great deal of demand for oil because of the stronger economies, that small decrease in production has really ramped up prices. A lot of people are looking at the domestic production here in the United States as likely going to keep up with and then balance the market and take care of those 2 million barrels that OPEC has stopped producing; however, that hasn’t taken hold yet. It does appear that the oil market is on very firm footing. It has increased some $15 a barrel recently for the spot price. It’s up practically $20 a barrel recently. That is setting up opportunities in selling options right now on crude oil, both puts and calls, as well as volatility, which has been missing in the crude oil market for years, is back and back in a big way right now. Michael: When you’re talking about the Sheikhs vs. Shale debate when it comes down to ebb and flow of the crude market, U.S. producers aren’t replacing all of that yet. As you said, they’re not quite there yet, but they are making a dent in it. When we look at U.S. crude oil experts, we had a big surge here at the end of the year, James. That has been a major new development in crude. James: The missing piece to oil rallying, especially here in the United States, has been the fact that the U.S. has not been an exporter of oil for years. Practically a half a century, the U.S. was allowed to sell 50,000 barrels a year and export them outside the country. In 2017, that was lifted. Now, the United States is able to export as much oil as they care to. With the $6 discount to world oil, or the Brent grade, everyone wants U.S. oil. They get a $6 discount, it costs about $1-$1.50 to ship it, that’s a $5 savings for a country that want to import U.S. oil. What always used to happen was the oil market in the United States would increase in summer. Fall and winter, as demand peak takes off to the downside in October, November, and December, this past year in 2017 and possibly again now in 2018, that’s no longer a problem. Driving season, big demand here in the United States. October, November, and December, when demand is less here in the United States, we just export the oil. The seasonality in other countries does not line up with the seasonality here in the United States. There’s a chance now, with oil supplies here in the United States at a 2-year low, we now have that balanced market that so many people have been talking about recently. Something OPEC has been trying to achieve for years, we’re now there. As long as oil doesn’t get too high over the next several months, right now we’re in the mid 60’s for the spot price, demand can keep up as long as prices don’t spike. We don’t’ see that happening mainly because the United States will be producing almost 11 million barrels a day coming up here in the United States. That should keep a lid on prices. Volatility coming in the market right now is tremendous, both on the puts and the calls. We see crude oil, probably, blending in to kind of a sideways market here with about a $5 trading range, probably in the low to mid 60’s. Volatility blowing out on both puts and calls, setting up a great opportunity for strangles, selling puts $20 below the market, selling calls $25 above the market. We’ll see how that plays out, but in March and April that looks like it’s going to be an extremely good position to take on. Michael: Yeah, you’re talking about the crude oil stocks. This is really starting to take a bite out of where we were just last year with the supplies at burdensome levels. Now, we have OPEC shutting the faucet, that’s taking supplies back down towards 5-year averages, which is what James is talking about… bringing that market back to equilibrium. We’re looking at U.S. production here. We’re up over 1 million barrels in just a year. We could be up another million barrels this year. Like you were saying, James, between possibly 10 and 11 million barrels a year. So, it’s not there yet, it’s starting to catch up, it is bringing he market back into some form of equilibrium, we think. James was talking about the seasonal and let’s go back just a second, James, because we were talking about that export ban being lifted. Do you think that may have altered the seasonal for crude oil? Do you want to talk about that? James: Michael, it definitely has. Prior to 2017, crude oil prices would often have a peek in June and July as we enter driving season. The market usually has this large fall-off as we get into shoulder season… November, December, January. That has changed the landscape of seasonality trading for oil for us and for anyone else watching the market. We’re going to now have more of a balanced market throughout the year as far as a seasonality goes. The large drop-off in the 4th quarter is probably going to be lessened now, but the fact that the United States is able to export oil, we probably still will have the highest prices in June and July, but the steep sell-off in the 4th quarter may be history for a while… at least for the next few years as far as we can see. Of course, we’ll look at fundamentals and how they shape up after that. Right now, the large decline in our prices for oil in the 4th quarter, that’s going to take a back seat to the fact that the U.S. is now able to export oil. As long as there’s a $5 discount to Brent, a lot of countries around the world are going to want our oil for sure. Michael: Let’s talk about a strategy here. James, we mentioned the strategy he was considering. James just kind of puts it into graphical format. Do you want to explain your thinking here and what the trader is going to be looking for in a trade like this? James: Certainly. Here has been the sideways pattern that oil has been in for quite some time. It’s about a $10 difference between summer demand and winter slacking in demand. That’s really changed as the U.S. has started exporting oil. The supply here in the United States isn’t that great. OPEC has bit off a big chunk of the additional barrels by reducing production, and that’s what this move is right here. We expect this trading channel to now develop here. With the U.S. now about to produce somewhere between 10.5-11 million barrels a day, why is that important that the U.S. produces that much? Well, we’re the 1st largest consumer in the world. We’re about to go 2nd to China, but regardless of that, the barrels are needed here, we’re going to have them here, and that should prevent oil from taking off to $75 or $80. Being short that level and being long from this level, we think, is going to be an ideal window for the market to stay in. Less oil out of OPEC, better demand. We’re basically going to take this sideways trading pattern and put it here, and then we really enjoy being long the market from this level, we’re really going to enjoy being short in this price. A strangle right now in crude oil looks ideal in 2018 going forward. We’ll have to wait and see. We’re going to adjust these strikes slightly going forward; however, a $35-40 strangle around oil, I think, is going to capture the majority of price swings over the next year or two. With the volatility just coming into the market, premiums are very large on both puts and calls. I think we’ll be able to take advantage of that for the next several months. Michael: So, it doesn’t really matter when you’re in a strangle which way prices are moving on a net basis, as long as they’re staying in that range. The balancing affect, too, of the strangle, where if it’s moving down, maybe your put is moving against you but your call is making up most of that in profits and vice versa if it’s moving up. Strangles are a very versatile strategy, and for a market you expect to be range bound, it is pretty much ideal. What kind of premiums are traders expecting if you sell something like that? James: Both puts and calls right now are trading around $600-$700 each. Prior to the spike in prices, a lot of the options were $400-$500. They’ve increased some 25% on this new volatility in the market. Volatility is kind of a 2-edge sword. You enjoy volatility when you’re selling options, that’s what we got recently, and I think the new 25%-30% increase in options is going to be a boom for us and anyone who is logically selling options on oil over the next probably 12-18 months. Michael: If you want more information on our managed portfolios where we are doing trades exactly like this, similar to this, and in a variety of markets, feel free to go on our website and request our free Discovery Kit. That’s OptionSellers.com/Discovery. You’ll get all the information about our accounts, how you can invest, and that sort of thing. Let’s go ahead and move into our final segment this month and that will be our Q and A with the trader. Michael: We’re going to do our Q and A section this month. This is where we take letters from you, our readers and viewers, if you’ve read our book we get a lot of emails and letters here in the office, so we’d like to take some time and answer them here. The first one starts, “Dear James, I’m looking 6 months out, as you suggest, but can’t find the premiums you are suggesting. What do you recommend when there are no commodities to trade? Jim Oakes, Bakersfield, California.” James, how would you answer Jim’s question? James: Well, Jim, basically there is so many parameters that we follow when trying to identify the best possible opportunities for selling options. Generally speaking, seasonalities will have a shorter duration. In other words, if it is coming up on a weather market in summer or cold conditions in the winter, generally that trade or that opportunity will last maybe from 3-6 months. The fact that it’s going to be a shorter duration means that something’s going on in the market, which causes premiums to build up dramatically because of possible weather in June and July for grains, something along those lines, and investors are willing to pay up large premiums for a relatively short period of time. So, generally speaking, a 3-6 month investment on opportunities in short options will develop from a weather market. For example, a seasonal opportunity is normally going to be about a 6 month sell in premium on options. Generally, when you’re strictly trading on fundamentals, in oil or gold or coffee or sugar, we’ll often go out as far as 9-12 months, which gives us much further out-of-the-money, if you will. We are willing to and more than happy to look at options much further out in time and much further out in price. The fundamentals of the market really don’t change very often. Sometimes they’ll change just slightly. The market will often get a 5% rally or a 5% fall in oil or gold or silver or coffee, and some of the experts will come on the talking shows in the financial community and say, “This market’s going to the moon. This market’s falling out of bed”, and generally they’re really not. That is the reason why we’re willing to go further out in time and further out in price. Usually that’s just noise, usually the market isn’t going to the moon and usually it’s not going to zero. Generally speaking, if you’re too short in time, the market will make a sharp abrupt move, knock you out of your position, and, of course, 30 days later the market is doing exactly what your fundamental analysis thought it would do, except now you don’t have your option and you don’t have your cash. We don’t mind going 9-12 months out. A lot of investors will say, “James, that gives you a long time for us to be wrong.” I look at it as it gives us a long time to be right. Fundamentally the markets move very slowly, technically they move very fast and we don’t want to be involved with those large technical moves up and down that investors get all excited about. Michael: I’m not sure if Jim’s question was that he can’t find options at all or he just can’t find the premiums he’s looking for. If he’s trading in the commodities that we’re talking about, the 10 or 12 we’ve mentioned, there’s tons of open interest. Maybe Jim wasn’t happy with the premium 6 months out, but what you’re saying is sometimes there’s 3-6 month premiums that only come about as a result of a weather market and that’s why we’re often going further out in time to get those bigger premiums. So, Jim, that’s one thing you could look to do if you’re not getting the premiums where if you’re looking 3-6 months out. The other thing is, that I would answer to this question, is it could be the platform you’re using, too, because I’ve heard a lot of complaints about, I don’t want to mention any by name because they’re all good platforms, Think or Swim, Interactive Brokers, they’re good platforms, but some of those, TD Ameritrade, I don’t even know if they do commodities, but some of them don’t go all the way. They only offer you a few months. So, if you really want to see where these things are trading and see the contract months that go all the way out, you should probably be working with a dedicated futures platform. We use CQG, which is outstanding. That’s something you may want to look into. James: Michael, great point. To follow up and expand on that slightly, the fact that we are selling options in so much large volume, we’re selling for hundreds of millions of dollars worth of equity that we manage, we are able to actually contact market makers. The market makers are going to give us bid-asks on options and strikes that might not be available on some of the platforms that you’re referring to. I think that’s the big difference. If you’re trying to sell 10 contracts of a particular strike, it may not appear to be available, but if you’re selling 10,000 contracts in that strike, banks around the world want to do business with us. That might be the difference, as well. We’ll have to see. Michael: That’s one benefit of going managed. If you don’t want to do it yourself anymore, you want someone else to handle it for you, it is one of the benefits you do get if you go with a managed program. We’re managing a large amount of money and some benefits come with that. Let’s move to our next question here. This comes from Paul McDonald of Hempstead, Texas. I believe that’s down in the Houston area. “Most of your examples, you base your trade on being held to expiration. With stock options, I can buy out of them early if they are showing profit. Can you do this with commodities?” James: That’s a great question. Often, we discuss options expire worthless this percentage of the time or that percentage of the time. As money managers, on selling option premium portfolios, we look at a 90% gain as a great time to buy back out of an option. We were just discussing selling option premium further out in time. The sweet spot of decay, after selling probably a million options on commodities, I have found to be further out in time than a lot of the books write about. So, if we’re targeting an option value of $600-$700 each, possibly as far as 12 months out, as we’ve been discussing, when that option has reached a 90% decay factor, in other words, it’s trading at 10% of the value that we originally sold it at, it doesn’t matter if there’s 3 months left on that option, 4 months left on that option, and so on… we will then buy it back. We think that’s a great strategy that you’re utilizing and we do the same thing when managing portfolios. We do buy back out early, we do close out, get rid of the risk, free up the margin, and move on to probably selling the same option and the same strike 6 months further out and do it all over again. Michael: The buy backs are just as easy in commodities as they are in stocks. In fact, that can be a favorable strategy, one James uses often and recommends. There’s no reason not to do that. It eliminates risk, and once you get to a certain point with an option there is very little to gain but you’re still holding that risk. You doing those early buy backs eliminates the risk, you re-deploy your capital, just an efficient way to manage your capital. Good question, Paul. I hope we gave you a good answer. If you’re looking for more answers on strategies and ways you can apply option selling, we do recommend our book, the latest edition of The Complete Guide to Option Selling. That is available on our website at OptionSellers.com/Book. You will get it at a discount there, than where you’ll get it at Amazon or bookstores. Michael: Everyone, we hope you enjoyed the podcast this month and hope you got some valuable tips out of it for making yourself either a better option seller or learning if managed option selling might be a right fit for you. Going into February, we have the Super Bowl coming up. James, do you have a pick for the Super Bowl? James: Michael, as a quarterback in high school, all I ever wanted to go up and down the side line and yell at my linemen for not blocking and not tackling. The fact that we were like 1 in 8, I really didn’t want to yell at them too much. Watching Tom Brady go up and down the sideline and yell at his players and get them pumped up, that just gets me excited about football. Next year, if they start selling options on football games, I’m going to sell puts on New England each time next year. So, I’m a Tom Brady fan. I’m from Green Bay, but I appreciate great football and he’s my guy for the Super Bowl game, so I’m rooting for definitely the New England Patriots. Michael: You better be careful. A lot of people out there aren’t big Patriots fans. I think if there’s any team out there that can give them a run for their money it’s Philadelphia Eagles. They surprised everyone. I’m sorry, if I have to make a pick I have to go with the past, too. We’ll see what happens. James: Michael, I’m a real football enthusiast and during the Super Bowl I just root for a great game and hopefully that’s what we’ll have. I hope the Eagles can bring that. Michael: Me too. I hope so. If you are considering talking to us about an account this month, the announcement this month is we are now booked out into March for consultations for new accounts. If you are interested in talking about a new account, you’ll want to call Rosemary here at the office. 800-346-1949. She will schedule you for our first available consultations that we have. If you’re calling from overseas, the number is 813-472-5760. Also, in this month’s newsletter, we have a major announcement regarding our new accounts. If you do get the newsletter, whether online or a hard copy, you’ll want to take a look at that. This will affect you if you are considering opening an account over the next several months. James, thanks for your great insights this month. James: My pleasure, Michael. It’s always great and fun to do. Michael: Everyone, we appreciate you watching our podcast. If you liked what you saw here, be sure to subscribe to us on YouTube or iTunes. We will see you again in 30 days. Thank you. James: Thank you.

Michael: Hello everyone. This is Michael Gross at OptionSellers.com here with your podcast for October 27, 2017. Well, we marked the thirtieth anniversary of the stock market crash of 1987 this month. With stocks hitting new highs every day, a lot of investors are asking that same question – can it happen again. Some people say no, some people say yes but, an interesting prospect comes into play here with the news on tax reform. Will tax reform get passed? How will that affect the stock market? [I’m] here with James Cordier our head trader. James, welcome to the show. James: Thank you every much, Michael. Good afternoon to you. Michael: James, what’s your take on this. Everybody’s building up to tax reform – how it could affect stocks, if it does or doesn’t go through. Do you have a viewpoint on this right now? James: Michael, the discussion about tax reform is certainly extremely business-friendly. Practically all facets of the U.S. economy would likely benefit from this and of course bringing overseas dollars back to the United States, allowing companies to generate more income through investment as well as the one-percenters that sometimes sit on their hands when taxation is too high, a great number of these things could be alleviated if tax reform goes through. Certainly, I think, that’s what a lot of the bullishness is with the stock market right now. It’ll be very interesting to see the next thirty days how that plays out and then what the stock performance is after that. Michael: I saw this month that Goldman-Sachs projected there’s a sixty-five percent chance tax reform gets passed in 2018 but, there’s also some dire warnings what could happen to stocks if it doesn’t get passed. Do you think there’s a built in assumption right now in equities that this does go through and if it doesn’t, there’s going to be some disappointed bulls out there? James: I think so. Certainly, the stock market is forward thinking and they are looking at tax reform in the very near future, probably the first half of 2018 like you mentioned. There is no question that the stock market is at precarious levels. If it continues to get positive forward thinking, no reason why it can’t go up but, sooner or later, it’s going to get a dose of medicine that it may not tolerate and tax reform not passing would certainly be one of those possible culprits. Michael: Alright. Certainly something to watch over the next several months. Let’s hope we can get it done. Topic for this month’s podcast is two markets for year-end positioning and, we’re going to talk about a couple markets here that probably don’t care much about what happens in stocks. They’re completely uncorrelated. As we know from anybody that’s listened to us or read our materials we trade commodities primarily because that non-correlated aspect to stocks and each other. Primarily answering to their own supply-demand fundamentals. Out first market this month we’re going to talk about is the natural gas market. James, this is a market you’ve talked about here previously – the last month or two. But now we’re coming into the time of year where a lot of small speculators, people that aren’t real familiar with commodities often think of kind of that pop analysis, ‘boy, I should buy natural gas heading into winter because it’ll probably go up.’ A good article you wrote this month about that says maybe you want to do just the opposite. Do you want to talk about that a little bit? James: Michael, it’s interesting natural gas just has incredible historic volatility. With hurricanes that came into the Gulf of Mexico several years ago and then some extreme winters that we’ve had a few years ago as well, and that has brought investors looking at things like natural gas going into the winter season. The last few fourth quarters in the United States have been relatively mild. That is one of the reasons why natural gas is down this year going into winter heating season. It appears to us that natural gas supplies however, will be quite ample. We do often with the first cold blast in either November or December you do have speculators, both large and small, run into that market. The bottom line is this: Natural gas is now produced in so many not only nations around the world, but also states here in America. The idea that we could run out of a certain amount of the supply, one mishap or another as far as production, or if there’s a big spike in demand, natural gas can go to the moon, and right now that criteria has really been taken out of this market. We have a great deal of new drilling, especially in Texas. We have natural gas basically being produced as a by-product. So, we think natural gas in the low 3’s is probably fair valued for the market right now. We are going to be very keen to selling calls above the market on again if we do get a bit of spike here in November or December but, we’ve had positions laid out for several months already as high as $7 in natural gas. I know that seems quite high above the market right now and it certainly is however, we probably get one more push up in probably late November, early December, and at that point we could probably be looking at selling calls practically double the price of natural gas. So, we’ll be watching very closely for that when some cold temperatures finally come down from Canada here over the next thirty days, or so. Michael: Yeah, and talking about supply, the latest supply figures showing natural gas supplies in the U.S. at 3.595 trillion cubic feet. That’s near a historic high for this time of year. So that’s really backing up what you’re saying there as far as supply goes. But we have another dynamic in natural gas as well. I know another thing we look at, especially this time of year, is we have a seasonal tendency and, that seasonal tendency do tend to get a little spike in the fall at some time leading up to winter, as you mentioned, and then natural gas prices historically have tended to decline sharply after that. Can you explain a little bit for our listeners why that tends to happen? James: Generally, we were building supplies here in the United States just for that reason, for a potential frigid winter, especially in the northeastern United States. If the winter turns out to be anything other than a historic low temperature winter, we have more than enough supplies and of course, natural gas is used to be heating homes and businesses and fueling factories and such. But it never quite seems to be such a demand driven market in the winter as it normally would be possibly several years ago when natural gas supplies weren’t as high as they are right now. The market does seem to make a little bit of a pop to the up side in November/December but, it’s interesting if you look at a fifteen or twenty year seasonal pattern for natural gas, it actually falls into January and February only to bottom out then. So, I basically think that you have bullish investors trying to game the market a little bit before winter. If we have anything other than an extreme historic winter season prices do fall on expectations of the demand not being as high and then, we actually go down in January and February and that often then is the seasonal low for a rally going into spring. Michael: Very good. So, it’s a combination of fundamental high supply-side factors and we also have a seasonal tendency. And remember, if you’re listening, we’re not trying to predict prices going to be lower. We’re simply trying to predict where they’re not going to go. At this point, James feels that the pressure is going to be on the bulls this season and the highest odds trades are going to be selling those calls high above the market with expectations that prices could be lower but they don’t necessarily have to do that for call sellers to make money. If you’d like to learn more about the natural gas in this trade, you want to check the blog. We have a full-length article there and we talk about different potential trading opportunities there. That’s OptionSellers.com/blog. James, let’s move into our second market this month. That is the coffee market and, this is another market we’ve talked about recently but we’ve had a significant development there during the month of October. We had the event of coffee flowering, which takes place in Brazil – a big time of year for coffee. Do you want to talk about that and what’s going on down there? James: Michael, the most important seasonal factor to influence coffee prices over the entire year is the weather in Brazil in the months of October and November. We have a record number of coffee trees in the largest producing country of Brazil and, they are waiting for precipitation and that normally takes place in October and November. If, in fact, precipitation does develop during these two months, you have the largest number of trees ever on record waiting to produce cherries, which of course turn into coffee beans later on. What’s so interesting about October is that leading up to October weather patterns in Brazil are normally moving from west to east. A situation develops where it starts moving from south to north and during this transformation, it’s often dry in Brazil and people start getting excited about the fact that we might have a smaller crop next year. Precipitation, as we can see it right now, looks like it’s going to be right on course for October and November. We think that we’re going to probably be looking at the largest production ever coming out of Brazil next year but we will be keen to watch is for some periods of time, maybe a week to ten days, where it’s not raining in Brazil. That’s when you get investors, once again, speculating that it’s too dry there. It’s seems to make the news quite well because that is an important timeframe. So, we will be looking for rallies in coffee in October and November to take a short position by selling call options far out of the market and, we do watch the weather closely and for October and November that’s what we’ll definitely have our eyes on. Michael: James, we also have a seasonal tendency in coffee, as well, and it’s associated exactly what you talked about – about the flowering season. It tends to be dry. Speculators come in and bid up the market. Then, when rains inevitably arrive, which the almost always do, that anxiety comes out of the market and you often see coffee prices fall. Now, we’ve had coffee – hasn’t really had a rally this year. Is that because of the higher expected supply this year? James: Michael, it is. Everyone knows that this is going to be the “on” cycle for Brazil. That is, when the tree has a smaller seasonal production, and then a larger seasonal production the following year. We are coming onto the “on” cycle in 2018. So, the idea that Brazil could produce sixty million bags of coffee this coming year, at a time when U.S. supplies are at all-time highs, the combination is really lethal for higher coffee prices, we think. You could get a seasonal weather rally. It could happen in October/November but longer term, the reason why coffee prices haven’t rallied this year is because they are looking down the barrel of extremely high supplies and the United States, of course, is the largest consumer of coffee in the world and, we’re sitting on the highest level of coffee beans in thirteen years. If Brazil does get the rain that they’re expected to in the next thirty to sixty days, we’re looking at a bearish coffee scenario for the next six to twelve months. – Would really enjoy seeing a little bit of weather premium built in in the next thirty days. That would be something that would really play into our hands, I think. Michael: Okay. So, you and I know there’s a lot of different things we’re doing in coffee right now for clients – different strategies we can use, whether it’s up or down but, the guy sitting at home, he’s listening to us and he wants to maybe try out some trades, look at the coffee market, does he wait for a rally into the end of the year? Or, does he go ahead and sell calls now with the expectation that if it does rally, it’s not going to go too far? James: I would start selling calls, just a small position, right now and then hope and wait for a rally. The coffee market is sitting right near twelve-month lows. I think it’s just a couple pennies off the lowest price of the year. There will be ideas of dry conditions. There’ll be talk about the weather is not just right and, this is the critical time of the year. It just simply takes a little bit of the news media to get a hold of weather that isn’t quite perfect and they will talk about it and, I would expect coffee will probably get a ten to fifteen cent rally this November, possibly December. That would be the time to really lay out coffee calls, in my opinion. Michael: Okay. For those of you who do want to read more about the coffee market and some suggested trades we have in there for option sellers, you’ll want to read this month’s OptionSellers newsletter. That is the November edition. It should be out at or around November 1st. If you’re currently not on our subscriber list, you can get a free trial copy of that at OptionSellers.com/newsletter and also read our other features we have in there this month - a good piece in there as well on how to use technical analysis in your option selling. Obviously, we focus a lot on fundamental supply/demand of the markets, which is probably your most important aspect but, there are some technical tricks you can use to really help boost your odds and we talk about that in this month’s issue. James, why don’t we go ahead and move into our lesson for this month. Probably a valuable lesson to people, especially new option sellers that haven’t sold a lot of options, and that is a concept we talk about in our book, which is staggering or layering options through different expiration months. James, I know this is a strategy that, I don’t know if you invented it but, you certainly in my opinion came close to perfecting it. Do you want to talk a little bit about what staggering is? James: Michael, it’s interesting when we have new clients join our firm, I from time to time I’ll get a new client say, “James, how many trades do you do in a month?” Or, “How many trades will we be doing in a year, as far as positioning the portfolio goes?” Basically, we trade, of course and identify opportunities based on fundamentals. So, what we might do is sell a six to twelve month option in coffee or, natural gas or, gold and, if we see the type of decay that we project, often three months later the option will have lost already maybe 50% of its value. The fact that we trade based on fundamentals, we will now look at that exact same positioning three to six later and, if the fundamentals are the same, we will start doing what we call layering. In other words, right now we’re in the month of October, we might possibly be selling June options for natural gas, or for coffee, or for gold, and as we turn into 2018 we get into say January or February – if those options are behaving like they normally should, they’ve lost probably over half of their value - at that point, we lake a look at the price of the same commodity. If the fundamentals are the same, we will then sell six months out and use the exact same strike price, or very close to it, collecting the same amount of premium, or very close to it, and basically just positioning on fundamentals. So, after the pipeline is filled, if you will – after you have five or six selections in commodities that are working for you – that is what we call layering. Three months later the original options are now 10% of what we sold them for, we might buy them back. The options that we sold on the second round, they may have decayed 50% and, what are we doing now? We’re selling the next six months out. And that is what we call layering. Basically, a brand new portfolio is just basically filling the pipeline. As you go forward, three months, six months, nine months out, you start having options decaying and then coming off every three to six months. Michael: You make a good point there. You have expirations expiring every couple months and some cases, every month. It’s really smoothing out that equity curve, if you’re the investor that has your portfolio structured this way but it’s also spreading the risk around so you don’t have all your risk concentrated in certain expiration months or even certain markets and ultimately, I think that the reason you adopted it James, it’s really helped produce more consistent results. Would you say that’s the case? James: It is. You certainly don’t want to…you’re not scouring different commodities and different options and make one big bet on what you like that particular month or period of time. Being in a basket of commodities, selling options sometimes 50% out of the money, granted you’re selling a lot of time when you’re doing that but, generally speaking, the price of coffee has little to do with the price of gold, and gold has little to do with price of Apple stock. It’s a great way to diversify. Michael: Alright and if you’re listening and you’d like to learn more about the concept of layering or staggering your options, you will want to consult The Complete Guide to Option Selling, Third Edition. You can get that on our website at a discount to Amazon or bookstores. That link is OptionSellers.com/book. We thank you all for listening this month. We do have an announcement here as far as final openings for new accounts for 2017. We are currently filling our final new account interviews. They’re taking place during the month of November. If you are interested in potentially opening an account in 2017, you’ll want to contact Rosemary Veasey, our office manager, at 1-800-346-1949. I believe there are still a few openings in November for those final interviews. James, I really want to thank you this month for your insights. James: My pleasure, Michael. Always enjoy bringing information to our listeners and showing them maybe a smarter way to invest. Michael: Great! For all you listening out there, have a great month of option selling and we will talk to you next month.

Michael: Hello, everyone. This is Michael Gross at OptionSellers.com. We are here with your monthly podcast for August 25th, 2017. I’m here with James Cordier. James, welcome to the show. James: Thank you, Michael. I’m always glad to be here and share our knowledge and wisdom. Michael: Excellent. Well, we are here in the last week of August and we are heading into Labor Day weekend and right around the corner is, of course, September. A lot of people come back from vacation, a lot of traders come back into the fold, and often times we find out where we really stand in a lot of markets that may have drifted one way or the other during the summer. Right now, as we look at stocks, kind of off a little bit. From the beginning of August we’re down, although up a little bit early in the week here at time of recording. We’ve had a little push downwards and, James, I know you addressed this in your bi-monthly address to clients on video, but do you want to talk a little bit about what might be going on right now in equities? James: Yes, Michael. The equities market, as everyone knows, has been hitting all-time highs throughout the first 6 months or so of the year; however, just recently, a bit of a speed bump with just absolute chaotic times right now in Washington D.C. A lot of the Trump ideas that helped get him elected, which propelled the stock market recently, are in question. Tax relief and de-regulation and 0% interest rates all might be influx right now, and, certainly, a lot of the reasons why people were buying stocks over the last several months were these very business-friendly ideas. I wouldn’t say that they’re gone and out for sure, but certainly they’ve taken a back seat to just simply getting Washington squared away. Hopefully these ideas will come back because they definitely are business friendly. While we’re not in the stock market, we certainly do root it on, because I’m sure a lot of our listeners and a lot of our clients do have stock holdings, so we’re always rooting for it. It has taken a little pause here for certain reasons, and a lot of them are some of the goings-on right now in Washington D.C. Hopefully it’ll get straightened out before too long. Michael: Yes, obviously this market is still in a bull market. There has been no bottom falling out and there may still be some reasons to buy the stock market. Just some interesting stats I saw was that as of earlier in the week here, on the whole year the S&P was up about 9%- not too bad, but certainly off the highs. Interesting note, James, the Russell was even on the year- no gain at all. James: Right. I noticed that, and a lot of the ideas of deregulation and, you know, lower taxation, that should be helping the small caps. The Russell being basically even on the year really does bring into the question is “How broad is this rally?” Certainly, the Dow Jones, basically we cherry-pick 30 stocks and the ones we like we put in there and the ones we don’t like we take out. Certainly, the Dow Jones has done extremely well, but some of the larger gauges of the stock market, like you said, are unchanged or up a percent for the year, and I think that was an eye opener to a lot of investors that saw that in the news here recently. I know it was to me, as well. Michael: Well, I’m just glad, James, that you and I don’t have to forecast the stock market because that’s certainly too many moving parts there for me. I know you feel the same way. James: Likewise. I really enjoy investing our client’s money and talking to our listeners today based on fundamentals of 10 commodities that have been around here forever and will likely be consumed for years and years to come. Michael: On that note, why don’t we talk about something we do know quite a bit about and that would be autumn seasonals, which is the topic of our podcast this month. We’re going to talk about a couple commodities here that we do study very closely and maybe do have some insights into. As far as talking about seasonals to begin with, if you’re a listener or have been listening to us for a long time or you read our book, you’re certainly aware of seasonal price tendencies in commodities. It is something that we follow very closely. They are not the buy-all and end-all of price forecasting, but they can certainly be a very big factor and something that can help you tremendously as an option seller. James, I know we were talking quite a bit about grain seasonals this summer and how they often sell off into the fall. Lo and behold, that seems to be exactly what happened across the board. James: Boy, it really is. Grain stockpiles around the world are at extremely ample levels. We did have quite a weather rally in the month of July and, Michael, it always seems to be too hot or too wet or too cold or something, then the market rallies. Come fall season, generally, some of the greatest producers of the world of grains are here in the United States and, lo and behold, we’re going to have quite a bit of a bumper crop in corn, wheat, and soybeans. When you add that to carry-overs from all the other production in the world, lo and behold, prices come back down to earth and they’re doing again this year. We’re not even through August yet and we’re making quite a push to seasonal lows here probably over the next 30 days. We have corn, wheat, and soybeans testing 12-month lows. It wasn’t that long ago, just a month ago, they were testing 12-month highs. Certainly, there’s a bit of a whipsaw action this year, like most years, and as we get into September and October we think prices will probably be quite heavy because of seasonal factors. Michael: Yeah, the seasonal tendency is not always perfect, as you and I know. At the same time, grains this year seem to follow it to a tee. They start declining oftentimes into harvest, the market starts anticipating that harvest, starts anticipating that excess supply coming on the market, and prices tend to start going. That’s exactly what they’ve done this year, especially now that we’re past the pivotal parts of potting and pollination in corn and soybeans. So, it’s just an example. If you’re listening at home and following grains, this is an example of what seasonals can do and how they can help. It’s not always perfect, but it certainly can help. That’s what we’re going to talk about now as we come into autumn. It’s a key time of year for a lot of commodity seasonals. The seasons are changing, there’s a lot of things going on fundamentally, and the first market we’re going to talk about of course, James, is one of your favorite markets, which is the crude oil market. This is the key time of year for crude oil, as well. Maybe you want to talk a little bit about the seasonal there and what tends to happen this time of year? James: You know, Michael, you mentioned something really interesting. The seasonals aren’t the end-all to commodity trading; however, it certainly is a tool that we enjoy using. It’s not spot on every year, but what we like to do, as you know, is we gauge the fundamentals going into a seasonal time frame. If they coincide with the seasonal factors, that is certainly something we like getting involved with. The energy market coming up again is one of these. As you know, Libya, Nigeria, and west Texas are producing some 20-30% above what they were expected to produce as far as reference to oil production. If you take west Texas, Libyan and Nigerian extra barrels that they are now producing in excess of what people were expecting, it is going to come extremely close to what the OPEC production cuts were. So, Michael, if you look at it that way, the production cuts that were creating quite a bull stare in the market this summer, that seems to be coming to an end based on the fact that production is going to equal out with the extra barrels coming from those other locations. Michael: The media really hit that hard and talked about the OPEC cuts and the bulls came out of the woodwork. It didn’t seem to have much of an effect, and now you’re saying that it may have no effect on supply whatsoever, being made up elsewhere. So, as we head into fall, we’ve already taken away one of those big bullish bullets, so to speak, is what they were hanging their hat on. If we look at a seasonal chart, which if you are getting the upcoming newsletter we do have this featured prominently in there, but James, we see crude oil going into the 5-year seasonal average here, and it tends to start falling pretty dramatically in September. Now, we talked about fundamentals and underlying fundamentals driving the seasonal, but what are the fundamentals that tend to happen this year that tend to cause that price decline? James: Michael, that’s a really good question, and a lot of our listeners and clients probably have the same question. It’s basically we are looking at a balanced to over-balanced oil market; however, in the months in June, July, and August, the United States, which is the largest consumer of energy in the world, heads out for driving. It is driving season and if you think that that’s just a saying, it truly does matter. When you have some 300 million people that have vacation ideas versus stay-home ideas, that makes an enormous difference to the consumption of gasoline in the United States. In July and the first half of August, the United States set all-time records for consumption of gasoline. That is what has propelled the market here for the last 4-8 weeks that got us out of the 40’s. It got us up to $50 a barrel in crude oil. However, the magic is, starting in September and then October, all those driving ideas and all those vacations are now pictures in albums, or should I say pictures in people’s Apple iPhones. People are sitting at home and they’re digging in for school and fall, and that makes a huge difference. We think that seasonal is setting up practically perfectly again this year. Michael: So, you’re somewhat bearish as we head into fall, here. I know you’re going to be doing an interview with Bloomberg in New York next week in-studio, and you’ll probably be talking about at least partially about the crude oil market, so this is something that our listeners want to hear now is to not only what we think it’s going to do but why we think it’s going to do it. You’ve already covered a couple aspects of that. Let’s just talk about supply here briefly. We’ve talked about the seasonal, we’ve talked about OPEC, which is kind of a non-factor right now in your opinion. What about U.S. supply? What are we looking at there? James: The U.S. supply usually comes down during these large driving season months, and it has done that. We are some 3-4% below all-time record levels that we had earlier this year and late in 2016. So, the supplies have come down. Generally, that’s a very seasonal pattern. We’re not producing any extra oil or gasoline during the summer months. It basically stays pretty constant throughout the year. The seasonal factor then is the less driving that happens in September, October, and November – they call it the shoulder season. Basically, it’s after driving season and before winter hits. That is when the U.S. supplies will start increasing again and whether they hit a new time record this fall, or not, we’re going to be pushing at levels that is way more than what the U.S. needs. Of course, you have OPEC nations that will likely be scrambling and probably fudging a bit on the compliance with their production cuts that a lot of people talked about. What’s so important to know about oil is a lot of these countries, OPEC nations in particular, they have a specific amount of income that they need from their oil production. When oil is sitting at $50, it is pretty constant; however, if we start getting in down to 42, 40, possibly below 40 later this fall, they’re still needing the same amount of income from oil production. That is where it could get a little bit of a slippery slope for oil prices this fall when countries like Iran, Nigeria, Libya, and Saudi Arabia need to produce a certain income for their country and for their needs, and yet oil might be at 10-15% below the price. Then, the barrels start to flow and that’s what’s going to get probably interesting here on the downside here in the months of October and November. Michael: James, that’s a great point. You talked about OPEC and addressed it earlier that OPEC’s potentially cheating. A figure I know that we discussed a few weeks back was although OPEC is still “supposedly” under the restraints of the cuts, exports of oil out of OPEC nations hit a record in July- 26.11 million barrels a day. So, maybe they’re pumping a little bit less, but they certainly haven’t stopped selling it any more slowly, have they? James: Well, Michael, that’s the exact thing. Certainly their storage facilities and producing nations, as well, not just here in the United States, and that’s basically a way to get around the quota. They’re keeping oil flowing through export channels and, yes, lightly reducing production; however, what does that mean? That means the world is supplied, in some cases over-supplied, with oil. It’s interesting, later this fall and early this winter we could have millions of barrels more than what the world needs. Yet, if the world is producing just one extra barrel the price goes down. So, we do have some interesting times coming up in oil. We really like the idea of selling calls above this market for the next 6-month time frame. As you know, there are never any sure things, but we really like the idea of selling oil calls some 20-30% above the peak that they hit in summer as we go into the fall low-demand season. Michael: Okay. Yeah, a lot of people that listen to this or maybe watch some of our things think that to sell this we have to have oil prices go down to make money. While we think that possibly could happen, that doesn’t necessarily have to happen for an option selling strategy to be successful. James, just one more thing I wanted to throw out here, you were talking about supply levels and I pulled up some stats here while we were talking. You made a good point that supplies you’re down this year over last year, about 5.3% below where they were last year at this time, but we were at record levels last year. Even at current supply, we’re still 22% above the 5-year average. We’re certainly still in a burdensome supply situation as far as that goes. As we head into the winter months here, you’re talking about particular strategies, do you like selling naked here? When you look at it, is there a strategy that you could put together for a spread? I know we do a number of different things in our managed accounts, but maybe just for the individual investor listening… any advice for those guys? James: You know, Michael, I think some of our listeners actually take positions on our discussion, and other listeners are probably learning about selling options possibly on their own for the first time. Just as a pure speculative position for a listener is to simply take a look at selling calls, and I would say naked calls yes. Certainly we do have spread analysis we do as well in positions that we take that are covered. With oil trading around 48 and, in my opinion, probably going down to the low 40’s over the next 2-3 months, I would sell calls in the $64, $65, $66 level going out, say, 6-9 months or so. The conversation about selling naked options, I think they use that word for a reason to scare people away from doing it, but people who take a short position on oil at 48, they may have to sit with that position for a while and it may jostle around above and below their entry level. Selling calls at $65 is some 30-35% above the summer highs that we’re hitting. We’re doing it using timing, using seasonal factors, when oil will likely get down to the low 40’s, and think of how far out-of-the-money you are at that point. I would simply sell mid-60 crude oil calls and put a stop-loss on it that you’re comfortable with. Something tells me that somewhere between Thanksgiving and the holiday season that option is going to be worth about 10% of what you sold it for. We’ll have to wait and see, that’s what makes a market. That’s how we would invest in crude oil going through the rest of the year. Michael: Okay. That naked term, I think, scares a lot of stock options sellers, too, because they’re used to selling 1 and 2 strikes out-of-the-money. Of course, in commodities, we can sell much deeper out-of-the-money. We’re going to talk a little bit deeper about that later. What you’re talking about is we’re taking a position above where the price was at the highest demand point in the year and we’re taking that position heading into the lowest demand point of the year. So, those are certainly the type of odds you look for and, hopefully, if you’re listening you picked up on what James was saying and how you might go about that. If you would like to learn more and get a little bit more analysis of the crude oil market, we will be featuring in our upcoming September Option Seller Newsletter. That comes out on or around September 1st. You’ll get that in your e-mail box and, of course, a hard copy as well if you’re on our subscriber list. If you’re not a subscriber and you’re a high net-worth investor, you can subscribe on our website – optionsellers.com/newsletter. James, why don’t’ we go ahead and move into our second market here. Something you featured earlier in the month but it’s an ongoing opportunity, we feel, and that’s the coffee market. We’re rapping up the Brazilian harvest. Of course, Brazil, the largest producer of coffee in the world, and thus events in that country can have a major impact on prices. I know you’ve been following this pretty closely, James. Do you want to give kind of a summary of what’s going on in the ground of Brazil? James: Michael, some of the most ideal growing and weather conditions are happening right now in the southern hemisphere. Brazil, of course, was basically one large forest. Whether some people like it or not, the forest was cut down and coffee, sugar, cocoa, and soybeans were all planted in their place. That rainforest is just one incredible farm that feeds the world. What’s happening right now in Brazil is practically ideal conditions for productions of, especially, coffee. Coffee acreage is absolutely giant in Brazil. It’s a very large portion, especially of their mountainous regions. We have 2 cycles in coffee. One is an off-cycle and one is an on. The off-cycle obviously produces slightly less coffee than does the on-cycle. It’s basically the tree taking a rest for 12 months and then it produces the large amount again. Basically, the world is absolutely full of coffee at this point, both in Vietnam and Brazil and here in the United States. The U.S. has the largest green coffee stocks ever since they’ve been counting coffee stocks here in the United States. Also at a time when weather conditions in Brazil are absolutely ideal, we’re looking at practically perfect growing conditions for coffee in Brazil. We’re going into flowering season, which is going to start in September and go through November. If, in fact, the precipitation that has been going extremely well in Brazil is expected to continue through the rest of the year, we’re probably going to be seeing record crop production for coffee beans in Brazil next year. Basically, that entails all the fundamentals that we need to know for the entire year. Consumption stays the same- it’s always up about 1% a year. Production the next year is going to be a large surplus. It’s setting up absolutely ideal in selling options for coffee. Michael: Yeah, I saw some of the estimates. The market looks forward here- we are in 2017 but these are the futures markets. Futures look into the future. These markets are now starting to price the new crop, the crop that beans will be on the market in 2018. For 2018, as you mentioned, James, it’s a potentially record harvest. I know we had discussed there are some estimates- 58-62 million bags of coffee, which would just be gigantic. That would be an all-time record. As the market prices that, we could be in for some lower prices. I know you’re certainly looking for some prices to mitigate here as we head into our winter. Let’s talk a little bit about the seasonal since we are talking about seasonals this month. We’re pretty much at the end of the Brazilian harvest for 2017 the crop. I think as of August 1st we were about 80% done. I’m sure we’re closer to that now. What tends to happen with the seasonal price? I see we go down a little bit into the fall, then there’s a little rally in October, and after October it seems to just really fall off. What happens then? James: Michael, I think what seems to happen is investors, both speculating in coffee and users, otherwise known as commercials, they will take long positions going into flowering season. So, basically it’s not exactly a tree that coffee grows on, it’s more of a very large bush. What happens starting in October is the bush is expecting rain to develop, and then it flowers, and each flower, of course, turns into a cherry. If we have steady rainfall starting in September, a bush will flower some 3-4 times, which makes a huge difference during this time frame as opposed to if we have very small amounts of rain and then the bush only flowers possibly 2 times. Simply doing the math, you can see how important this time frame is. That is why the coffee market will start rallying in October as investors and end users want to guarantee themselves coffee prices at a certain level. Should precipitation then be ample through October, November, and the beginning of December, basically the fundamental analysis for the entire year at that point is over. So unlike waiting for monthly reports or quarterly reports out of a company that sells widgets, the production of coffee is then set in gear for the next 9 months, waiting for harvest to begin again. So, we have a rally that starts in September, it goes on through flowering season, as the weather cooperates, and all models right now are showing me that it will again this year, the price goes back down. The seasonal factors are the market falls in September. As we have harvest pressure, then we start getting a rally in September, October, and November, and then we look to sell probably very expensive call options in coffee, once again. We are bearish on the price of coffee, we are record supplies in the United States, we are going to have record supplies in Brazil, and anyone who is wondering what 60 million bags means, 6 times what is produced in the country of Columbia is what 60 million bags turns out to be. Certainly there’s no shortage of coffee over the next year or two. Michael: That’ll be good news for those of our listeners that enjoy a cup in the morning. James: Absolutely. Michael: Now James, you’ve been a proponent of selling calls in coffee most of the year now. We’ve made no secret of that. You’ve had several articles, you’ve talked to Reuters, and the whole time you’ve been moderate to bearish, but just thinking it’s continuing to sell calls is a great way to pull income out of this market, and that’s because it simply has some strong fundamentals. We don’t know if it’s going up or down tomorrow, but overall we feel there should be a price cap on prices that keeps it under certain levels. As a call seller, that’s all you really need. Now, I know you’ve been selling these and have been talking about selling them in your articles. Do you think that we’re at a point right now where you sell them or do you think since we’re heading into flowering season the better opportunity may be a few weeks or months down the road? James: Michael, as they say on TV, “That’s an excellent question”. We’ve been selling coffee calls practically all year. The coffee market has recently fallen some 15-20 cents over the last week or two, which has basically cut our calls in half in a very short period of time. I would hold off on any additional sales. We’re going to look at taking profits on our positions over the next 4 weeks or so. As listeners and people who follow along, one of the best things that could possibly happen is have a bit of a dry weather concern in the month of October. That could get prices back up another 10-20 cents that they had given back recently. I would then look to lay out coffee calls with both hands. The really interesting part about dry conditions in Brazil, if it’s just slightly drier than the farmers there would like, it’s going to likely make a difference of 1-2 million bags. When you’re talking about a 60 or 62 million bag crop that is just a drop in the bucket. Hopefully we have a little bit of weather concerns at the beginning of flowering season, get about a 15-20 cent rally on coffee, and I would be back to putting on my tuxedo and jumping back in on the short side. Michael: For those of you that would like to read more about how you can use seasonals or apply them in commodity option selling, I do recommend out book The Complete Guide to Option Selling: Third Edition. That will really lay it out for you and give you some of the key markets and key seasonals you can use in these markets. If you don’t have a copy yet, you can get it at a discount on our website – that’s optionsellers.com/book. James, we’re going to go into our lesson right now and I’m sure this is probably something anyone who has been reading or listening to us for any period of time is familiar with, but it never gets old. It’s something that bears repeating over and over. It’s something we call going deep, which is really a reference to selling deep, deep out-of-the-money calls. It’s done with a little more time on them and it’s a strategy that you’ve adhered to for some time. The common wisdom is when you’re selling options you sell them for 30 days out because you get the fastest decay, but you subscribe to the opposite theory. I think we’ve both found that when you’re trading fundamentally or seasonally, as we’ve discussed now, it’s almost optimally designed for that. Can you talk a little bit about the benefits of selling that far out and what we have to do to get there? James: Michael, it is so interesting. When you and I first discovered writing premium as an investment for clients, we were subscribing to the same ideas… 30, 60, 90 days out- that’s where the large decay is, that’s where the large curve is. Certainly, we had success doing that; however, in this day and age of computer driven buying and computer driven selling, against what the fundamentals might dictate that prices should do, we do sell options in commodities 6, 9, and even 12 months out. People who have sold options on their own would say to themselves or write the question to us, “That certainly gives you a lot of time for the market to be wrong”. My really easy answer is that it gives us a lot of time for our prediction to be right. Basically, technical factors can move the market for 30 or 60 days, whether the fundamentals had changed in that favor or not. What fundamentals won’t allow the market to do is make a 40, 50, or 60% move. So, the investors that are trading, selling options on a 30-60 day idea, and certainly they might be very successful in doing that, what we don’t want to have happen is have a technical move in a market with no fundamental market change and us get stopped out. We are paid to wait. Most investors have a very difficult time doing that. When you know what the fundamentals are, waiting is quite easy and, as a matter of fact, waiting is fun because you’ll see technical buying or selling in gold, coffee, or oil all the time. Yet, it’s not reaching ever a 50% move; however, it does make the news and it makes options expensive. That’s just the way we like it. Michael: That’s some really good points you brought up there. It reminds me of a story of why we started doing this in the first place. For investors listening that have sold close-to-the-money options, you know it requires a lot of effort and babysitting. What James is talking about, going further out in time, allowing you to sell much deeper out-of-the-money, not as concerned about those short-term random swings, higher odds. Probably one of the most overlooked benefits is lower stress, both to the investor and the trader. James, I know many people might not know that you and I, when we first started out, were retail brokers. So, about 20 years ago when we first started working together, we were brokers and we were making these trade recommendation to people and we were trading options 30, 60, 90 days out. A lot of the time, they did very well and they were very successful, but it was a high maintenance type of trading. You and I would be on the phone all day because people would be calling in and we’d be changing orders and changing positions and writing new because the market was moving and the options were always moving. When we switched to the strategy of selling deep out-of-the-money options, once that conversion was done, it was crickets. There was nobody on the phone and there was no reason to call. So, it was a lower stress for the trader, but as an investor, I don’t want to say you never have to watch it if you’re managing your own account, but certainly it’s a lot less maintenance than it is if you’re trading those short-term options. It’s almost like day trading, wouldn’t you think? James: Michael, I remember making that switch to much further out dated options. It’s so funny you bring this up. We did get one or two phone calls, and I remember one, it was from one of our favorite clients. He said, “James, I just love selling options this way because I’m such a bad trader.” Once you get that mindset, that you’re no longer gambling, you’re no longer betting on the spin of the wheel or the roll of the dice, when you’re actually taking fundamental analysis, if you possess it, and turning that into an investment, this is just a great alternative to what some mainstream investments are. Taking long-term views, treating this as an investment, once you made that switch, I know how it was for us, I would never trade a futures contract again. Selling options on commodities this far out based on fundamentals does give you the patience to wait. Let’s face it, that’s what the big money does and, U.S. listeners, that’s where you want to be, too. Michael: It’s hard to put a price on sleeping at night. I think that’s a good place to wrap it up this month. Obviously, these days, James and I offer fully managed portfolios. If you’re interested in a new account with us, I’m just looking at the sheet here, it looks like we are fully booked for September; however, Rosemary is currently booking interviews now for October openings. So, if you are interested in exploring the possibility of a managed account, you can certainly call her at the main number. That’s 800-346-1949. If you’re calling from outside the United States, the number is 813-472-5760. You can also contact her via e-mail. That is office@optionsellers.com. She will schedule you with a free consultation interview to find out more about our accounts. Obviously our recommended opening account is U.S. 1 million. Rosemary can certainly provide you with other details on the accounts, as well. James, thank you for your insights this month. James: Michael, always my pleasure. I just love chatting about what we do. Michael: Great. For all you listeners, have a great month of option selling. We will talk to you again in September. Thank you.

Michael: Hello, everybody. This is Michael Gross of OptionSellers.com here with your monthly podcast for September 22nd, 2017. I’m here with head trader, James Cordier. James, welcome to the show. James: Thank you very much, Michael. Always looking forward to them. Michael: Boy, we had kind of a quiet summer and then, all of a sudden, in September a lot of news stories breaking and we saw a lot of volatility start to come into the commodities markets, at least in some commodities, not so much in stocks. James, do you want to talk a little bit about that? Tell us what’s going on. James: Michael, that’s a really good point you make. Often, they call them the dog days of summer just for that reason. A lot of investors and traders alike are kind of taking off June, July, and August. As we went from August to September, a whole lot has been hitting the wire. We have Kim Jong Un lighting off his rockets, yet again. We have interesting things happening in Washington D.C. lately, and there’s always a lot of talk about the value of the stock market, how high it is, and, of course, interest rates in the value of the dollar. Practically hitting on all cylinders here as we start getting ready for the 4th quarter of the year. Michael: Obviously, as commodities options sellers, that is a good thing. If you’re listening, you certainly want volatility. That’s what makes those deep out-of-the-money premiums fatten up a little bit. In addition to what you talked about, James, I know we had a couple hurricanes blow through here, too. It did some things with energy prices, orange juice, and I know you were on CNBC this month talking about that and also Fox Business. A couple commodities there were affected by the storms. James: You know, Michael, you really have to stay informed being a commodities investor or trader. 12 years ago, when we had these hurricanes hit New Orleans, just amazing havoc on oil production and natural gas production. A decade later, practically the same regions are getting hit and people racing to the options screen to buy calls in natural gas and buy calls in crude oil. The storm that hit Houston did absolutely nothing to commodity prices, such as natural gas and crude oil. It did pump up the price of gasoline, as you can imagine with the refiners going down. Boy, was that a great opportunity to sell options as people were watching the news and the weather channel that weekend. Michael: James, that’s a good teaching lesson, too, because I know something you talk about is the people that trade by following the news, and what you always talk about is if you know the real underlying fundamentals, those can be opportunities to go in and sell premium on people selling off the news that aren’t really familiar with the real story and how that could likely really affect prices. James: Well, it’s interesting, Michael, we just go through our day to day business and we’re familiar with the new production areas of natural gas and crude oil. Basically, the Gulf of Mexico 10 years ago was everything, and now they’re producing oil in the Dakota’s, Pennsylvania, Oklahoma, Kansas, and Arizona now for a huge find. You know, you definitely want to be on top of that when the normal investor comes in racing to buy energy calls. We’re more than happy to sell them based on the fact that we probably felt very little impact from the storm this year, and certainly that’s kind of the way that played out. Michael: Well, great. If you’re listening and you’d like to watch James’ interviews on both Fox and CNBC on those commodities, they are available on the media page of our website – that’s OptionSellers.com/media. James, let’s go ahead and move into our first market this month. The gold market: a market that even a lot of non-commodity traders follow. We’ve seen some pretty good strength in the gold market through, not just this year, 2017. Gold prices have been pretty strong, but especially through the months of July and August. We’re off a little bit now in September, but what’s going on there? What’s driving this rally right now? James: Well, Michael, as we often talk about, a lot of investors want to be diversified from the stock market. I think a lot of investors have a particular amount of money in, of course, securities; however, when they are watching all the situations around the world happening and playing out on TV, they see a falling U.S. dollar. The dollar is down some 12% or 13% this year, if you can believe that. Basically, the gold market will mirror to the opposite direction whatever the dollar is doing. You throw in Kim Jong Un and you’re really causing some jitters. It really wasn’t a big surprise that the gold market did rally some $100 over the last month or two. It has been putting on a pretty decent show. It has actually outpaced the stock market for the first time in several years. Michael: James, I know gold is one of your favorite markets to trade, especially given the current levels of volatility. We’re going to give listeners a view into some of our privately managed portfolios with this trade, but that’s fine… we think it’s a good teaching example. I know you had written strangles on there, we had talked about it this summer, it was on our website, you had talked about writing gold strangles. We had some of those on the market that started to rally, and you said, “No, we’re going to let it go. We’re not going to close out those positions on the call side just because we’re getting a little strength here.” Do you want to explain that position and your rationale behind that decision? James: Michael, a strangle on some of the commodities that we follow really gives the client an incredible amount of staying power. If you’re long gold from $950 by selling puts at that strike price and you’re short gold, for example at $1,800 an ounce by selling calls at that strike price, it really gives an extremely large window for the market to stay inside. Generally, gold over the last year or two has been kind of meandering up $25 and down $25. With the recent weakness in the dollar, and the geopolitical concerns that we’ve had, especially with North Korea, the gold market rallied real rapidly- practically $100. It went from $1,260 to basically $1,360 an ounce almost overnight. Our short positions did pressure us a little bit. Basically, I really had a strong feeling that the 3rd leg of pricing gold is inflation. Yes, you can have a weak dollar- that’s bullish for gold. Yes, you can have geopolitical concerns- that’s bullish for gold. The missing piece to the gold market rally is inflation. Basically, gold is a hedge against inflation and, as we all know, Japan tried creating inflation with 0% interest rates. Here in the United States we’ve done the same, and there simply isn’t any. We thought that the rally in gold would be short lived and we’re not exactly sure, day to day, where it’s going to travel to, but we backed off a quick $60 or $70 over the last couple of days and we’re very glad we stayed with our short positions in gold. It’s not getting to $1,800, at least it doesn’t look like from my desk, and any time it rallies we’re going to be likely selling it over the next 6-12 months based on the same idea- no inflation. Michael: Boy, that’s some great lessons in there if you’re listening and you’re just learning how to sell options. James is talking about selling calls deep out-of-the-money, high above the market. We had strikes on both sides, puts and calls, so when gold market rallied, if you’re short futures you’re probably getting stopped out there, or even ETFs you’re taking a beating, whereas our strategy with selling both sides of the market, even though those calls got a little bit of pressure, the puts were making up for some of that on the backside. When gold inevitably starting coming back down, the premium comes out of those in a hurry, doesn’t it James? James: It really did. A lot of the calls that we were short were double the value that we put them on at. We are now profitable our short gold calls in less than a week. It’s just a great lesson for people listening in and following us and for ourselves, as well. We learn on every single trade we make. Using our compasses, we thought staying short was the right idea and we continue to think that probably through the end of the year, as well. Michael: Good. Something else you bring up there… the option doubled, we held them, and a lot of people that read the book or read some of our materials say, “Well, I thought you were supposed to get out when it doubled.” That’s an excellent point and we’re going to be talking about that a little bit later today and today’s lesson. One of the reasons is we had a strangle on so we had a lot more leeway, but we’re going to talk about risk management here and some more advanced strategies later in the podcast here. For now, James, I know I said I wouldn’t put you on the spot, but the title of today’s podcast is Will gold’s rally continue? What are your thoughts here through the end of 2017? I know our job isn’t to pick what the market’s going to do, we only have to pick what it’s not going to do, but for people listening, maybe they don’t do this yet, maybe they’re thinking about selling options, but what’s your gut feel here? Do you think a rally continues through the end of the year or do you think we may be reaching some value levels here? James: Michael, that is a great question. The gold market is something near and dear to many investors. You can talk to clients about the price of cocoa, they might not be familiar with where that’s trading at, or soybeans, but a lot of investors know what the price of gold is trading at for one reason or another. They probably have some stashed away or it’s something they might be interested in purchasing. The gold market has a personality. It’s not necessarily all supply and demand, like soybeans or crude oil or coffee, a lot of it is perception. One week ago, the North Koreans were slapped with the harshest situations as far as deterring trade, you know, going to that country. The sanctions that were levied on them were thought to be the strongest ever. Two days later, Kim Jong Un is lighting off missiles. That seemed to really ratchet up the rhetoric and the tensions that day. The gold market traded up $7 that night. The following day after the day traders were able to get a hold of the price of gold and trade it, it closed lower the day after Kim Jong Un was lighting off missiles. That tells you that that market had topped out. Certainly, hindsight is 20/20, but it did fall some 7 days in a row since then. That tells us that a very important top was made in gold for the remainder of the year. I think fair value for the beautiful shiny yellow metal is probably $1,275 to $1,300 and we have a decent economy, we have no inflation, we have interest rates about to rise, and that is going to take a lot of the steam off of the bulls, as far as the gold market’s concerned. If you read the Wall Street Journal just 2 weeks ago, it went on and on about small investors are long, ETFs are long, large investors are long. If you follow along with that, investors listening to us today, that basically means anyone who wanted to buy the market was already in, and you’re going to see large investors pull out and take profits when that’s the case. I think that’s what we just saw and we just made an important top in gold that will probably last at least the next 3-6 months. Michael: All right, that makes a lot of sense. As far as investors maybe looking to trade gold or maybe use some of our strategies, obviously a rally like this helps us because it pumps premium into those call options. Even after the sell-off, do you think there’s still an opportunity there for investors to go in and still take premium on the calls side of this market? James: I think so. We have a couple of important announcements by the FED over the next day or two. We have some very large decisions made by the EU coming up over the next week or two. You can basically play the middle of gold right now if you just can’t fathom being short the gold market and you can’t fathom having a short gold call in your portfolio. We really like selling the 1050 gold puts, in other words the $1,050 gold put strike. We think that’s a great idea, but we are neutral to negative gold. We don’t see it going that low. That’s some $200-$250 lower than where we are right now. That’s a great window for gold bugs to participate in being in the shiny metal. Being neutral to negative I would sell the $1750-$1800 gold calls. I think that is a very low hanging fruit and I think the beginning of next year those would start being very profitable for anyone selling those. Michael: So, that’s for gold. That’s about a $700-$800 profit window that gold prices can move around and still those options would expire worthless. That’s a pretty wide range. James: You know, trying to get gold’s next $25 move is difficult. Can you imagine how many small investors and large investors alike poured into gold here the last 30 days? They’re probably going to be waiting maybe a year or two to see the market come back to that level or get slightly above it. Positioning yourself $500 above and $200 below, I know that’s not the typical investment in gold, but if you take a look at it, it might be for more investors than what they might think. Michael: Good. James, I know you’ve been tweaking some strategies here. Some of our strategies we’re going to be using for our privately managed clients as far as option selling goes, but if you heard James’ commentary here, for anyone listening, he’s just giving you a sample strategy you can possibly even use at home of a gold strangle. If you’d like to read more about strangles and other option strategies we recommend, I do suggest our book The Complete Guide to Option Selling: Third Edition. If you’d like to get a copy of it for a lower price than you’ll get at Amazon or at the book store, you can get it at our website, OptionSellers.com/book. James, let’s move into our second market this month. We’re going to move over to the grain markets, in particular the soybean market. For those of you that have listened to our commentary over the last 4-8 weeks, we’ve talked a lot about the upcoming harvest, and seasonally in soybeans, harvest time is when supplies will be at their highest. Typically, when supplies are at their highest, Economics 101 dictates that’s often when prices will fall to their lowest level. That’s why you see the seasonal chart tends to decline right into the fall and October is when harvest tends to get in full swing and then wrap up at the end of October and early November. So, often times you’ll see prices make a low around that time of year, but then something different happens. We kind of reversed that. James, do you want to talk a little bit about that? We have a change going on possibly this month in the seasonal pattern of soybeans. James: Yes, Michael, that’s exactly how it follows out. I’ve been looking at soybean seasonal charts here quite a bit. I have one very near to me right now. June and July we have weather scares and the soybean market rallies. It falls off as the scares seem to be not as defined as previously thought. The soybean market and the corn market have fallen steadily since the 4th of July. This is truly the seasonal bottom coming up practically every year at the end of September and beginning of October. Looking for a possibly different trading approach might be up on us here in the next 4-6 weeks. Michael: Yeah, and looking at soybean prices we had a pretty good nosedive into August. Sometimes that could have been a seasonal low there, I don’t know. We’ve rallied a little bit since then. We’re going to see a secondary low in October; possibly, it’s hard to say at this point. We may get the low in October or we may have already seen it in August, but the fact of the matter is after October and November prices have historically tended to start strengthening. That’s when a lot of those forward sales and those orders start to get filled and it starts to draw down inventories again and, often times, you can see soybean prices firm. Now, if you’re listening you would think, “Well, then we would want to sell puts”, but that’s not necessarily the case. James, you made a case for this in our upcoming newsletter this month. Maybe it’s the better strategy to employ the think strategy we just talked about here in gold. James: Michael, I really think it is. Seasonally, we’re going to have very good support under soybeans. At the same time, we have carryover from this year’s production practically as high as we’re ever going to see it in the past 10 years. That will likely keep a cap on soybeans. Once again, when finding a fairly valued market, that is just a great deployment of selling calls way above the market and selling put strikes way below the market. This fall and this winter for soybeans, it may be ideal for that. We have large supplies likely to hold the market down and we have a very strong seasonal tendency for the market to rally that might be the perfect equation for probably a sideways market at a time when both puts and calls are quite expensive. It might be setting up extremely well and something we’re going to be paying very close attention to as we speak. Michael: It really makes a lot of sense, because that seasonal does carry a lot of weight. At the same time, soybean stock is 475 million bushels. Not only is that going to be the highest in over a decade, but it’s the second highest in over 25 years. So, the supply levels here in the United States are pretty sizeable, yeah we could still get an adjustment in the October report, but for the most part it looks like we’re going to have a pretty sizable crop. I see what you’re saying- that could tamper that seasonal a little bit and keep prices in a nice defined range. Good thing about strangles is you’re getting double premiums. You’re getting premiums on both sides of the market. Those can be big income earners to pad an account. James: Michael, absolutely. So often, people are trying to define the next bull market or the next bear market, but when you’re able to identify a sideways or fairly priced commodity, that can be the best of both worlds. As you’re short one side of the strangle, it’s basically taking care of the other one while you’re waiting for decay. As option sellers, patience is the name of the game, and having a strangle on as your key position can really help, not only a portfolio, but help the manager taking part in deciding what to do as you have the trade on. Michael: All right… pretty good stuff. For those of you that would like to read more about the soybean market, we are featuring it in the upcoming October Newsletter. You can see the seasonal we’re talking about and also take a look at the fundamentals we’re looking at, get James’ analysis and possibly strikes you can look at if you’re trading at home. Obviously, if you’re interested in a managed portfolio, you can request our information pack on that, as well. As far as our lesson this month, James, we’re going to address something this month that we probably get more question on than anything else. It’s because it’s a very important topic and that is kind of a broad question, but it is “How do I manage risk on my short options?” We do have a whole chapter dedicated to this in The Complete Guide to Option Selling. We talk about it a lot in our videos and seminars, but I think we should cover it here because there’s a little bit of confusion as to what’s the best way, what’s the right way, etc. What we’ve put forth in our book is what we recommend to beginners, people either new to commodities or new to option selling, is the 200% rule. It’s a good basic rule; it keeps you out of trouble, if the option doubles then you end it, end of story. We still think that’s a good rule and I know you think that’s a good rule, as well. When we’re managing a portfolio with $100 million in it, we have the ability to have a little bit more leeway, we can use a little bit more advanced techniques to bump our odds up a little bit. I know there’s a couple you use and I thought maybe this month we’d pull back the curtain a little bit and let people see some of the more advanced techniques that we may use in managing our portfolios. Do you want to talk about that a little bit, James? James: You know, Michael, we make a great deal about fundamental trading simply using the 200% rule and, if you’re trading along with the fundamentals, I think a portfolio would do very well over a 1, 2, 3 year period. As far as making a more sophisticated exit level and risk parameters, we do utilize more parameters than just the 200% rule. Basically, we’re going to sell options on what the fundamentals dictate. If there’s too much cocoa in the world then we’re going to look to sell calls. 9 times out of 10, the fundamentals in cocoa that brought us to get into that position won’t change over the next 6 months. Generally speaking, a rally against the fundamentals is technical in nature and we can watch open interest, we can see who’s actually doing the buying and who’s doing the selling, and if it’s technical in nature and possibly the option did reach a double level or even more so, I’m going to look at the landscape of the cocoa market or the gold market, whatever the case may be, and if the fundamentals remain the same we will give that trade more leeway. If, for example, we were talking about gold earlier, and all of a sudden we are getting inflation and inflation is at 2, then 2.2 and 2.4 and 2.6, that is a change in fundamentals and you would definitely want to use the 200% rule. As a matter of fact, in a case like that you may not wait for it to reach that level. Being nimble selling options, there’s nothing wrong with that. If you simply want to use the 200% rule, I think, over a 3-5 year period you’ll do extremely well. We follow the fundamentals in commodities so closely that often it’s a technical rally or a technical decline in the market and, for that reason, we’ll stay with a position longer than just a simply percentage rule. Michael: So, you’re saying that’s why you sell options so far out-of-the-money. You give it so much space to move and you have a little bit more leeway because you may have a little bit more insight into what’s actually going on with prices. For the guy out there on the street that’s saying, “I like this 200% rule, but what if I want to employ something else? What if I am looking at some other things?” I know you’ve used a couple of things, but one of them is at times if the fundamentals stay the same you may roll part of that position. Can you talk a little bit about that? James: Absolutely. If you’re selling puts because you’re bullish the market and it’s falling, you might want to scale back a half of your position that you have in the puts and then just roll down to the next 1 or 2 strikes below that. Generally, the selling or the buying based on technicalities will be short-lived. You don’t necessarily just want to leave your position because of something a headline that was in the Wall Street Journal or one of the business channels. Rolling your position allows you to stay with your initial fundamental analysis. Michael: That makes a lot of sense, too, James, because I know when you get into rolling and, another strategy you mentioned is gradually scaling out a position rather than just closing out the whole thing, that gets into a little bit more art than science. It gets into kind of a feel for the market kind of to know what’s moving it. For the person that has just joined us on their own, they may not have the skills to employ that art, whereas the 200% rule is very scientific, it’s very numerical, it’s very definite. Yeah, you’re probably going to get out of a few trades that at the end of the day they’ll still expire, but it’s the only way to keep you out of the ones that are going to cause you trouble down the road. That’s a great point to make and for those of you listening, if you would like to learn some of our more advanced risk techniques, we mention a couple in The Complete Guide to Option Selling, as well. We also talk about them in some of our upcoming videos that you’re going to see this fall. So, if you watch our videos on our blog, we’re going to be talking a little bit more about the risk management, as well. Just a little housekeeping here before we go this month. For those of you interested in discussing a potential new option selling account for the 4th quarter, we are fully booked for October. Rosemary is currently scheduling consultations for our available openings in November. We do have a few of those left. If you would like to schedule a consultation, feel free to call her at the main number… 800-346-1949. If you’re calling from outside the United States, you can reach her at 813-472-5760. You can also inquire on availability by e-mail… that is Office@OptionSellers.com. James, thank you for your insights this month. James: My pleasure, Michael. Always enjoy being part of the show. Michael: We will talk to you all next month. In the meantime, have a great month of option selling. Thank you.

Michael: Hello, everyone. This is Michael Gross from OptionSellers.com here with your August edition of the Option Seller Podcast and Radio Show. James, welcome to the show this month. James: Hello, Michael. Glad to be here and always fun to do. Michael: We find ourselves here in the middle of summer and, of course, summer weather often times can take headlines in the agricultural commodities. That’s what we’re going to talk about this month. We have several things going on in some of our favorite agricultural markets. In the Northern Hemisphere, of course, we have growing seasons for crops, such as corn, soybeans, and wheat. Down in the Southern Hemisphere, we have winter time, which is actually an active time for some of the crops they grow down there because you have crops like coffee and some of the other countries, cocoa, that aren’t planted every year. There’s trees or bushes that tend to bloom every year, so winter can often be a time to keep an eye on those, as well. James, maybe to start off here, we can talk a little bit about weather markets themselves, what they entail, and why they can be important for option writers. James: Well, Michael, many, many years ago, my introduction to commodities investing/trading came along in the summer. There was an incredible hot spell and dry conditions in the Midwest in the United States right during pollination time. That was my introduction to commodities and commodities trading. Weather markets, especially in sensitive times like July and August for the Northern Hemisphere, certainly does bring a great deal of volatility to prices and great opportunity for a weather market to grab hold of particular prices, and that was my introduction into the commodities trading. I’m quite sure that, as summer heats up, of course, here in the United States, so does trading and certain commodities and it looks like we’ve hit that start up again in 2017. Michael: Okay. Being in these markets as long as you and I have, we’ve seen our share of weather markets. After a while, most of them tend to follow a typical pattern. You see a weather scare, you see prices rise in some commodities, and prices tend to immediately price-in a worse case scenario and then you get the real report or then it rains or whatever happens, and then prices tend to force the back-pedal… not always, but most of the time that tends to be the case. If there is a price adjustment upwards necessary, prices will often do that, but often times that spike often comes in that initial wave of buying, and that tends to have an affect on some of the option prices. Would you agree? James: Well, certainly a lot of investors who trade seasonally, or perhaps had taken advantage of weather rallies years before, they will look at the option market. Generally, they are not futures traders, so what they might do is they’ll say, “Well, if the price of cotton or the price of corn or soybeans might be going higher because of dry conditions, lets see what options are out there for me to buy.” I would say that the biggest spike, not only in prices, but in prices for call options, particularly, often happen during these weather phenomenons, and so be it. The call buying that comes into the market during these weather patterns. Usually, as you mentioned or alluded a moment ago, it usually winds up being the high as the public pours into the market. It has happened many times in the past and seems to repeat itself time and time again. Michael: Yeah, that’s a great point, too. You’re talking about that you have a lot of the general public who love to buy options, the media loves to pick up on weather stories and the public reads it, and it tends to feed on itself, and you have public speculators coming in that are buying up options, often times deep out-of-the-money options. These are often times that people who know the fundamentals want to take a look at that and say, “We could take a pretty good premium here with pretty reasonable risks”, and that’s obviously what we are trying to do and what people listening to us are trying to do. So, why don’t we go ahead and move into our first market because we do have a few other markets to talk about this month. First market we’re going to talk about is, actually a couple markets, is the grain markets as a whole, corn, soybeans, wheat, all being affected to some degree by some of the weather. These aren’t raging weather markets, it’s not on the national news, but they’re enough to get those option values up and certainly enough for people listening, or our clients, to take advantage of. When we talk about these, I think we’ll probably focus on soybeans and wheat for this session. As we talked about in our newsletter and in our blog, there has been some drier weather, especially in some of the northern growing regions up in the Dakotas. Recently, I read a little bit about it possibly moving down into Illinois and further into Nebraska. So, they’ve had some dry weather and this has had a particular affect on wheat, but also on soybean prices. Maybe you can just explain how that worked and what transpired there to push those prices higher. James: Michael, it seems that a weather market can come in just practically any portion of the United States. Years ago, Illinois, Indiana, and Iowa, that was the extent of the corn-belt, with fringes of Wisconsin and Minnesota. With high prices in commodities over the last several years, some of the other areas of the United States, people started planting corn, soybeans, and wheat, as you mentioned. This year, the extreme heat and dryness is in the Dakotas, usually not an area that moves the market as much, but this year it did. I know the media really got a hold of the dry conditions and discussed North Dakota and South Dakota, some of the hottest, driest conditions in over half a century. I know I had CNBC calling practically every day to talk about the weather. That is what gets these markets moving, and it usually happens this time of the year. You alluded, once again, to something that happens often is you’ll have these headlines really create havoc with some of the markets and pushing them higher, but, lo and behold, some 95% of the crop is really untouched as it is in decent growing areas as far as the weather goes. As you get into harvest time, a lot of that talk is now behind them and people forgot about the weather in North Dakota and South Dakota 6 months later. That seems to be developing again this year. We’ll have to wait and see how that plays out. Michael: That’s a great point. Probably we should point out here the backdrop of what this weather market is operating in. Exactly what you described is happening, of course, you have speculators buying soybeans off of the dryer weather, buying call options off the dryer weather. As of the last USDA report, 2017-2018 ending stocks are pegged at 460 million bushels, which is going to be the highest level since 2006-2007. So, we’re going into this with a pretty burdensome supply level. Now, if there is some reduction in yield, yes, that could come down a little bit - something to keep an eye on. You also have global ending stocks 93.53 million tons. That’s pretty substantial, as well. You’re operating on it being a pretty hefty supply environment. At the end of the day, when we go into harvest, prices tend to decline, regardless of what the actual supply is because that’s when the actual supplies are going to be the highest regardless. We’re fighting that big picture of, “We already have hefty supply and we have a seasonal working against the prices here.” So, two reasons why people listening may want to consider selling calls when you do get weather rallies like this because the bigger picture is not that bullish. Secondly, one thing to point out here is we’ve had problems with dryness up in North and South Dakota, possibly coming a little bit further south, latest weekly crop condition report is a 4% decline in good-excellent rating. They’re starting to reflect some of that damage, but one thing to remember is this happens often. It happened last year. It happened a couple years before that where it was dry in July and everybody was talking about weather. Then, they’re talking about pushing yields back a bushel or two an acre and then it rains in August, then all the sudden we have above average yields. So, you have prices right now that can, you can get a little pop or you can also see them roll over. I know you have a favorite strategy for playing markets like that. James: Well, Michael, we wait for volatility to come into the different markets that we follow. Certainly, a weather market in summer is one of those. Probably the best way to approach selling options, whether it be calls or puts in a weather market, is to do it with a covered position. Basically, a strategy that we cover in Chapter 10 in The Complete Guide to Option Selling: Third Edition, it’s really an ideal positioning for weather markets. Basically, what you’re doing is you’re selling a credit spread where as you are selling whatever item you think that the market can’t reach, for example, soybeans this year trading around $10 a bushel based on supply and demand probably won’t be reaching $12.50 or $13 a bushel. What you might look to do is do a credit spread where you buy one call closer to the money and sell 3, 4, or 5 calls further out. The one long position is basically insurance on your shorts so that while the weather is still in the news and while there is still quite a bit of jitters as to how much crop potential we might lose this year, that holds you in the position. You’re basically short with just a little bit of protection and that really does a great job in riding the investor through weather markets and if you are fundamentally sound on your picture of what the market will likely be, as you mention, we have some of the largest ending stocks in some 10 years, you do want to be short this market at harvest time. By applying a credit spread in July and August is a great way to get involved with the market and protect yourself while you’re waiting for the market to eventually settle down. Michael: When you’re talking about and referring to the ratio credit spread, that really eliminates the need to have perfect timing. Of course, all option selling you don’t really need perfect timing, but that really helps out. If you do get a rally, those can be opportunities for writing spreads just like that. If you’re already in it and the market rallies, you have that protection, a lot of staying power there, and when the market eventually does turn around there is a number of different ways you can make money with a ratio spread. Of course, at the end of the day, we want them all to expire. Talking about soybeans right now, this does not look like any type of catastrophic yield loss or anything like that. This looks, at the most, if we get something, they might get a few bushel break or reduction prices may need to adjust a little bit higher, but in that case sometimes a ratio spread can work out even better. Is that correct? James: Well, Michael, it’s interesting. Your long position, for example, in soybean calls or corn calls or wheat calls, there’s a chance that that thing goes in-the-money and your short options stay out-of-the-money. That certainly is an ideal situation for the ratio credit spread, where, basically, the market winds up being between your long options and your short options. That happens rarely, but, boy oh boy, is that a great payday when it does happen. That’s not why we apply the ratio credit spread, but every once in a while you get quite a bonus. That describes one extremely well. Michael: All right. Let’s talk about wheat just a little bit. A lot of the same things going on in wheat, but wheat is affected a little bit differently than the beans, primarily because we have a lot more wheat grown up in those regions where they’re having the trouble. In fact, I read here, as far as the drought goes, North and South Dakota, I don’t have the stat here in front of me, but it’s somewhere between 72-73% of the acreage up there is considered in drought right now. So, a lot of wheat is grown up there. At the same time, that’s one of those markets that may have priced in a worse case scenario and now backing off. What do you think? James: You know, the wheat market probably, it does have different fundamentals than corn and soybeans, clearly, it has rallied over $1 a bushel, which would have been about practically 25% when a lot of the discussion about the Dakotas was taking place. The wheat market looks like it’s priced, you know, the heat and dryness already in. Of course, one thing about the wheat is it’s grown in so many locations around the world that if you do have a loss in production in the Dakotas in the United States, there are many places around the world ready to fill in for any loss in production. All around the world wheat is grown in probably near 100 countries… certainly different than corn and soybeans. Michael: You made a great case for that in the upcoming newsletter, too, the piece about wheat, where all this talk about loss of yield to the spring wheat crop, but that only represents about 25% of the overall U.S. crop. Most of the crop grown here is winter wheat, which wasn’t as heavily affected. The bigger point is the one you made just now. This thing is grown all over the world. The United States only produces about 9% of the wheat grown in the whole world. Right now, world wheat ending stocks are going to hit a record level in 2017-2018. So, again, you’re looking at a little news story here, but when you look at the bigger picture we are going to have record world supply of wheat this year. Again, these can be opportunities for writing calls for when those bigger picture fundamentals start to take hold. It can certainly help your position. James: Exactly. This year, I think, was another great example of that. Ending stocks possibly being records. It’s almost an ideal situation when weather problems arise because later on that year, lo and behold, we have more wheat than we need and the price goes back down. Weather rallies, whether it’s the Southern Hemisphere or Northern Hemisphere, really often plays into the hands of option sellers because the buyers come out of the woodwork and normally, you know, holding the short end of the stick come harvest time. Michael: We should find out where everything plays out in the next USDA supply/demand report. I believe that is on or around August 10th. That’s really going to reflect what the real picture is, if there was yield loss, and how much of it was. If it’s less than traders thought, prices probably roll over and we’re probably done because you have soybean podding in August and markets typically start declining after that anyway. If we do get a little bullish surprise, we’re not saying the market can’t rally if you’re listening at home and saying, “I need to go hands-in short right now”. The market can rally, especially on or around this report if you get a bullish surprise. What we are saying is those can be opportune times to write options, because that’s when that volatility will jump and, overall, the bigger picture fundamentals remain bearish. James, we’re going to talk here a little bit about our next market, but before we do that, anybody listening to our conversation here about the grain markets this summer, you’ll want to read our August issue of the Option Seller Newsletter. That comes out August 1st. It will be received electronically and it will also be available on hard copy newsletter in your mailbox if you’re on our subscriber list. We have a feature article in there on wheat. We talk about credit spreads, some of the things James and I just discussed here, and how you can apply them. It is a great strategy for this time of year and you can read all about it in the August newsletter. If you aren’t a subscriber yet and you’d like to subscribe, you can subscribe at OptionSellers.com/newsletter and read all about it. James, we’re going to move into our next market here this month, which is one of your favorite markets to trade, that is, of course, the coffee market. I know you’ve been doing work with Reuters World News this month back and forth on the coffee market and what’s going on there. Maybe give us an overview of what’s happening in the coffee market right now. James: Michael, it’s interesting. As all of our intelligent readers and watchers already now, as temperatures heat up in the United States, they are definitely cooling off in the Southern Hemisphere, Australia and Brazil for example. What so often happens for traders in the coffee market, they look at winter approach in the Brazilian growing regions and they remember back to when coffee supplies were really cut based on a freeze that developed in Southern Brazil. During those periods, some 1/3 the coffee crop that Brazil makes each year was grown in very southern areas of Brazil, which are prone to cold weather. Chances are freezes don’t develop in the coffee regions of Brazil, but just like the dry weather in the United States a lot of investors and traders want to trade that idea of it happening. That’s what’s going on recently as we approach the coldest times of the season in the Southern Hemisphere. Traders and investors are bidding up the price of coffee and, likewise, buying calls in the coffee market, planning on maybe some adverse weather taking place. I think we all hear about El Niño and La Niña and what that can do to temperatures, both north as well as south, and a lot of investors, if something like that takes place, they want to be in on it. Often, how they do get involved with that is by buying calls in coffee, cocoa, and sugar, and it looks like that’s what’s pushing up some of those soft commodities today. Michael: Okay. So, they’re buying it primarily on freeze-type thing… same type of thing going on here in reverse. Instead of hot weather, they’re betting on cold weather. Talk a little bit about the bigger picture there as far as what supplies are like, what they are buying here. James: Well, Michael, it’s kind of interesting. It’s almost like a carbon copy of what we just discussed on the grain and grain fundamentals. Coffee supplies in the United States, which, of course, is the largest consumer of coffee in the world, are counted each month. Here in the United States, we have something called green coffee stocks. Obviously, that is the coffee that is then sent to roasters. Roasters roast the bean and then turn it into everyone’s favorite morning brew. Green coffee stocks in the United States are at all-time record highs. That fundamental is something that just is very discernable and is not going to go away no matter how many coffee shops spring up in your city or your town. We have record supplies in the United States. As far as the fundamental of new production, especially in Brazil, last year we had a rally in coffee prices because it was dry conditions during some of the cherry season in Brazil, and this year is just the opposite. We’ve had extremely favorable weather conditions. We have an excellent coffee crop that’s being harvested right now in many parts of Brazil and Columbia, and coffee supplies that will be coming in from the producing nations will be more than plentiful as we get into August, September, and October when those harvests wrap up. So, we have practically record supplies around the world, we have excellent growing conditions in the largest producer in the world, being Brazil. This year is what’s called an off-cycle year. A coffee bush, if you will, produces more cherries on one year and then slightly less the following year. This being an off-cycle year, still we are expected to have a record production figure in Brazil for an off-cycle year. There are already estimates for next year’s crop being in excess of 62 million bags, which would be an all-time record. For those of you who are unfamiliar with what 62 million bags of coffee might represent, Columbia, always thought to be the largest coffee producer in the world, they only grow approximately 10-12 million bags each year. So, all of the extra demand for coffee recently over the last several years from all the coffee shops springing up, Brazil has taken care of that and then some, just basically blanketing the world with extra coffee beans. That is what has kept coffee prices, really, trading near-low levels. Many commodities have increased with Chinese demand that everyone is familiar with over the last several years, but coffee is not the case. Record supplies here in the United States and record production down there from our friends in Brazil. Michael: Yeah. I saw that, too. Brazilian Ag-Minister was 62 million bags. That’s a huge crop. Another thing I should probably mention there is that coffee has a seasonal, as well. It tends to start coming off into when harvest starts and our springtime as they head into fall, which is March-May period. Is that correct? James: It is. Generally, the coffee crop is so large and so widespread there the harvest lasts practically 4-5 months. Basically, what you’ll see them do is often sell coffee twice a year in great strides. One is as the end of harvest approaches and then when we’re looking at next year’s crop, May and June, when they can get a handle on how large that crop is going to be, they will then start forward selling that year’s production. So, really there’s two waves of selling from coffee producers in Brazil. Usually it’s August-September for the current harvest and then May-June for the upcoming harvest. Really two large swaths of sales from Brazil, something we’re expecting to happen probably for at least the next 2 years and then we’ll have to take a look at how the conditions look after that. The next 24 months, we’re going to see a lot of coffee hit the market twice a year, those 2 times especially. Michael: I did notice, this year the coffee market does appear to be following seasonal tendency. You know, we started seeing this last round of weakness right about March and it has dropped, so far, into June. We get a little bouncier now maybe just because prices were just so oversold and then we had the weather issue that you spoke about, as well. I know, right now, with prices in the position they are similar to what we talked about in wheat and soybeans, where you had a little bit of a weather issue at the same time big picture fundamentals still looking pretty bearish. What type of strategy are you looking at in coffee right now? James: Well, Michael, we have coffee prices in the mid 1.30’s, approximately $1.35 per pound. Chances are we are going to be rallying maybe 5-10 cents as we go further into the winter season in Brazil, as some investors take a chance on coffee price rally. We could see coffee prices in the mid $1.40 going into August and September. We are targeting contracts 6 months out- 9 months out to take advantage of the long-term bearishness. We never want to play a market on a short-term basis, we don’t want to predict where coffee’s going to go the next 2-4 weeks. What we want to do is take our long-term fundamental analysis of the coffee market, the production and supply that we’re looking at here the next 24 months, we’re going to take a long-term view of coffee… a long-term bearish view. We are able to now sell coffee calls at $2 a pound if you go out a little bit further, another 30-60 days, you can sell coffee options at $2.20 a pound. If we do get a decent rally here in the next 30 days, which is possible, we’ll be looking at selling coffee calls at $2.40 and $2.50 a pound. Later this year, we do expect coffee prices to be around $1.20-$1.25, and there’s a pretty good chance the options we sell are going to be double that level, certainly something we’re extremely comfortable with and we think is going to work out quite well. We’ll have to wait and see. There’s no guarantee in this market or any other, but we do like our chances at selling coffee at that level, for sure. Michael: That far out-of-the-money is exactly the target options that we talk about in The Complete Guide to Option Selling. It’s our third edition of our flagship book. If you would like to get a copy of that, you can get it at OptionSellers.com/book. You’ll get it at a discount to Amazon or bookstore prices. James, for our lesson today, I’d like to directly address a question that we get periodically from newsletter readers and listeners to this show and some of our other videos. I know a lot of people listening to this, they’re watching what we talk about and then they are taking our trade and trying to do it on their own. That’s certainly fine and there’s nothing wrong with that. That’s part of the reason we’re here, is to help people learn what this is and how to do it. A question we get is, “I saw your video/read your article and you talk about selling a strike, and I went and looked at that strike and it’s not the same premium you said,” or, “ I went and looked at it and there’s no open interest there”, or “That platform doesn’t have it. I can’t see it. How are you selling these things?” There’s a couple different answers to that. I’m going to give one and I know you probably have a better one, but one of the first reasons is a lot of the platforms they’re on they don’t carry options that far out. I know some people have mentioned Thinkorswim platform or TD Ameritrade where they only go a few months out with the commodities options. So, first and foremost, you need to get yourself a better platform so you can get further out strikes, and secondly, James, the one thing you pointed out clearly in this month’s newsletter is a lot of times when you’re talking about these things, whether here or on your bi-monthly videos is, you’re giving examples of how this could work, how it should work, what might happen if prices rally, these are the areas we target. We’re not here to give specific trade recommendations for people to take and trade tomorrow. These are examples for people to learn either if they want to invest their money this way or if they want to take the information and think and reason it on their own what to do. So, when we talk about a strike, that could be a trade we’ve already done, could be that it’s passed now, or it could be a trade we’re hoping to do if the right situation sets up. So, you just gave some pretty good examples right now and you probably agree with me there, but there’s another reason that we can target those type of strikes that other people might not be able to do, and maybe you want to talk about that. James: Michael, that is a great point that you bring up. When I’m speaking to new clients, when they first open their account, the one question that seems to come up very often is, “James, I understand how this works, I’ve read your book, I’ve read your material, but who in the world is buying these options?” That is certainly a question we often get. By no means do I claim to experience the very best way in selling commodities options. I’m not sure what the very best way is. I just know what works for us and really being the option selling leader, I certainly believe we are, we are selling options in quantities that practically no one else in the world is. We have the luxury of selling gold options to banks in London and New York, we have the luxury of selling options in the crude oil market to energy companies, and it’s quite possible that when we’re selling options distant strikes coffee, we are likely selling them to coffee companies, like Starbucks and the such, a lot of popular names that a lot of people now. When you’re selling to contracts for your particular own personal account, you’re probably not going to get a chance to deal with London banks or other large coffee companies, but when you’re selling options in very large gross volume, these companies do want to work with you and they do want to listen to you. That opens up these strikes to us. Michael: That’s a great point. Maybe for just some of our listeners that may not be familiar with how that is, it’s not like James is getting on the phone and calling somebody in London and Citi Bank and asking them if they want to buy our options. These are still going through registered exchanges, it’s just a different path we are taking through them where we are working through specialized order desk. These people have relationships with other brokers for these organizations, but the trades are still done on the registered exchange, correct? James: Yes, they definitely are. It’s just relationships that our clearing firm has established and it’s something that, I feel, just the pinnacle of option selling… having those relationships in place and when you need and want to sell options that are further out in time, as maybe some of our listeners or readers have asked about, that’s something we have the luxury to do and we certainly want to take full advantage of that by selling to some of the largest banks or some of the largest companies that are maybe end users in coffee or in sugar or in soybeans. It’s quite a luxury we have working with those relationships that our clearing firm has already built for us. Michael: Something our listeners might want to consider, as well, we are usually here to help people learn how to do this. Whether you want to do it on your own or whether you are considering having it managed, one aspect of managed option selling, and excuse my little advertisement here, but it’s true that if you’re in a managed portfolio, such as this, you do get the advantage of economy of scale, where if you’re trying to sell 2-3 options on your own you could have them sitting out there all month and nobody ever looks at them. When you’re with an organization or a managed situation like this where you could be selling thousands at a time, those not only can get filled but often times at better fill prices than you’re going to get electronically. I know that’s something you have experienced first hand. James: Michael, there is no question that we’re not market timers. We don’t know the exact time to get short soybeans, coffee, or get long some of the precious metals, but what we do want to have is just the best absolute liquidity available, the tightest bid-ask on these markets, and if that can change your entry by, say, 10%, which it often does, once again, it takes the need to be perfect timing entering these markets, which no one has, nor do we, but when you can get a fill 10% better getting in and then possibly getting out, that makes a world of difference. Michael: All right. We’ve covered a lot of ground this month. I think we’ll hold up there for the month. We will be updating the coffee market and some of the other things we’ve talked about here over the next month and on our bi-monthly videos and also on our blog, so you’ll want to stay posted to that. If you are interested in learning more about managed accounts with OptionSellers.com, you can request our free Discovery Pack at OptionSellers.com/Discovery. As far as new account waiting lists, we are well into September right now as far as the waiting list goes for openings, so if you’re interested in taking one of those remaining openings for September you can contact Rosemary at the main number to schedule a perspective client interview. Those will be taking place during the month of August. You can reach her at 800-346-1949. If you’re calling from outside the United States, you can call 813-472-5760. James, thank you for a very insightful commentary this month. James: As always, Michael, all 12 months of the year are interesting, but July and August certainly are one of our favorites. Michael: Excellent. Everyone, thanks for listening and we will be back here with our podcast again in 30 days. Thank you. James: Thank you very much.

Michael: Hello everyone. This is Michael Gross and James Cordier of OptionSellers.com. We are here with your July OptionSeller TV Show. James, welcome to the show this month. James: Thank you, Michael. Always glad to be here. Michael: We have a pretty full slate this month, so we’re going to jump right into things. First thing to talk about this month, obviously, is the FED rate hike coming down. It hiked another quarter point in June. So, that’s going to have a different type of effect on commodities. James, I know you talked about it in your weekly video, but maybe just cover that a little bit right now for our viewers and what that might mean for commodities markets. James: Okay. Most recently, interest rates have been, here in the United States, pegged at zero. With this latest quarterly rise we are slightly off of zero- somewhere between half and one percent. The quarter point rise really wasn’t a big surprise, certainly, but what Janet Yellen specified was the rollback of the incredible amount of cash and bonds that the government is holding. This rollback of the size of what the government is holding is just incredible – it’s some 3.5 trillion dollars and we’re going to see them start to sell that back into the market. Michael: So, how would that affect say… the first thing you think about when you think of interest rates is probably the U.S. dollar. How is that going to play out, do you see, as far as its affect on commodities? James: Well, as we effectively went into quantitative easing, as you know, some 8 or 9 years ago, the talk of the town was “We’re going to have an incredible amount of inflation, we’re going to have inflation, and we’re going to have infrastructure spending creating inflation”. A lot of people weren’t familiar with quantitative easing or what that meant to interest rates. Basically, a lot of people would put commodities into their portfolio. Someone who has never traded commodities before, thought that having gold or oil or something like this as an investment because of quantitative easing thought that would be the way to go because, certainly, interest rates at zero was going to spur a great growth worldwide and inflation. It simply didn’t pan out that way. Now, rolling back the balance sheet of the federal government from 3.5 trillion dollars to 3, then 2.5, then 2, then 1.5 is going to reverse this thinking for the majority of the people who are looking for inflation hedges. The inflation hedge is probably going to be not so popular going forward. As a matter of fact, not only not having an inflation hedge in your account or in your portfolio, but the fundamental factors that create inflation aren’t with us anymore. So, we don’t have 0% interest rates, we don’t have quantitative easing, we have that rolling back, and a time where inflation never really actually took place, clearly everyone is very familiar with what happened to China the last 7 or 8 years with the infrastructure spending. That’s done. That’s complete. Without quantitative easing and without 0% interest rates, the need for investors to put gold or oil in their account just haphazardly just to own it as an inflation hedge, we think that that time has come. So, gold and silver and crude oil will rally on its own accord, but as far as simply people buying it, hedge funds, private investors, we think that’s in the 9th inning and that’s likely wrapping up. Michael: Of course, we have better ways to take advantage of commodities prices other than buying them outright, as most of our viewers know. What we’re going to point out to those of you watching and listening, we talk often about how commodities are diversified and they are uncorrelated to equities and interest rates and that type of thing, especially the way we approach them or you would approach them as an options sellers, because, yes, when James is talking now about interest rates and it’s affect on inflation, that’s a bigger macro-type issue. That doesn’t mean that the individual fundamentals of these commodities aren’t still important and aren’t still a driving force in what’s moving them. If you’re trading commodities you want to be familiar with these macro factors, as well, because they can put a head wind or a tail wind depending on what side of the market you’re on. That’s why we talk quite a bit about them. We’re going to switch things up a little bit this month. We’re going to do our lesson portion first because we have a couple markets here that the lesson applies to. We want to review the strategy first so you understand it and then we’re going to talk a little bit about a couple of markets that we think are excellent opportunities for applying it. That strategy, of course, is the strangle, the option strangle, which is selling a call on one side of the market and a put on the other side of the market - one of our favorite strategies here. James, maybe you just want to briefly cover that for our viewers for how a strangle actually works. James: Certainly. I think most of us who are following along and have been trading or investing in commodities or stocks for a period of time, we’re dating ourselves here slightly, but of course the great thing I like talking about, I know I’ve heard you say it as well, Michael, but it’s The Price is Right. The person guessing the window that the car or the showcase or something is going to be inside, basically, we are playing The Price is Right. When suggesting a strangle, we are identifying fair valued markets. From time to time, the idea that crude oil is about to make a large rally or a great fall, usually oil and gold are generally trading exactly at their fair value. Basically, what we’re doing is we are identifying where the market might be over the next 6-12 months. If we see the gold market, per say, trading around $1,250 right now, and we think it’s fairly valued, what we are going to do is put a strangle around that market. How you do that is by selling a call option way above the market, selling a put option at extremely low levels below the market, and expecting it to stay inside that parameter. For example, the gold market, there’s still gold bulls out there. Whether quantitative easing is over or not, there’s still gold bulls out there. You might sell an $1,800 or $1,900 call above the market, at the same time you would be selling a put. That would be the lower end of the bracket that you’re putting around the option strangle and possibly selling a $900 or $950 put under gold. Basically what you’re doing is you’re saying gold is going to stay inside of a $900 price range for the next 6-12 months. Now, that sounds like an extremely wide window, and that’s because it is. We’re talking about selling puts and calls some 40-50% above and below the market, and all we have to do is see gold stay inside that band and 6-9 months later these options are worthless and we’ve collected money on both sides. Michael: James, something too I think our viewers would be interested to know about is we have a lot of stock options sellers, maybe you’re selling index options, and you’re thinking, “Well, I do that but it has to stay in a fairly narrow range for me to make money”, whereas if you’ve never traded futures before, you talk about sideways market but you use that term loosely because the range we can sell these options the market can do a whole lot of things. It can go up for a long time or it can go down for a long time and trade at a fairly wide range, and you and I call it sideways because we’re so used to those big ranges, but to somebody unfamiliar with futures they may say, “Oh the thing is screaming up”… Yes, but it’s still far away from our strike, so that’s probably a bigger difference they would have to get used to. Do you agree with that? James: These $25 and $50 moves in gold, or these $2-$3 moves in crude oil, they make great TV., especially when they’re talking to someone on the floor and they’re hearing pandemonium going on. “What’s going on down there, John?” “Well, gold’s up $25 because of this or that”, and people are thinking “Oh my goodness, I need to get into this” or “Thank goodness that I did puts instead of calls, or what have you”. $800 or $900 trading range in gold, these parameters are likely not going to be seen tested, much less touched. Quantitative easing rallied gold up to $1,900 an ounce. That was an all-time high. These levels, in my opinion, won’t be seen for years. On the downside, being long gold from $900 or $950 is a very great value and we don’t see the market falling down to levels like that with the stock market trading at all-time highs and people talking about diversification. Part of that will be buying gold, because when the stock market does finally take a dip, and certainly it’s not a matter of when, but when it does take a dip gold is probably going to come back into flavor, but without inflation it’s not coming up too high. Michael: Obviously a good article on the blog James wrote this month about that exact strategy, some of the bullish and bearish factors affecting gold and why we feel it should remain in those ranges. Obviously, if you haven’t guessed, our first market this month is gold, so James is already kind of explained the strategy at what we’re looking at there. With the current hike in rates, the current strength in gold, James thinks, is going to mitigate/stay in those ranges. Another thing we should probably talk about, James, is a lot of people when they hear us talking about strangles, and you write about them a lot or talk about them a lot because it is one of our core strategies here, is do you put the thing all on at once or do you wait until it rallies and sell the call or wait until it falls and sell the put? How do you know when to do that? That’s a strategy called legging-in. It’s a little more advanced for more advanced traders, but I know it’s something you like to do at times. Can you maybe just talk briefly about that or how you approach that? James: That’s interesting, Michael. Approximately 2-3 weeks ago, just as the month of June was beginning, gold did have a rally. It tested up towards $1,300. We really saw a lot of resistance at $1,300 and we did start legging on gold strangles at that time. We were able to sell gold calls even higher than you can now because gold was on a bit of a rally. As long as you’re legging on a position, if you feel that if you don’t get the other side of a strangle on and you’re still good with the investment, legging on is a great idea. When gold rallied up to $1,300 recently, we were selling gold calls with both hands. Not that I knew the market was going to fall $50, which it seems like it has over the last week or two, but we’re quite confident it wasn’t going to the levels that we saw. Now with gold back and down about $40-$50 recently, we are applying our puts to our strangles, so we did successfully leg in to this gold strangle that we’re most recently involved with. As long as you are able to live with one side or the other, if you don’t get the other side on and you’re comfortable with that, legging on is a great idea. When we were putting on our calls here recently, the lowest a put we could sell was $1,000 and now we can sell the $900-$950’s, so we were rewarded in legging on this position. Generally, commodities will trade. Technically, gold is doing extremely well right now, and that gave us a window to make our strangle some $50 wider than it would have been had we just put the position on. Michael: A lot of people watching are used to hearing us talk about bushels of soybeans or bags of coffee. It switched to macro here this month and it may seem a little bit different, but when you’re trading gold that is really what it is. It’s kind of a different animal than a lot of these other commodities. You have a lot of public interest in gold, everybody has an opinion on gold, but as an option seller that helps because the public interest comes in and they usually like to buy options. Would you agree? James: Michael, so many investors right now are looking at diversifying away from the stock market, and that is not a call on what the stock market might do, it’s just that a lot of investors, I know you talk to perspective clients all the time and I speak to clients myself, and that is the keyword everyone is talking about right now: diversification. People delving into commodities often want to buy options. That’s their best way to get involved with it. A lot of them are newbies, of course, we have a special relationship with our clearing firm and we actually sell a lot of our options to banks, who have extremely deep pockets. Often when we are making a sale of a particular commodity available, a bank might hear about it and they might want to purchase a lot of these options from us, so we both get the excitement of the public to buy our options, as well as large banks. We mainly deal with banks in New York and London. They’re taking the other sides of our market lately, and it really gives us a great deal of liquidity as long as the conversation about things going on in the administration and things going on globally, the debt in China, constant demand for commodities, and lot of these are option buyers. Certainly, we are very happy to have them. Michael: That’s a question we get often is “who is on the other side buying these options?” That’s a long list of people, but a lot of times it is banks and I doubt they’re buying them as an outright long strategy. Often times, these are part of complex spreads or hedges they might be putting on, but they’ve certainly got a lot of liquidity. We have a special guest that’s going to be on the show here later that’s going to talk a little bit about that with us; however, in the meantime, let’s finish our discussion here about strangles. If you would like to learn more about strangling the market, you can go to the blog. We do have our seminar videos there. Also, don’t miss James’ article last month on the gold market, The Golden Brackets. It’s exactly what we were talking about here. That’s also available on the blog. If you’d like to learn more about the strangles strategy, I do recommend our book, The Complete Guide to Option Selling: Third Edition. You can get that at OptionSellers.com/book. James, let’s move in to our second market this month. This is a market we’ve been talking about now for a couple months. Last month, crude oil was trading in the low 50’s. The media was ablaze with the story of how OPEC’s cuts and how high oil would go, and you were saying “It’s going down. It’s going into the low 40’s”, and here we are today at $43 a barrel. The market has come down and now we’re thinking of a different type of option strategy again. Maybe you want to talk a little bit about that. James: Michael, very interesting point that you make. We were bearish crude oil when it was trading around 50-52 recently. It is headed to the low 40’s right now, or certainly it seems that way. You mentioned something very interesting a moment ago. What we do is we count barrels of oil and we count pounds of coffee and we count pounds of cocoa. Just laying out a fundamental analysis and a fundamental reason for getting into the market. When OPEC announced cuts, what people didn’t talk about then was the fact that they amped up production the weeks prior to this taking place. What that inevitably did was it locked in production at all-time record highs at a time when demand for oil right now is slipping slightly, basically because cars around the world no longer get 15 miles to the gallon, they get 30 miles to the gallon. The demand from China seems to be slowing just slightly. The main player in oil right now is the Permian Basin in the United States. Rate counts have doubled in the past year, and we’re going to be awash in oil, we think, in the 3rd and 4th quarter of this year. We are looking at crude oil starting to trade seasonally again. We mentioned this a couple of TV shows ago that the crude oil market, the seasonal trade this year, got hijacked by the production cut announcement in OPEC. We see crude oil returning to the seasonalities that we’re so accustomed to, and that is selling oil in June and July and selling it in December and January. We will likely be doing that again this year. The crude oil market is probably going to base out near 40, it’s going to rally near 50, and this window and this bracket around oil is likely going to be staying with us for quite some time. We know that, at least we feel we do, by counting barrels of oil and understanding the market. So many investors were piling into crude oil recently and the production cuts. Simply knowing what the fundamentals are and not watching headlines allows us to be a little bit ahead of the market. If you have option selling to produce a position for you, some 50% out-of-the-market sets up a nice scenario for us. Michael: That’s pulling out, too. We talked last month about oil returning to its seasonality. Here we are at the beginning of July and all through June and crude oil did nothing but come down. I mean, it’s almost aligning with the seasonal chart again. Just like we discussed last week, the energy markets are some of the most seasonal markets on the board. Nothing guaranteed, of course, but just because of the cyclical nature of demand, it seems to match up- it’s definitely a factor you want to look at if you’re trading energy markets. James, we talked about the media’s effect on crude oil. Last month, they were all about OPEC and talking about potential rallies in the market and they are ignoring things like seasonals. I don’t know if they actually don’t know about them or they are looking for a story, but here we are and now the crude is falling. I’m watching CNBC this morning and Cramer’s on there talking about oil in the 30’s. Now they are bearish and they can’t get bearish enough. You’re talking about, really, looking at a strategy similar to what we talked about in gold, where we may be looking to trade both sides of a possibly range-bound market. Is that correct? James: It is correct. Herd mentality in stocks, even more so in commodities, just takes place like you wouldn’t believe. The same absolute experts, the talking heads on TV, so bullish in oil when it was at 55 and 60, and it’s certainly going to go to 65 and 70. These exact same experts are now talking about oil going into the low 30’s. I think, sometimes, you could just watch CNBC, especially CNBC, and just do the opposite of what everyone’s doing, because when everybody is bullish, you can get one analyst and one expert all saying the same thing, “My gosh- oil is certainly going up. How high is it going to go? I’m not sure.” You can close your eyes and sell calls when that happens. Now, when the market is falling possibly into the 30’s this fall, that will be the time to get bullish for next summer. I think last TV show we did, I talked about passing not to where the market is but where it’s expected to be. This winter, when we have extremely low prices, we’re going to want to sell puts to the June and July time frame. Michael: Do you like the strategy of strangling the market right now? James: We strangled the market some 6 months ago when OPEC had made its announcement. We went long from 33 and short from 76. We love that position. Those positions are basically retired now. We’ve collected some 75%-80% on both of those positions. What we’re going to look at doing is that the fall has already begun. We just dropped practically $10 here in the last 2 months for oil. Our next position will be strangling the oil. We will be looking at legging on this position, and we will probably be putting our puts on as the first leg and then waiting for the market to rally some later on and putting on a call position. We will be strangling oil. We’ll be strangling oil probably for the next 2-3 years. We think we can see that far out. We think we know what the band is going to be. Right now, we’ve had a $9 decline on oil real rapidly. We could probably see it fall another $3-$4 and we’re going to start getting our calculators and pens out and starting writing some puts. Michael: So, you think to a point there, and it’s a good point that we should probably make, because the point you’re talking about is a longer-term investment based approach. Some of the viewers watching today are probably traders, and there is a difference there between trader and investor. You’re talking about, “Well, we will leg this position on in the fall and then we’ll add another leg to it in the spring.” Those are long-term type projections, where some people used to trading options are thinking, “Well, what can I do today? What can I do today to make a profit by the end of the month?” That’s not really how we approach it. You can gear option selling to be that way if you want, but it’s really not an investment based approach that you have really shifted to and had a lot of success with. James: You know, we don’t consider ourselves traders. We take a fundamental view on about 8 different commodities and we make positions as investments. The market does have gyrations, the stock market does, the commodities market will certainly gyrate from time to time, and we need those to pump up premiums on both puts and calls. The key to the fact is, if you’re a fundamental trader, you are able to stay with your position when the market has a small move against your position. We sell options, both in time and in price, much further out than probably most anyone does. We want to be invested in our positions and not simply be trading them. When you are selling options in commodities some 40%-50% out-of-the-money, granted it might be 6-12 months out, much further than most people would every consider selling options, especially in commodities, people say to us, “James, that leaves a long time in the market for you to be wrong.” We look at it as that gives us a lot of time to be right. So often, when you sell a short-dated option, the market will make a short move against you and knock you out of your position. Lo and behold, 30 days later, the market was doing exactly what you thought it would do, except you’re not holding your short option anymore. We get paid to wait. If you know what the fundamentals are and if you’re applying them in long-dated options, being paid to wait is much easier and it gives you the ability to be patient. Michael: Great point to make. You talk about that a little bit in this month’s newsletter. We got questions about timeframe and what’s a good timeframe to sell options. That’s addressed in this month’s newsletter. The July Option Sellers will be out on July 1st. You can look for that in your e-mail box as well as your hard copy mailbox if you’re a subscriber. We’re going to take a little bit of a detour off of our usual schedule for our show this month. We brought in a very special guest for you. He’s going to bring you some different trading insights, and we will be back in just a moment with him. All right, everyone, we are back. We have a very special guest with us today. With us is Mr. Dave Show. Dave is one of the floor traders that actually has been a tremendous help to OptionSellers.com. He gets our orders filled up to Chicago board to trade with a lot of our orders up there in the agricultural markets. Dave, welcome to the show. Dave: Thank you very much. It’s nice to be here. Michael: One of the things we’re going to talk about is, as a floor trader, Dave has some unique insight in option trading, getting fills, and how orders are actually getting through the system. One of the things we’ve talked about, a big topic, is electronic trading. Is it going to make floor traders go the way of box TV sets? We don’t necessarily feel that’s the case. There are still some benefits, substantial in our case, we feel, of still trading through the floor. Dave, maybe you can talk a little bit about that and what do you see happening with that? Dave: I’d be happy to, Michael. The floor trading still exists because there is a marketplace and a need for it. Electronic trading certainly has its place. It’s used substantially in our markets, but especially in the options markets, which there are so many permutations and different strategies to ploy. It sounds very difficult to get that expressed on a screen and to get a response, a bid or offer, on that. Whereas in the pit, we have several hundred people on the floor that are participating and have instant access to whatever quote you’d like to get. It’s usually a best bid invest offer. It’s not a feeler kind of bid or offer. We have huge backing down there with these traders, different banks and different huge trading companies, and they keep their traders there to make the best market. As a trader and investor, you may wish to ask for a market at a strangle, spread, call, or whatever. You put down the screen and you wait for your RFQ to come back. You call the floor, you call your broker, and he can get you, in 3 or 4 seconds, a market that is tight and is deep and is transparent. So, if you have size to do, to move many hundreds or thousands sometimes of transactions, it’s much more efficient to do it that way in the pit where you get it all done at a specified price and at one time and the trade is completed. James: That’s an interesting point. Quite often, we will be selling some strangles and some outright positions on the screen and it doesn’t seem like there’s that much volume on the floor until the screen trade actually takes place. I know, from time to time, we will bait the market, it seems. We will have a certain market to trade on the screen, maybe 100 lots, and then I will be speaking to you and I’ll ask you, “Does the floor see this trade? What do they think about it and can they help us move some size?” Can you speak to that? Dave: James, that is very much often the case. We’ll have customers that when they need to move a large amount, they will tickle the screen with a bid or offer. They will also simultaneously put it in the pit. The screen has a much larger audience, granted, and there will be someone out there starting to lift the bid or take the offer and get your order filled. Once our pit community sees that, they will generally, as a mass feeding, come out and take on whatever we have to match the screen so that it stays with us instead of going on the screen. Michael: Dave, one of the things we talk about and investors ask us there at home is, they’re trading 2 or 3 lot options on the screen and we talk about an economy of scale where instead of doing that they say, “well, I can’t get a fill.” Yet, if you want to sell a thousand it is easier to get a fill. Can you kind of speak to that or how that affects it with you? Dave: Absolutely. There is a bid and offer for every market out there. Generally, it’s a certain range depending on how liquid the market is. We all see the parameters that the world is putting out on a screen. We, as traders in our pit, will generally, as a rule, be able to get inside that current bid or offer you see on the screen to make a tighter more liquid market, because if people in our pit are not trading 2’s or 3’s, they are equipped to trade 2 or 3 thousand. They are very well capitalized and they have management teams upstairs in the offices handling what they are doing in the pit. Any trade that is done in the pit, we’ll generally admittedly go up to the office and they’ll take it from there, and they’ll spread and hedge that off somewhere in the outside markets. Michael: Dave, just in closing, in your professional opinion, you’ve been on the floor since 1980? So, you’ve been on the floor a long time. Do you think there will remain a place for floor traders in the next 10-20 years or do you see it going electronic? Dave: That’s a long time, Michael. Let’s talk near-term. I think near-term there is certainly a place for us. The exchange has never stated they intend on doing anything but stay open. We provide a service, especially for the larger markets, and we expect to be there for many years to come. Michael: That’s good. James, I know you and I, we still rely on those floor traders and really think they can still give us an advantage. Wouldn’t you agree with that? James: It’s interesting, Michael, there are people probably trying to trade 2 and 3 lots. Like Dave mentioned a moment ago, we’re trying to trade 2 and 3 thousand lots. Wherever we can increase the volume and increase the liquidity, that’s something we’re always going to try and take advantage of. I know that when we’re selling options in the grains, Dave has probably brought more liquidity to the ability for us to do that than any other way to do it. We hope the floor stays around for a little bit longer, hopefully a lot longer, and we’ll transition if we have to, but right now we are glad to have you on the floor. Dave: Thank you. I’m glad to be there. Michael: Let’s hope he stays there. Well, everybody, thank you for tuning in to this month’s show. Just a reminder, if you’re interested in opening an account with us, we are fully booked for July and we are into our waiting list for August. If you are interested, feel free to call Rosemary. It’s 800-346-1949. She can get you schedule for our remaining consultations, which are still taking place in July. If you’re interested in learning more about our accounts first, you can request a discovery pack online at www.OptionSellers.com/Discovery. Have a great month of option selling. We will talk to you in 30 days. Thank you.

Michael: Hello everyone. This is Michael Gross of OptionSellers.com here with head trader, James Cordier. This is your monthly Option Seller TV Show. James, welcome to the program this month. James: Always a pleasure, Michael. Glad to be here. Michael: We have a lot to talk about this month. We have turmoil in Washington, we have some activity coming back to the VIX, and we have OPEC announcements, so there’s some volatility coming back into a lot of the markets. We’re going to talk to James about how that might affect some of the commodities we’re looking at. James, what’s your take on the new burst of volatility we’ve seen? James: Well, Michael, there is a lot of uncertainty right now. The stock market continues to meander and make new highs practically once a week, it seems, to get a new sell-off, and then buyers come back into the market. The VIX, which has been in the news recently, under 10, which I believe is about a 2 or 3 decade low, basically is saying that there’s no fear amongst investors, continue to pile into the stock market and continue to buy. The volatility index is just starting to pick up, however, in commodities. We’ve seen a dramatic move up in basically the energies and some of the metal VIX indexes, and it tells us that there is some ideas that some large moves in either the stocks or in the dollar denominated commodities might be approaching soon. Of course, we like the VIX going up – that increases premiums on both puts and calls that we follow. Michael: Now, is that spilling over from equities or anything going on in Washington, or is that happening on its own accord for different fundamentals going on in the commodities? James: I think a lot of investors are taking the cue from what’s happening from Washington and abroad. We have North Korea, we have a situation with Russia and the election, we have things going on in the Middle East right now along with Washington D.C. and a lot of the proposed changes are meeting some stone walling right now that’s going on. It is causing a lot of uncertainty and, of course, that’s something we enjoy following. Some investors don’t care for that very much but it’s certainly something that we like to see happening and it pumps up premiums on commodity options. Michael: Well, with that background setting for the month, let’s move into our first market. We are going to talk about the grain markets this month. June is a big month in U.S. agricultural markets. This is typically the month where planting is completed in markets like corn, soybeans, to a lesser extent wheat, cotton, and those type of things. When you look at seasonal factors, the end of planting season can play a big role in that. James, maybe you want to talk a little bit about what that often means for certain grain prices? James: Michael, a lot of our viewers and listeners here today hear us talk about seasonal factors. Corn and soybeans, a lot of people don’t realize, are practically everything that’s consumed. Whether it’s in China, Europe, or here in the United States, it comes from a kernel of corn or from a soybean. Practically everything we eat, dining out or cooking at home, that’s what takes place. Corn and soybeans are an absolute essential to the food system for practically everyone on the planet. It’s a huge market. The corn and soybean market basically has some type of fear or anxiety going into planting season. The planting season has to be just right or a lot of investors feel that we’re going to have smaller yields and possibly a smaller crop. Generally, it’s either too wet or too dry or too hot in May or June, and that does bid up prices often. Generally speaking, at the end of that rally and once the corn and soybeans are planted in the United States, of course, prices then come back down to earth and, lo and behold, the U.S. farmers are some of the best in the world and sometimes a bumper crop. (4:18) Michael: Now, when we talk about a market like soybeans, we didn’t really see that big run-up this year. We had relatively stable planting season and I think that kind of moves us toward what the fundamentals were this year. There’s a reason we didn’t really see a big run-up in the spring. Would you agree with that? James: We certainly haven’t seen that run-up yet. Right now, we have soybeans and corn planting just about on schedule. There was some ideas that there would be delays because of too much rain, but boy… too much rain makes a lot of grain later on this year. There still might be one or two rallies in June or July, possibly, there’s a dry spell in there somewhere. People are also talking about El Niño, which can certainly change weather patterns here in the United States. For the most part, the fundamentals are already in gear for low grain prices at the end of this year. Ending stocks, of course, are extremely high and production out of Brazil is at all-time record highs. So, if we get this weather rally sometimes in June or July, that would probably be a selling opportunity. Of course, for our clients, we are already short the grain market based on the fact that, like you said, the fundamentals right now are going to probably overwhelmed seasonal factors this year. I think we’re on the right side of that market. Michael: I know you were a proponent of selling calls this month. As far as ending stocks go, as you said, global ending stocks are “over 90 million metric tons”, which would be an all-time record for world ending stocks for the ‘16-‘17 crop year. When we’re going into this seasonal time of year where prices often start to weaken in the summer, as you were talking about, we’re going at with a backdrop of record global supplies. Even though prices have come down, I know you were very interested in selling call options on soybeans, not necessarily because you think the bottom’s going to fall out just because you think it’s going to have a hard time rallying in this type of environment. Is that correct? James: Exactly, Michael. Of course, as option sellers, we’re not exactly trying to predict where the market’s going to go but, of course, where it’s not going to go. With world ending stocks at all-time record highs, record production out of Brazil and Argentina, record production likely here in the United States. Do soybeans fall 5-10%? We’re not sure, but then going up 30%, of course, seems very unlikely. Of course, as option sellers, we are basically betting where the market is not going to go as opposed to where it has to. This year, with record ending stocks and just huge supplies from everywhere, a 30% rally in prices seems quite unlikely. Michael: Great. If you want to read James’ feature article on the soybean market for May it is on the blog. You can go back and take a look at that where he really outlines the case for selling calls this month. For those of you that would like to read more about seasonal tendencies and the agricultures or other commodities, you can also read about it in our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at OptionSellers.com/book. James, lets move into our second market this month, which is the crude oil market, which we’ve certainly seen a lot of developments there. A lot has been in the news about crude this month. There’s big talk of OPEC. In fact, today right before we came on camera, we just had a big announcement for OPEC. Do you want to talk a little bit about that and what’s going on there? James: Well, Michael, ever since you and I have been in this business there has been the old adage of buy the rumor and sell the fact. I think that happened in great text today as the OPEC nations and non-OPEC nations decided, and certainly have been discussing for a long time, to extend the production cuts that were announced approximately 6 months ago. They were going to now announce that there were going to be 9 months of further production cuts. Certainly, that has been well advertised. The market did rally on those ideas over the last few weeks. I think crude oil went up from around 48 to 52 recently based on the fact that they would be extending cuts. Today, the cuts were announced that 9 months would be prolonged into the smaller production of many OPEC and non-OPEC nations. The market answered that with a resounding $2 down and the price of oil went from 52-50. Basically, the world is awash in oil, and if the fact that production cuts are going to be extended, they weren’t really that bullish to begin with. Of course, what’s happening in the United States that we might want to talk about is really the deciding factor and what’s changing oil prices. Michael: I know, even going into these cuts, you weren’t really bullish on crude and that was because of the supply and the production situation in the United States. Is that correct? James: Correct. Going into the large announcement from OPEC and non-OPEC nations some 6 months ago, very few people are familiar with the fact that weeks leading up to the announcement, OPEC ramped up production to levels never seen before. Though they did cut for the first time in 10 years, or something like that, production just prior to that went up a million and a half barrels. So, cutting and announcing a 1.5 million barrel cut really doesn’t move the needle at all. Of course, here in the United States, mainly the Permian Basin in Texas, production is now ramping up into all-time record highs. If in fact the U.S. does start producing 10 million barrels a day, which is looking like it will happen late this year or early next year, that completely erases the cuts from OPEC, which were thought to be so bullish, and the bottom line is if we have one more barrel of oil than we need the prices go down. Right now, it looks like we’re going to have approximately 1-2 million barrels more per day than we need going into 2018. The real key is going to be can OPEC stay together, be cohesive with these cuts when prices start to fall in the 4th quarter of this year. They’re going to have to hang tough because if they start cheating, this thing can really snowball and come down. We don’t’ see that happening. There’s something going on in Saudi Arabia as far as their first IPO of the largest extent ever seen before, and they’re going to do everything they can to keep oil prices high. Michael: That in the backdrop of last energy report here this month, still looking at record supplies for this time of year in the states. I think were 528 million barrels or something like that, which is an all-time record for this time of year. All this news, they’ve really been playing up this OPEC deal in the media for the last couple of weeks. Yet, here we are with a backdrop of record supply. A good point you brought up as well in the newsletter was how U.S. frackers have really ramped up production. I think we’re at 9.3 and I think you said we’re headed to 10 here at the end of the year. You can see right where they made those cuts and you put a good chart in the newsletter of where U.S. production starts trekking up again, just making up for what OPEC wants to give away. James: Exactly right. It is an absolutely gift to the frackers here in the United States that OPEC and non-OPEC nations are cutting production. It’s keeping prices still relatively high, giving new developments here in the United States chances to lock-in hedges. We were reading in the Wall Street Journal today that no longer are producers in Texas and North Dakota and everywhere in between, they’re not so susceptible to the large moves in the price of oil. They’re getting very sophisticated. A lot of areas, especially in the south, they’re able to produce oil anywhere from $20-$25 a barrel, some as high as maybe $30-$35, but they are now locking in future production using the futures market. When you can produce oil for $25 and sell it for $50 and lock that in, that’s what they’re doing. They’re taking advantage of that. As prices do fall, possibly in the 4th quarter this year, they don’t feel any pain. They just keep pumping because they’re locked into futures price at $50 printing money basically. What that’s going to do is exasperate the overproduction and the large supplies, we think, and then we could look at some prices possibly in the low $40’s to $40 later this year. Michael: Now, one more thing to talk about here as far as the seasonal tendency goes. We talk a lot about seasonals. Seasonals have kind of been knocked a little bit out of whack since the OPEC announcement back in November, but you are thinking that with the latest OPEC moves, we might see that kind of knock the market back into alignment with the seasonal tendencies. James: We really see that happening. What OPEC will be likely be doing at the very least is coming close to balancing the market again. We’ve had this boom bust every 6 months for oil production and oil prices over the last 2 or 3 years. That did change with the last production cut announcement 6 months ago. We see a slight balancing of oil production versus consumption, and that should throw us right back into the seasonalities that we enjoy so much. We love going short crude oil just as we’re coming out of driving season going into what we call the shoulder season, which means no longer driving season and yet too warm to have to heat homes and businesses in the Northeast. That is shoulder season. The market rolls over in the 4th quarter of the year so we take advantage of selling calls here in the summer and then reverse that position later this year and beginning of next. Michael: So, although we are bearish crude, neutral to bearish, we are not positioning money that we need the market to necessarily fall. Let’s maybe talk about for our viewers that maybe aren’t that familiar with option selling yet how you would position to take advantage of this type of market. James: When we heard of the announcement 6 months ago, we thought that would probably neutralize both bullish and bearish factors. We have too much supply, however we have production cuts from OPEC. We immediately put on a strangle in the crude oil market. We did think that the seasonality would probably take a pause until the end of this year. We basically took the excitement by selling $75 calls, meaning we are betting the market can’t get to $75, at the same time putting on a strangle, and by doing that we sold $33 puts – an absolute enormous window for the market to stay inside. That position has worked extremely well. Both of those positions are approximately 20% of what we sold them for. We should now go back into a seasonal pattern where we top-out in summer. What we mean by that is if oil is trading around 50-51 currently, what we would do is look at the winter contracts, say January, February, March, and look to sell options there. If we sell a $70 call while price of oil is at $50, we are basically betting where the market won’t be. This winter, we do expect the smaller demand season of January-February to take hold of 40% rally in crude oil prices during the weakest season of the year. That’s a bet we like to make and with oil at 50 selling calls, for example, around 70, basically what you’re doing is you’re playing football. You’re not necessarily passing to where the runner is or the receiver is, you’re passing it to where you think the market is going to go. Everyone is bullish in the summer and that’s where you go short. What you do is you throw it to the receiver who is running in January when demand is going to be at its least. Michael: As far as the market goes, the bulls seem to be running out of arguments here. OPEC was a big thing a lot of them were hanging their hats on and that hasn’t taken place. Now we are into summer driving season, which they will probably be talking up a little more, but with the supply where it is right now, prices tend to actually top in early to mid summer. We are just betting it’s not going to go up. It seems like anything can happen, of course, but it certainly seems like pretty high odds position from that point of view. James: I think with what’s happened to the market here in the last 6 months, we will have some equilibrium. You have producers locking in hedges, you have smaller production, so these moves from 30 to 70 are probably behind us. Crude oil prices 40 to 55 are more likely going to be the norm here for the next few years. Selling puts and going long in the low 30’s, and selling calls in the mid to upper 70’s, I think, is going to be a cash cow the next several years. As you said, anything can happen. We will have to wait and see. Selling options 40% and 50% out-of-the-money in crude oil, I think, is going to be ideal. That market is going to start finding equilibrium and some sort of balance, and what we call historic volatility is still in when you price options. The new norm is going to be more of a $40-$50 price and the volatility that was created over the last several years allows us to sell options 40%-50% out-of-the-money. That’s why we talk about volatility. That is the life-blood of what we do. From time to time, whether it’s fear of turmoil in North Korea, something going on in the Middle East, that is ideal for us is something that pumps up energy price options and we like to take advantage of that. Michael: Hopefully the media keeps helping out with that and keeps public buying those distant option premiums. James: That’s the hope. Michael: For those of you that like to learn more about the crude oil market and our strategy there, it is our feature article in the June newsletter. That will be out at or around June 1st in your mailbox. Keep an eye out for that. Obviously, in addition to our outline for crude, we also have some lessons in there about how you can sell options and manage risk is our feature this month. So, there’s quite a bit of new information there. You don’t want to miss the June issue. James, lets move into our lesson this month. This is one we haven’t done on video yet, but it is one we have talked about in our booklets if you have received our booklets in the mail. A lot of people that call in will ask us, “How do you pick the option you’re going to sell?” It’s really a short question with a very long answer, but we thought what we could do is just provide a few bullet points that if you are looking at trying to understand how this is done, the type of things we look at when we’re selecting a trade in commodities. There is really 5 things that we look at, James, that you and I have discussed. We’ll just kind of go down that list and talk a little bit about each of them. The first one on that list is something we are very big on which is the supply-demand fundamentals of that individual commodity. Do you want to talk about how you approach that when you’re looking at a commodity? James: Michael, I think a great analogy is years ago when people were investing in dot-com companies and these are names that you’re seeing on TV, they’re names that people are talking about, and the market started falling and people are looking at dot-com companies… “My gosh, I can buy it at 50% of what the price was just a few months ago. It has got to be a great buy.” They buy XYZ dot-com company, it’s down 50% from its highs, it sounds like a great buy. Then it is down 75% from its high and people are just getting white-walled here back in the crash of 2006, 2007, and 2008. You ask that investor, “What are you getting beat up in?” … “Well, I bought this dot-com company.” “What do they make?”… Not sure. “What do they do?”… Not sure. It is very difficult to stay with a position like that. We do fundamental analysis on about 10 commodities. I’ve been trading silver since when I got my driver’s license. I’ve been trading coffee for the last 20 years. We count barrels of oil constantly to try and understand what the value might be. When selecting short options based on fundamentals, when the market moves a dollar against you or people are on TV yelling about OPEC announced the cut or the market is up or down, for an investment to work you have to have staying power. You can’t get bumped out of the market on a small move. So often, if you have fundamental research and analysis, you’ll know that when the market moves slightly against you it is just noise. Computerized trading is moving the markets a lot more than it used to. We love computerized trading, it’s making our options more liquid to trade, but it also does send gyrations through the market from time to time. Having the fundamental research already in place allows you to be patient with your position. We sell options based on fundamentals. If they are not there, or we’re not sure what they are, we simply wait 6 months for them to maybe become more clear in a particular market. We want to sell options far enough out in time and price so that small gyrations in the market doesn’t disturb our position. How often does someone who does look at selling options on commodities or stocks? They’re attracted to selling the short-term option, selling a 30-day option or a 60-day option thinking, “Well, I only have a short period of time. That’ll have to wait.” But what ends up happening is a small move knocks you out of that position. Of course, what happens once month later is that market’s doing exactly what you thought it would do, except you don’t have your option anymore. We look at selling options 6-12 months out. If we thought the sweet spot for short options was closer in than that, that’s what we would do, but I have found that selling options 6 months out-12 moths out allows you the selling power to stay in your position. We were based on fundamentals when the market goes slightly against us, we just aren’t able to have patience and let the market come to us. Michael: When you know the underlying fundamentals, it’s really giving you the confidence to stay in a position and not get shaken out by this or that or what’s on the news today, which, you know, we talk about over and over and over again in everything we do. James: Writing short options, you are one thing – you are paid to wait. If you know what the fundamentals are and if they’re on your side it makes it much easier to do that. Michael: When we’re looking at trade, we look at fundamentals first. Second thing we’re going to look at is seasonal factors, which we’ve already touched on a little bit here today with some of our other things, but seasonals kind of play into the fundamentals because they’re really just reflecting certain fundamentals that tend to happen at different times of year. James: Exactly right. With the grain market, seasonal factors are there’s fears of planting, too hot or too dry conditions in the summer, and then you go right back to supply and demand in the fall. What seasonals do is they are basically fundamentals. It tells you exactly when the demand might be the most for gasoline, when the demand for natural gas might be the least. What it does is it helps us decide whether we should be long or short that particular market. If you combine that with a supply and demand, basically you are putting everything in place to allow you to put on a position and to stay with it. Michael: So, those are going to be the 2 core factors we look at when selecting a market. Obviously, the third thing on the list is volume and open interest. We have to find a market that not only is seasonally or fundamentally favorable, but there has to be enough options in there for us to go in and sell some. If there isn’t sufficient volume rope and interest, it’s not a viable market, so that’s the third selection process. That’s kind of self-explanatory, you probably don’t need to expand on that I wouldn’t think. James: Just the algorithms and the computerized trading is just making option selling just such a pleasure right now. The volume and open interest is increasing dramatically, even on far-out options. Making sure that there’s the ability to get in and out of the market is, of course, of the utmost importance. With computerized trading it is certainly helping a lot. Michael: We are using those 3 things to really select our market. The last 2 things on the list we are using for timing. What you’ll find is the last 2 things on our list are usually the first things that most option books will tell you to look at, or option gurus or option traders. That’s volatility and the technical setup. Those are the last things we’re looking at because by the time we are looking at those we’ve already picked the markets we want to be in. we are just using those 2 things for our timing, correct? James: Exactly right, if you’re trading a 2 week or 4 week option, you do need to have perfect timing. We have done all of our homework basically telling us whether we want to be long or short a particular market. Once we’ve made that determination, we try to blend in a little bit of timing to help us sell options when they might be at their peak or close to it. The desire or the need to have perfect timing with our form of option selling isn’t there, but certainly when we can see some technical buying or selling it can increase options that we’re looking to sell maybe 10-15%. We will certainly take advantage of that when we can. Michael: For those of you that are interest in this, we do get a lot of questions on this so we are probably going to be doing some new upcoming videos on these things, how you can use them, how we incorporate them when we’re managing portfolios as well. You’ll kind of learn from both sides of that. As far as just a little update here for this month, our waiting list for accounts is booked into July now, so if you are interested in possibly working with us directly, you can call Rosemary to schedule a consultation and she is filling the final slots we have now for July openings. If you haven’t heard about our accounts yet and you’d like to learn a little bit more about them, you can request our Discovery Pack, which looks like this, and that will tell you all about OptionSellers.com managed accounts, requirements, and how you can get started in them. You can request that on our website OptionSellers.com/Discovery. We thank everyone for joining us this month. James, thanks for your analysis this month. James: My pleasure, Michael. Always enjoy it. Michael: We’ll look forward to talking to you again in 30 days. Thank you.

Michael: Hello, everyone. This is Michael Gross, Director of Research here at OptionSellers.com. I’m here with Head Trader, James Cordier, with your monthly Option Sellers Audio/Video Podcast. James, welcome to the show. James: Thank you, Michael. As always, it’s a pleasure. Michael: we are going to talk a little bit about what’s going on in the world right now and we are going to get into some of our key markets for this month. James, obviously anybody watching the news this month has had quite a bit to look at. We have North Korean missile test, we have Russian bombers flying over the Alaskan Coast, so there’s a lot of geo-political things going on in the world right now. It’s bringing a lot of instability into a lot of people’s thoughts about what may be going on over the next several months in the markets. The VIX and the S&P is up 24% in one week here in April as a result of a lot of this. So, just overall, what’s your take on the month of April as far as the markets go? James: It’s interesting, Michael. Over the last 6-8 years we’ve had very little of the news that we’re looking at recently. There’s a lot of muscle flexing going on by both Russia and the United States, and maybe China coming up soon. It does have Wall Street a little bit jittery. As you said, the VIX is up some 24% recently and, actually, I think the VIX was testing multi-year lows. So, it always seems that something comes down the pipe to give everyone jitters and I saw the stock markets sold off here recently on some of the concerns going on around the Middle East and throughout Syria and North Korea. I think that’s a necessity to keep traders on their toes and to make sure the stock market and other markets aren’t always on a one-way street. A lot of the traders like the hustle and bustle of the markets going up and down and I guess we do, too. Michael: Well, we’ll see what happens. I know there’s been a lot of articles as of late. Ron Insana of CNBC, they recently had an article on their website talking about the two things that most often start bear markets and one of them was rising interest rates and the other one was the onset of war. So, let’s hope we don’t have anything like that, but something to keep in mind as you’re planning your stock portfolio or stock option portfolio for the spring and summer months here. Over on this side, we’re going to get into some of the commodities that we feel may be offering some opportunity this month. First on our list is we’re going to talk about the natural gas market. Obviously energy markets is some of the most seasonal markets in commodities. Natural gas, during the month of May, can be a very seasonal commodity. James, you want to give your take on that right now and what you see happening there? James: Michael, thank you. It’s very interesting throughout the year of the 12 commodities we follow. There will be certain times, sometimes the 1st quarter and sometimes the 2nd quarter of the year, that a certain commodity has the propensity to go up or down based on seasonality. Natural gas is certainly one of those. Generally, natural gas prices will rally during the months of March, April, and May, and then we start building supplies for summer cooling needs. What a lot of people are not familiar with is the fact that to cool vs. to hear requires only 10% of the natural gas that it does during the winter months. So, quite often, natural gas has a rally going into spring and summer thinking, “Well, it might be a hot summer” and it turns out that natural gas usage to cool homes and businesses in the winter is like 10% of what it takes to heat homes and businesses in the winter. Subsequently, the rallies in spring and summer do falter. Supplies of natural gas coincide this year with the seasonality of the market falling. We’re approximately 16% here in the United States over the 5-year average. What’s so interesting right now, Michael, is areas like the Permian Basin, which has new drilling for oil, new production for oil, and a lot of people talk about energy that way. The Permian Basin has supplied new production records for the first 5 months of this year. That’s expected to continue. Natural gas production in the United States to pull a million BTUs cost approximately $1. We have natural gas prices trading around $3-$3.50 per million BTUs. That’s a whole lot of anchor pulling this market down when you can produce something for 1/3rd of what you can sell it for. That’s a lot of downward pressure. We think that natural gas at around $3.50 right now per million BTUs is probably fair value for this time of the year. Going on to summer and fall, we probably expect natural gas to tweak down to around $3, and for seasonality traders and for what we’re doing for our clients right now is we’re positioning for weaker natural gas prices for the fall and winter of this year. We are selling natural gas options, right now, double the price of the current value. This is one of our favorite seasonal plays for 2017. We just started walking into it recently and, I think, later this fall and winter, a lot of these natural gas calls that we’re selling will likely be worthless and should definitely add to one’s portfolio this year. Michael: James, that’s a good point. You’re talking about those contract months that are going a little bit further out and you’re already looking at winter 2017-2018. When we’re looking at the supplies right now, as you talked about, we are 14-16% above the 5 year average for natural gas supplies, and when you’re talking about the seasonal and you have a situation right now where this winter is over, supply is starting to build again. As the supplies start to build, obviously that means you have higher supply in storage that also coincides with lower prices because as supply rises price often goes down. So, what you’re saying is we’ll go to the back contract months and take advantage of what we expect to be lower summer prices. That doesn’t mean we’re going to be getting those options all the way to December or January. If we do get to that decline, we could get out of these quite a bit sooner. James: Exactly, Michael. A lot of our clients, and some of the people following us today, are very familiar with what we call the early buy-back. Generally speaking, if you are writing options in a portfolio, of course, if you have a portfolio with us you’re familiar with this, if you’re selling options for $700-$800 per contract and you see them trading 6 months later at $70-$80 per contract, that’s a perfect candidate for an early buy-back. We will very unlikely hold these options until they mature this December and January. Of course, they mature or expire, should I say, a month before they’re named. Odds probably in October or November, a lot of the options that we’re selling now will probably be worth 10% of their initial price-- very good candidates for early buy-backs. A lot of investors who sell options in their portfolio, they are talking about selling 60-90 day options. We feel that the sweet spot for selling options if further out than that. The small movements that happen in the market, technical buying, technical selling, if you sell too short period of time, these small moves can knock you out of your position. We don’t want a headline to knock us out of our position, and that’s why we sell further out in time and price. If the sweet spot for selling options was a tighter amount of days, like 30 or 60 days, that’s what we would do. We feel that the opportunities for very high probability option selling is further out in time. We’re paid to wait and that’s what we do. Patience is the name of the game. When you’re selling based on fundamentals, it gives you the patience to stay into a market. When you’re selling an option simply because, “Well, the decay is supposed to be the quickest between 60 and 90 days” and the market goes against you, you don’t know why you’re in that position and that makes it very difficult to have patience and the wherewithal to stay with a market. If you’re selling options based on fundamentals like this position would be, when the market goes against you a little bit, it allows you to hang onto the position. Quite often, they’re going to expire worthless. You need to be patient. As long as the fundamental is on your side, you don’t mind waiting. Michael: Okay. Let’s talk a little bit more about that buy-back. We were going to do this at the end, but since you got into it now let’s go ahead and talk about it now. It’s an important point a lot of people, when they’re first getting into selling options, especially commodity options, they’re thinking that same point you brought up—“Oh, I need to sell 30-60 days.” Obviously, we prefer to sell longer than that because, often times, you’ll get a primarily portion of that decay long before those options are every scheduled to expire. So, a question I often get is, “Well, how do you know when to buy it back? What level do you wait for before you buy it back?” That’s probably a good question for you to answer. What do you look for? James: Sure. Once an option has decayed 85-90%, the majority of that premium is pure risk. When you’re collecting $700, the option is trading at $70, you really need to do very little homework after that. You’ve collected 90% of the potential premium. Buying back an option with 90 or 100 days still remaining on it, we do this, as you know, quite often. If the option is trading at 60 or 70 and there’s 100 days left on it, that option’s going to sit at that price for a long time. At that point, you’re really not getting paid to keep that risk involved in your account by holding that position. 9 times out of 10 that option is going to go to zero. 9 times out of 10 it would have been an okay idea to hang onto it. When managing portfolios, the risk/reward is always what you base all of your ideas on. You’ve collected 90% of the premium, you no longer have to watch the weather, you don’t have to watch the supplies, you don’t have to look at the calendar, you just need to place the order and buy the option back. Michael: Yeah, that’s a good question. Before the show here today we actually had a client visit. One of the things he was asking was, he was looking at his account saying, “Boy, I see we have a lot of expirations scheduled for September, October, November. Will it be then I can expect to realize the profits on these options?” That was the exact point I was explaining to him- no, not necessarily. You could be taking profits on these things in June, July, August if everything is going well. That was a point, especially if you’re new to commodities option selling or option selling in general, it’s a big point to realize- we’re not always holding these things to expiration. In fact, most of the time, you probably can buy them back early and cut that risk and put that capital into a different investment. If you’d like to learn more about the early buy-backs and looking at the fundamentals in some of these markets, the best resource we can recommend is our book, The Complete Guide to Option Selling: Third Edition. You can get it on our website at a little bit less than you’re going to pay at a bookstore or on Amazon. The link is www.optionsellers.com/book if you’d like to get your copy there. James, let’s move into our second market for this month. One of your all-time favorite markets: the coffee market. Right now, we’re at a key point in time where we’re right ahead of the Brazilian harvest. That can bring a very interesting seasonal into play, one that option sellers can use to their advantage. James, you want to give the overall synopsis of that market right now? James: Certainly, Michael. In 2016, parts of Brazilian’s coffee belt did experience extremely dry conditions and here’s where you need to do your homework just a little bit. Brazil is basically just a ginormous farm, whether it’s cocoa or soybeans or coffee or sugar, basically that’s what the Brazilian nation is made of. The coffee belt is enormous. In 2016, there were dry conditions in a lot of the coffee growing regions. It was primarily in the Robusta region of Brazil. We trade primarily Arabica coffee. The Arabica crop was doing extremely well last year, but all you heard about was the driest conditions in 15 years in Brazil. It primarily was hurting the Robusta crop. The Arabica crop did receive plenty of rain. That volatility and that news headlines that coffee was getting last year pumped up, especially coffee calls, giving it historic volatility that will now create extremely expensive coffee options this year, next year, and probably 3-4 years out. Believe it or not, it does hang on that long. This year, 2017-2018 crop, is the off-cycle year; however, Brazil is expected to produce nearly 50 million bags of coffee this year. Next year, the on-cycle for production would be approximately 60 million bags. This type of production doesn’t mean that coffee will never rise in price. Sometimes it will fall and sometimes it will go up. This prevents the really large move in a certain direction. When you’re able to make coffee beans to that extent, to kind of give you a focus idea, not that long ago Columbia was the largest producer of coffee, producing 10 or 20 million bags of coffee. Everyone counted on Columbian beans to supply the world. Brazil is now making 50 and 60 million bags of coffee. This year’s expected to be an off-cycle crop record year. Next year will likely be a record production year in Brazilian coffee. That is production that we see coming down the pike. How are supplies now? In the United States, it was just broadcast this past Monday that coffee supplies in the United States are at the largest level since they’ve been counting coffee beans starting in 2002. So, supplies here in the United States are at all-time highs. Production in the next 2-3 years is expected to be a record. Seasonality for coffee, as it normally rallies in April or May, the Brazilian starts in earnest in June, July, and August, these coffee beans then are looking for a home. That’s when prices tend to fall. Coffee recently has rallied up to 140-145 level. Selling coffee calls for late this year, beginning of next year, is just a sweet spot and an ideal candidate for option selling going forward for this year. The natural gas looks like a very good opportunity. Coffee is just a great way to diversify your account. We really love the aspects for coffee to be having probably an overabundance supply over the next year or two. We’ll be looking at selling coffee calls this year and next. Generally, you sell them in March and April and the market starts to fall as Brazilian products come in June and July. This year looks like it’s a good setup, as well. Michael: James, we’ve already had a pretty good downward move in coffee and I know you’ve been selling these most of the month. One thing I noticed is even with that downward move in prices, that volatility that we got from the drought you talked about back in the fall, that’s still in the market. So, you can see, even though you’ve had a downward move in prices, you can still sell coffee calls so much further above the market. That’s just the added value of that volatility that’s still working in there. James: The volatility is something, as we were discussing earlier, the VIX on Wall Street rallied some 24%. Volatility allows someone who maybe has missed a position or I missed a buy or I missed a sell on options, or basically anything else. On commodity options, that volatility allows the person who did get in on the low and the market’s rallying, you still have time to sell puts. A market that’s falling and you didn’t get in on the sell on gold calls or coffee calls or whatever it happened to be, that volatility allows you to not have to be in on the high or low day. The volatility still stays there and really gives the person the ability to take their fundamental analysis, put the position on even though you didn’t catch the low, you didn’t catch the high. The coffee market did weaken recently, just like we expected it to. We think that selling calls in coffee on subsequent rallies is still going to be a very good idea. Michael: So, the market’s over sold right now and we get a little bump, that might be an opportunity for some people that are watching this that might want to look to enter. That might be a good opportunity for doing that. James: We’ve been selling coffee calls with both hands here recently and it did just slide over the last week or so. The months of May usually has some up-turns in coffee, so we’re not expecting that coffee is going to be down and out for the rest of the year. We would expect some higher priced days in the coming month of May. We will be looking at that to add into our short position in coffee, yes. Michael: So, much like in the grain market, as the harvest begins supply start to rise and as supply rises that often contributes to an overall lower gravitational pull of prices. That’s what James is talking about taking advantage of here. If you would like to learn more about this trade and the coffee market, you can look at our blog post on coffee that was posted earlier this month. That is available on the blog. If you’re interested in learning more about the natural gas market, that is going to be the feature in our upcoming May Newsletter. You can certainly take a look at that. That should be in your mailbox and e-mail box somewhere on or around May 1st. Keep a look out for that. We also have a good feature in there this month on proper diversification and some of the best ways high-net-worth investors can use to diversify into alternative investments. Keep an eye out for that. James, I believe we’ve covered the topics we wanted to cover this month. For those of you who are interested in a potential managed portfolio with our firm, we do have no openings left available in May. We do have a handful still remaining for June, so if you’re interested in one of those remaining openings in June feel free to call the office this month. You can call Rosemary at 800-346-1949. She will schedule you a free consultation. Those will take place during the month of May for June openings, so if you’re interested in that please feel free to give her a call. James, any last words on the markets this month? James: Diversification really seems to be the word of the year right now. So many investors that seek our guidance and seek accounts with us, that is the word that everyone is using. No one is really quite sure what’s going to happen with the stock market or the economy, for that matter, and diversifying away from stocks is something, I think, a lot of investors are doing. We’re not sure if this economy is a 4% economy or a 1% economy. Lately, it’s going to be the latter, and it’s interesting to see how the stock market’s going to continue its ascent while that’s the case if the economy is slowing. Maybe demand for stocks and certain real estate and such might be waning. This is certainly a sweet spot for us and we certainly enjoy what a lot of investors are seeking right now. Michael: Well, it should be an interesting summer for stocks. Here in commodities, though, I think it’s business as usual and I think we’ll just keep doing what we are doing. Well, everybody, we’ve appreciated you watching this month and we will be back in 30 days. Have a great month of premium collection. We will talk to you in June.

Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I’m here with head trader James Cordier of OptionSellers.com with your February Option Seller Radio Show. James, welcome to the show this month. James: Thank you, Michael. As always, enjoy doing these and brining more and more information and educating investors out there to what we do. Michael: Excellent. We’re going to start off this month, to all of you listening, we’re going to answer some common questions we get through the blog or online. One of the most common questions people ask us is “I really like your stuff. Is there a way I can sign up for your course? Do you offer seminars I can attend? If I pay you, can you coach me how to do this?” … or various forms of that question. We get so many of those and we wanted to answer that question today and maybe shed some light on that for you as a listener. James, do you want to go ahead and maybe take a stab at answering that? James: You know, what’s interesting, Michael, we definitely enjoy getting feedback from everyone listening to this podcast each month. Please continue asking questions and any feedback is always accepted and we enjoy receiving that. Primarily, we don’t mind and enjoy educating the public. So often, investors are looking for alternative ways to take care of their nest egg or try and build the one that they’re trying to create. Basically, there’s a few investments out there. There’s being long in the stock market, there’s buying real estate, and as long as both of those are going up I think they’re very sound, great investments. But for people looking out 5, 10, and 15 years to expect everything to keep rallying indefinitely certainly is not the way. Educating yourself as to how to help manage your own portfolio, I think, is a great idea. We continue to give information and help teach people how to sell options and take in premium and, hopefully, make really good returns each year whether we’re in a bull or bear market. However, the majority of our clients and the most of the work that we enjoy doing is taking and investing with high-net-worth capitalized investors. That is our niche. That is what we do. The fact that we are a relatively small company and we don’t have thousands of clients, we’re able to be more nimble getting in and out of the market for some of these high-net-worth investors. As far as anyone wanting to follow along with what we do, educate themselves to selling options and taking in premium as we do, we’re going to continue educating people and allow them to do that on their own, if they wish. For the investors who are more apt to hire a manager to do it, certainly, that is our bread and butter and that’s what we’re doing here. Michael: It’s a good point, James. To shorten what James said a little bit and maybe sum it up a little bit is yeah, we do appreciate those offers and we do appreciate your questions, but we’re not in the education business here. We are money managers. That is the service we provide. We do provide a lot of educational material to anyone, the general public. We like to make it as high quality as we can. I think some of the things you’ll find on our website or that we send out to prospective investors is comparable to what you might pay thousands for in a course somewhere. That is something we provide for free. We enjoy that, we enjoy brining that message to the public and helping people understand this investment, because there really isn’t a lot of information out there on selling options in general but, especially, selling options in commodities. We’re simply out to help people understand that better and get more people involved in this because it can be a great investment if you understand how to do it. James, let’s move on a little into our main discussion here this month. We’re going to address what’s going on in the stock market because all investor’s eyes are on stocks now. They’ve been soaring. Some people are calling it still a post-Trump surge, but we’ve got some grayer clouds on the horizon. We’ve got North Korea and Iran shooting missiles off, we’ve got a lot of discord here in the United States. What’s your take on what’s going on right now in stocks? How do you feel about the market? James: Michael, I think that a lot of investors have just been waiting for the greatest country in the world to be run like a company and not like a politically correct viewpoint. Lowering corporate taxes, bringing money back to the United States, lowering personal income taxes, de-regulation, making it easier for companies to hire and re-invest, and it’s simply a near perfect platform right now for economic growth here in the United States. If you look at some of the European countries, they are starting to finally lift off. PMI numbers today out of Europe was some of the best in over a handful of years. We are certainly the boat that everyone follows. As the tide comes up, it comes up for everybody. People are extremely optimistic about the U.S. economy right now. Usually, the stock market is 6-12 months ahead and right now the stock market is telling us that the U.S. economy is about to start improving more than a 2% GDP… maybe a 3-4% GDP. So many people have been waiting for an economically friendly environment. Right now we have one and people are voting with their pocketbook. Michael: So, are you concerned at all about the lofty levels that we’re at? On Barron’s last week, Kopin Tan was talking about 76% of world stock markets are now over-bought. Does that concern you at all? James: You know, it’s interesting, Michael, overbought doesn’t mean over. I could see this exuberance probably lasting for a period of time. Right now, investors, I think, are so excited about getting into the market. Will profits match the soaring stock prices? That remains to be seen. There definitely needs to be some catch up. The market is either ahead of itself or very close to that; however, I think investors have been waiting for this for a long time. I could see 2017 probably being a decent return on the stock market, but there is no question that second or third quarter of this year a few people start taking profits and then all of the sudden there’s no one left to buy. For us to get a 5-10% correction on the stock market at some point this year is probably quite likely. Michael: Thus the need for sound diversification and that’s what we’re going to be talking about next here. James, we’re going to talk about one of your favorite markets next which is the gold market. You have a nice commentary this month on your bi-weekly videos where you’re talking about gold and a strategy investors can use right now in that market. Let’s talk a little bit about gold, what you like about it right now, and why you think that’s such a cash cow for investors. James: It really is. We have been following the gold market for a couple decades. It seems to be such a mystery as to what the value of gold should be. Sometimes it trades like a currency, sometimes it’s flocking to gold because of inflation or because of political concerns. It is absolutely, in our opinion, trading right now at fair value and yet there are so many questions about gold. “What will higher interest rates in the United States do? Will that push gold back down? I heard that there might be some inflation”, an investor might say. “That’s usually bullish for gold.” Talk about a goldilocks environment right now for gold. We have a stronger U.S. economy, which should provide some inflation, and yet we are definitely, in the United States, looking straight at at least 2, if not 3, interest rate hikes. That should keep the dollar firm. So we have people just absolutely wondering how high gold might go and you have an equal number of people saying, “With higher interest rates, gold is going to go down.” That uncertainty is the bread and butter of selling options. Gold right now, trading around $12.50 an ounce, there are people very interested in buying calls 50% above the market right now. Similar interest in people buying puts, believe it or not, 30-40% below the market. If you add up those two percentages, you’re talking about practically 100% strangle around the value of gold and, in my mind, trading gold now for some 25 years, that is about the best trade on the board. We think that’s going to probably carry on into 2018, as well. We’re just really happy about the enthusiasm that people have buying options on both sides and we’re going to take advantage of that. Michael: So, a lot of this political turmoil in the news right now is really helping that trade is what you’re saying, because that’s really bringing the public in. Gold is a great market to speculate in for the general public. When you get news of things that make people uneasy, when you see Iran shooting off missiles, when you get the daily news, people don’t agree with what Donald Trump’s doing sometimes, those are the type of things that can bring a lot of investor interest into a market like gold, and that’s why you get these wide strikes. That’s what James is explaining. If you’d like to learn more about the strategy of strangling the market, The Complete Guide to Option Selling gives a thorough explanation. That is the Third Edition. You can get that on our website- www.optionsellers.com/book. You’ll get it at a little bit of a discount there than if you get it at the bookstore or at amazon. James, let’s move on here to our next market this month, that’s the natural gas market. As most of you listeners know, we due follow seasonals very closely here. If you’re trading options in commodities, seasonals are a prime thing you want to look at first, especially in cyclical markets like natural gas. James, you want to take us through where we are with natural gas here in late February 2017 and what tends to happen there cyclically in that market over the next 30-60 days? James: Michael, natural gas is probably the most interesting of all the seasonals, I think, that we follow. Generally speaking, the investor public comes into natural gas to buy it for possible cold winter, they buy natural gas and natural gas calls in November and December. For those who are our clients or listen to some of the recommendations we made, generally speaking, you do the exact opposite. You fade what the public is doing. They’re buying calls, they’re buying natural gas going into winter season. We did that again this year. We saw about a 1 cent spike in natural gas prices. Natural gas generally tops out in December with cold temperatures going through the Northeast and the Midwest, only to come back down in February and March as the winter never seems to be quite as severe as they thought. Then, investors will think, “Well, if the market didn’t rally in this winter then it’s probably going to go down some more in the spring.” That’s just the opposite of what the seasonality is. Generally speaking, supplies of natural gas are their smallest as we come out of the winter heating season, then they start to build supplies and purchases need to be made and natural gas prices normally start heading up in March, April, and May. That is what we’re going to take advantage of the next week or two, is we will be selling put premium below the natural gas levels that we’re hitting right now. We’ve had an extremely mild February, probably March as well. We’re looking at very low prices right now for natural gas and we see the chance for 10, 15, 20% rally in prices starting in March and April. We’re going to be positioning in the coming weeks getting long this market. Seasonally it goes up in spring and we’re going to try and take advantage of just that. Michael: What’s the volatility like there now? Can you sell spreads there or is it primarily naked positions that you’re looking at? James: Well, natural gas used to trade at $10, $12, and $15 per million BTU’s. Now it’s trading around $2.50. It’s so interesting that this is probably the fuel of the future and right now it’s practically being given away. We would be selling naked natural gas puts primarily because the market is so low right now. If the volatility continues, and it has just recently, we’ll be looking at doing credit spreads on the put side, as well. So, basically taking a slightly conservative position and a slightly aggressive position because the market is so weak and so low right now. We’re looking at China’s involvement in natural gas imports for the first time since anyone can recall. At the same time, the U.S. is going to be exporting natural gas for the first time in decades. All of these items are going to be slightly bullish or very bullish for natural gas later this year. We think that’s probably the best seasonal to be getting involved with right now. Michael: Right now, in talking about natural gas, James, about 48% of all U.S. homes use natural gas for heating in the wintertime. Another 37% use electric, which usually comes from power pants fueled by natural gas. So, you do have your peak demand season in the wintertime and what James was just describing is, and we’re going to put a chart up here for you to look at, but gas storage levels tend to hit their lowest levels of the year in March and April. That’s the reason for this. When supplies are lowest, prices tend to get the strongest and they continue to get strong as they rebuild inventory. James, what you were talking about though, selling naked, some people that sell options, some in stock options, they shy away from that; but, in commodities we’re able to sell them so far out-of-the-money that you get a pretty big cushion there and you don’t really have to pick the bottom in the market. You simply sell and even if your timing isn’t right you can still get it. Do you see, if you’re looking at selling naked, what’s your cushion like? Do you still have a pretty good cushion there to give you some leeway if you’re a little early or a little late on the trade? James: Yeah, I think there’s a really good cushion and natural gas is probably one of the more historically volatile markets. When it was trading at $10 and $15, that volatility is still in the market, now it’s trading at $2.50-$2.75. For the spot contracts, we would be looking out September, October, possibly that far out. Those markets are well above $3.00 right now. Might be teetering on that in the week or so to come; however, some 20-25% below the market there’s excellent premium right now. That’s what we’d be looking at taking advantage of. If the market heads a little bit lower, probably selling premium 25-30% below the market. We think that’s an ideal way to get long the market. Natural gas, if you were to buy it at a certain level and fall slightly, that’s one thing. Selling puts some 25% below the market, I think, is an ideal way-- Actually, in my opinion, a conservative way to get into the market. Natural gas over the next several years is going to be in an up-turn based on Chinese demand, Chinese importation, and finally the U.S. getting to export natural gas for the first time in quite some time. Michael: That and even supply right now looking somewhat bullish in natural gas. Supplies this month are 9% below last year at this time… almost 9% below at 8.9%. So, you have a strong seasonal tendency, you have a bullish supply setup, and what you’re saying, James, is you’re able to go 25-30% underneath the market. For an option seller/a put seller to win here, he can take in a premium of what, $500.. $600.. $700? Is that the range you’re typically looking at? Correct? James: Yes. With the recent weakness in natural gas because of some very warm temperatures in the Northeast, yes a lot of options are trading right now between $600-$700 and that is certainly the sweet spot for where we like to write puts, especially in natural gas. Michael: So, what that investor would be saying is that as long as natural gas doesn’t fall another 25-30% at its most bullish time of year with a bullish supply setup, the option is going to expire and he’s going to keep that premium? James: Exactly. In addition, a lot of investors who are familiar with stock options selling and the high margin requirement, natural gas you’re looking at just 2-3 times the premium that you take in for margins. Your ROI looks really good, as well. Needless to say, we don’t know what natural gas is going to do the next 30 days, but we do know what the fundamentals are and the chance for natural gas to get a small or large rally this summer look quite strong to us. Michael: Sounds good, James. For you listeners, I know a lot of you listening have heard us for a while and you know what we’re talking about, you know the strategy, but we are making an attempt to over-simplify things a little bit for our new listeners out there that may be unfamiliar with how commodities options work. So, we want to make sure we hit all the bases for everyone listening. We’re going to take just a minute here and give you a little preview of the upcoming March newsletter. If you are on our mailing list, you can expect this next week first couple days of March. You should also be getting an e-version of that in your e-mail box. We have a pretty full issue coming up. We have a lesson coming up on how to use leverage in commodities. We have a lot of stock options sellers that have never sold commodities options. This is a lesson in the newsletter that’s really going to bring you up to speed on how the leverage works and how to use it to your advantage the correct way. We also have a strategy, it’s another little bit more advanced strategy this month- we’re talking about an options spread. It’s entitled The Crack Squeeze. It is in the energy markets. We’ll have to wait for the newsletter to read that and see one of the strategies we’re employing right now in those markets. Look for that in your mailbox or e-mailbox first week in March. James, talking about energies, let’s move over to the crude market. We have a really interesting situation setting up there between the seasonal and existing fundamentals that often times you don’t see, kind of conflicting things going on there right now. Do you want to talk about that a little bit for our listeners? James: Definitely. Crude oil is certainly one of the most liquid of all commodities as far as volume, open interest, and participation by investors all around. Not everyone is trading pork bellies and potatoes, but a lot of people know what the price of crude oil is. A lot of people bet with their pocketbooks what they think it’s going to do. Generally speaking, crude oil supplies are at their greatest in January and the market starts to rally as we approach driving season. As I think we all know, this year was different. OPEC together, along with non-OPEC nations, put together the first production cuts in over a dozen years and voila, we had a $15 rally. Crude oil is now sitting in the low 50’s to mid 50’s for the later months. I think right now is fully priced. Crude oil supplies in the United States are at all-time record highs. While the OPEC cut took a lot of people by surprise, and there are a lot of bullish factors right now from that, or at least a lot of analysts think so, it really is offering lots of opportunities now and coming up probably in April and May. Generally speaking, there’s a lot of interplay when you talk about energies. Generally speaking, what crude oil supplies and fundamentals might be might be different for heating oil or for gasoline or for natural gas. Probably the next 30-60 days we see crude oil prices very well supported by the idea that a lot of investors are pouring into that market because of OPEC production cuts. Some of the markets like heating oil generally are going to start heading lower after the winter season. So, often you’re going to see March, April, and May crude oil prices inching up while heating oil actually is falling. There is definitely an opportunity involved with that. For our clients, we manage that for them. For the novices, it can be a little bit much, but that’s another reason why you follow seasonality and why you keep well tuned into the market. We think that over the next 60-90 days we’re going to have really long lasting opportunities in energy. I would say in April and May is going to be the biggest one for the year, and that’s in the crude oil market. We’ll wait and see and talk about that when the time comes. Michael: As far as the energy seasonal goes, that is a major seasonal tendency. What James is explaining is being counter-balanced this year by fundamentals. As you mentioned, James, crude stocks at record highs… over 508 million barrels. That’s an all-time high for crude oil stocks, not for this time of year, but forever. That’s the highest it’s ever been. Also, interesting article in the Wall Street Journal today talking about bullish long positions in crude oil. 10 to 1 – is that what we were talking about earlier, James? James: Michael, every morning I have my favorite cup of Joe and I read the Wall Street Journal. This morning I read, and it has been well published recently, but today almost hit a crescendo, that fund traders in the world have amassed the largest long position ever in crude oil. It trumps their short position 10 to 1. That, in my opinion, is the most lop-sided position I’ve ever seen, especially in something as liquid as crude oil. While these speculators have time on their side right now, the months of March, April, and May are generally good demand for oil and smaller inter-production coming out of OPEC. That is definitely a wall that could come crumbling down. I would not want to be the last person to buy in that market and be holding on the last day because for crude oil to trade around $55 a barrel when in the United States, for example Texas, we can produce crude oil for around $15. You know that in many CEO offices right now and on napkins having a cocktail late at night in a bar there are business positions being put together where we’re going to produce oil at $15 and we’re going to sell it on the board of $55. There’s going to be an opportunity probably in April or May to take advantage of what the speculators have pushed up to probably over-valued heights right now. Michael: So, that big long position like that, sooner or later, that’s going to have to be unwound. We’ll see how that plays out. For the time being, you still have that strong seasonal in place that has to be respected, so you may have a little bit of balance there in the near term. That being the case, we have outlined a strategy in the upcoming newsletter called The Crack Squeeze. We’ll show you how you can take advantage of that. The premium available in that market right now, that’s a trade for now and the coming 30-60 days we have one of your favorite trades coming up, James, but we’ll save that for next month. For those of you that are interested in learning more about working directly with us through an account for high-net-worth investors, you can request our investor information discovery pack. You can get that at OptionSellers.com/Discovery. We do have a recommended $1 million account size. If you are interested in something like that, feel free to request our information package. It does come with a DVD. James, let’s move into our final portion of the podcast this month. This is our lesson for investors. We’re going to talk about diversification of asset class this month. In our videos, we talk about two important types of diversification. One is diversification of strategy, which some investors are not familiar with. Then, there’s diversification of asset class, which some investors are familiar with; however, our commodities often are overlooked when it comes to that diversification. We’re going to talk about this month some of the advantages, especially for stock options sellers, who are used to writing options in stocks, you understand how that strategy works, some of the big advantages you have by applying that strategy to commodities. James, maybe you want to cover this first. There’s plenty, there’s a couple right at the top though of most interest. What would you consider the top advantage of a commodities option writer over a stock option writer? James: Well, you know, stock option writers are a lot of our current clients. They eventually were introduced to short options through their stock account writing covered calls and such. A lot of investors started thinking, “Well, why don’t I sell options on stocks? That seems to be my best portfolio gains.” Generally speaking, selling options on stocks you’re selling approximately 5%, sometimes 10%, out-of-the-money, where in commodities when you educate the different ideas of applying short options to different asset classes, investors are absolutely amazed by the fact that you can sell premium 50%, 60%, 70% out-of-the-money. In some of the markets that we sell premiums it’s as high as 100% out-of-the-money with relatively low margin requirements to do so. A lot of investors that study for themselves what to do with their investment and what to do with their nest egg who discover short options, when they stumble across selling options on commodities certainly that is when our phone starts ringing. I think for the fact that we put ourselves out as the premier stock options sellers, rather commodity option sellers, it’s certainly an eye-opener to a lot of people who want to be diversified. Diversification is always the number one goal for a sound investment portfolio. The fact that the stock market right now is in a bull market, it’s at all time highs. At any moment, it can start a 5 year bear market and selling options on commodities allows you to be profitable in bull or bear markets. That’s what’s the real beauty of what we do. Michael: These don’t just come from us. A lot of these come from our readers/prospective clients that repeat this and these are the reasons we hear the most. That’s why we’re repeating them here. As James was saying, the biggest advantages here is, one, you can sell deep, deep out-of-the-money strikes. Two, you get a potentially high RI because the margins are so much lower than they are for stock options. I know the margins, most of the time, we pay are sometimes 100-150% of the premium. So, you sell an option for $700 and maybe you only put up $700 or $1,000 in margin to hold that. Is that what you’re seeing right now, James, in this condition? James: That’s exactly what we have right now. We have some of the lowest margins to hold short options on commodities that I’ve seen since I’ve been doing this. Not all of them are that way, but some of the most lucrative ones like the gold option strangle that we’re doing and the crude oil trade position that’s coming up. I’m looking at that already trying to get our ducks in a row for that. You’re looking at about 150% of the premium that you take in is what’s required for margin. That is really not tying up a lot of money to hopefully have very good results at the end of the year. Michael: We’re talking about selling deep out-of-the-money. That natural gas trade you described earlier, we’re talking about selling 25-30% out-of-the-money. That’s probably about the closest we’ll be to the money when selling options. Would you say that’s a fair assessment? James: Generally so. Any time someone is selling options on commodities on their own or with us, you’ll notice that the calls are always or most often can be further out-of-the-money for a simple reason. A market can only go to zero, it can’t go below that. When natural gas, which used to trade at $10, $15 per million BTU’s, is trading with a two-handle it can only go so low. The fact that we’re 25% below this market currently, I think, that’s way out-of-the-money. If the market inches a little bit lower, we’ll just continue to sell puts on that market. Often, we’re looking at puts some 40-50% below the money. The fact that natural gas is so cheap right now and the fundamentals look anywhere from friendly to bullish later this year, we think that’s selling them quite a bit out-of-the-money. We think that’s going to be a great position for later this year. Michael: Of course, one more thing I want to point out… you mentioned a diversification aspect. Commodities in general tend to be uncorrelated to stocks as a whole, but when you introduce the option selling aspect to it it’s a portfolio that’s completely uncorrelated to anything. It’s not going to correlate to equity, it’s not going to correlate to interest rates, the positions aren’t even going to correlate to each other because a market like silver’s going to have nothing to do with the price of corn and the price of corn will have nothing to do with the price of coffee. So, it’s a completely diversified portfolio that isn’t even going to correlate to the commodities indexes. That’s simply because you have the ability to sell options on either side of it. Those would be the three big benefits for you stock option sellers listening. You’re thinking about giving it a try, giving it a look. Those are the three biggest draws to this type of investment. Of course, they’re described in depth in our book or any of our materials on our website. James, I think we’ve had a pretty full session this month and I do thank you for your insights and your sharing of some of your thoughts on the markets this month. James: My pleasure. Talking about commodities and, not only that, but the approach of selling options on commodities is definitely an eye-opener to many investors and we look forward to doing more so in the future. Michael: Just an announcement here at the end of our podcast, for those of you considering applying for new accounts, we are closed for March. We are fully booked for March. If you are interested in one of our remaining April openings, please contact Rosemary. You can call her at the 800 number… 800-346-1949. You can also, if you’re an international caller, 813-472-5760. You can also e-mail her at office@optionsellers.com. That is to schedule a phone consultation. We do have a few of those left for March and they would be for April openings. Feel free to give her a call if you are interested in discussing one of those remaining openings in April. Everybody have a great month of option selling. We’ll be back here in March and we’ll talk to you then. Thank you.

Michael: Hello everyone. Welcome to the April edition of the OptionSellers.com Podcast. This podcast will be both video and audio podcast. This is our first video podcast. James, welcome to the podcast. James: Thank you, Michael. Very excited about doing both video and audio – get our mugs out there! Michael: I think first on the agenda this month is what we have going on in the stock market right now. Is this going to be the long awaited correction everybody’s been awaiting or is this just a little blip? What do you think? James: It’s interesting, Michael, the stock market has just been on a historic tear here ever since the election – and with good reason. If we have deregulation and we have a lot of pro-business ideas coming out of Washington along with a U.S. economy that’s doing fairly well right now, a lot of investors have been pouring into the stock market. We had the first shot across the bow, of course, with the healthcare issue being quite a bit of a swing and a miss for Mr. Trump this past week. A lot of investors right now are thinking, “Well, if we can’t get that passed maybe the deregulation and lower taxes and interest rate help may not be as much of a slam dunk as a lot of investors thought.” This could finally be the catalyst for the long-awaited 5-10% correction in the stock market. Everyone was absolutely factoring in the best-case scenario. Now, Washington D.C. quite isn’t as put together as people thought. The whole idea of a strong U.S. economy along with a very business-friendly administration, some of that’s being taken off the table right now. I wouldn’t be surprised that a lot of investors do take some chips off the table. Some of the largest investors in the world right now have thought about that and Goldman Sachs and large banks like that are talking about making their position smaller. That tells me maybe the long awaited correction probably in the 2nd quarter this year might not be such a big surprise after all. Michael: Yeah, I’ve noticed a lot of the news channels are still bullish, they’re still cheering it on, but you can’t underestimate that public sentiment. If it starts to go, everybody’s pricing in this big economic boom. If that doesn’t happen, you can’t underestimate what that can do to prices, as we’ve seen in commodities, as well. James: Absolutely. We start getting just a little more selling than buying. We keep buying the dips, buying the dips, buying the dips, and one of these times we’re going to cross a certain moving average that’s going to cause the computer to do some selling. Then all of a sudden, everyone’s racing for the door. The stock market’s not going to collapse. We’re not going to have an epic fall of 20-30%, but this long awaited correction that gets people to re-think their investment, that’s overdue. I think we could see that happen in maybe April or May. Michael: All right, well, lets talk about some ways people can get diversified, obviously what we specialize in. This month we’re going to talk about the cotton market. Some things are starting to take place there. It’s been on a pretty good bull market here for the last year or so. We’ve had lower supplies and cotton has just been gradually trending up. You and I have been talking about this over the last several weeks about we could be seeing a shift here, we think there’s some opportunities for selling premium. Talk a little bit about it. What do you see happening here? James: Generally, the ten commodities that we follow will have a spurt of buying from an importing nation and then will have a spurt of selling from producers that have an abundance of whatever the commodity is. What’s happened this past 12 months is we’ve seen Chinese imports have gone up dramatically over the 5-year average. That, of course, rallies the market. Cotton right now is at practically a 1-2 year highs. What’s so interesting, Michael, is that a lot of investors will hear that the Chinese consumption last year was up like it was and they’re going to pile in on this long position. I know we were talking a little while ago about the SPEC position in cotton. It’s at near all-time highs. It’s basically the herd driving into a market that sounds like it has bullish fundamentals, only to have the Chinese buying. Watch this- all of the sudden it will turn off the beginning of 2017. This timing coincides with plantings in the United States. They’re expected to be up some 10% this year. So, you have all this bullishness, you have all the speculators piling in. China is one of the greatest traders of commodities in the world. Obviously, they have the largest population and they need to feed them, clothe them, and provide energy. They seem to be some of the best traders, so they were buying cotton last year when cotton prices were low. Now, they’re at multi-year highs. Speculators pour in and now the U.S. farmer plants 10% more cotton than they did last year and now you watch the market turn back down. It’s a seasonal trade and it lines up with the fundamentals. Doing the opposite of what everyone else is doing right now in commodities has been quite a great trade over the last 12-24 months. Speculators race into the cotton market. All of the sudden, the fundamentals turn and all of the sudden you have them heading for the door probably this 2nd or 3rd quarter of this year, as well. Michael: Yeah, that’s an interesting point. You’re talking about prices going up on SPEC buying and demand. We were looking at the ending stocks for cotton and they are low by maybe historic standards but relatively over the last 4-5 years they are fairly high. I’m going to check my stat over here- I know I don’t want to get the figure wrong. Ending stocks for cotton this year at 4.5 million bales, that’s still the highest in 8 years. Now, what you’re talking about is you have farmers because prices are so high they are planting in 9-10% more cotton this year. We’ll know for sure here in our report at the end of the month. We’ll get planting intentions reports, but early estimates – if we’re planting 9-10% more cotton, plus we have that seasonal tendency for prices to start declining this time of year, those call premiums have really escalated up above the markets. You’re thinking this might be a good time to start picking some of those off? James: We do. It’s a great way to diversify a portfolio. Cotton right now is overpriced. The supplies worldwide are high enough to not cause any type of shortages over the next year or two. The Chinese buying is probably going to slow down and the United States is probably going to produce quite a bit more cotton than the last several years. It almost turns out to be a perfect seasonal play. We’ll wait and see if that’s the way it turns out. Michael: All right. Now, in our piece, we did write a piece on this earlier in the month, you can see it on the blog if you haven’t seen it yet, you were looking at the Dec 90 calls. Is that still a strike that you like right now? James: The Dec. 90 is like our dream call right now. We’re hoping that the market can edge up a little higher to reach that level. Selling cotton in the high 80’s is probably what we’re going to wind up doing. If we can walk into the 90 calls a little bit later in maybe April or May certainly we’d put our tuxedos on and jump into that trade. That one looks like a good one. Michael: That’s one we put out there for when we write our public articles. Obviously, when you and I are trading we’re doing this, often times a series of strikes, a series of months, sometimes even a series of strategies all in the same market for our clients. I think you kind of picked that one as a good example for people that may not be clients and are just reading this and seeing a typical type of strike we would look at. James: That’s how we would play it, both for our clients and anyone trading and taking advantage of short options or riding out there. That’s why I would steer them that way, yes. Michael: Obviously, for any of you listening to this that are interested in how we put these fundamentals together and select this type of trade, like in cotton, you’ll want to get a copy of our book, The Complete Guide to Option Selling: Third Edition. That is available on our website at www.optionsellers.com/book. You’ll get it at a better price there than you will at Amazon or your local bookstore. All right, so let’s move on and talk about one of your favorite markets, the crude oil market. We have been addressing this market over the last month or two, but we’ve come to a point now in crude oil where you think there’s some major fundamental shift going on and I think that’s presenting some pretty good opportunities for option writers. Do you want to give your overview of crude oil right now and what’s happening there? James: Michael, one of the markets that we follow most closely is because it has the most trading volume and open interest. We were earlier talking about speculative buying or selling and different commodities. Often, it’s based on headlines. We noticed that when OPEC announced production cuts earlier this year speculators raced in to the long side of crude oil. Headlines The Wall Street Journal: First OPEC Production Cuts in over a Dozen Years. Clearly, the market is going to rally, clearly it’s a great buy, it’s just a matter of how much money you’re going to make buying crude oil. That’s what speculators did. They accumulated the largest SPEC position in history right after the production cut announcement. What’s so interesting is that this herd mentality so often is wrong. Needing to peel back the onion just a little bit just prior to the production cuts, especially from OPEC, non-OPEC nations cut production as well, that’s not as important, with the exception of Russia, of course, which is the second largest producer in the world. The 3 months prior to the production cut announcement, OPEC ramped up levels of new supplies to the largest level ever. As a matter of fact, the production cut that was announced was basically equal to the increase in production the previous 30 days to 60 days just prior to the cut. Nobody hears about that. All people talk about is production cut from OPEC and the market’s going to go to the moon. Investors start buying calls and buying crude oil futures and crude oil companies, for those of you who are investing in stocks, at an all-time record pace. This past week, we’re now starting to count barrels and we’re looking for the supply cuts. Certainly, with all these production cuts by OPEC announced, we’re going to have smaller amounts of crude oil worldwide, right? Didn’t work out that way. Here in the United States, of course, the Permian Basin, the Dakotas, different parts of Oklahoma and Texas are ramping up oil production to all-time, all-time highs. The investors and speculators that push prices up to north of $60 a barrel for far-out contracts built in the greatest hedge that the people in Texas have ever believed that could absolutely happen. Texas production is approximately $16-$18 per barrel to pull it out of the ground. They were just allowed to hedge their production over the next 2-3 years at approximately $60 a barrel, a.k.a. printing money. So, the old adage of low prices curing low prices may not take place this year. Production in the United States is expected to make all-time highs at a time where OPEC is going to start probably becoming slightly fragile. OPEC production cuts, everyone is doing a fairly good job of following along with the cuts that they talked about and oil prices start to fall. OPEC nations then start to cheat and at that point we have a snowball effect. It’s probably too early for that to happen. June and July are very strong demand months here in the United States. We don’t expect to see prices really crater this summer, but this fall if we have a slight tick up in prices in June and July of this year then we’re going to be looking at call selling opportunities for December, January, February, March, the weakest time frames of the year, at the same time when supplies will probably be at their all-time greatest. We are watching with both eyes very closely for a small tick up in energy prices this June and July. Clearly, they’ve fallen off dramatically. We were talking about selling a crude oil when we did not believe production cuts to be so bullish, crude oil fell $7 shortly after that. I remember talking to clients and other people that are in the industry that don’t trade with us. I said, “Watch out! Don’t listen to this OPEC production business. It’s not bullish, the market’s going to likely fall.” We had a couple of colleagues that said, “James, why are you telling me this?” I said, “I’m just warning you because we think that the market’s going to fail here”, and he was basically saying, “Well, the whole world is bullish. We’re going to have less production.” It didn’t turn out that way. Oil fell some $6-$7 a barrel. We’re hoping for a slight up tick with strong demand for driving season this year in the United States. If we get that, we think call selling in crude oil could be good for 6-12 months out. Oil this fall and winter could be in the low 40’s, it could actually have a 3-handle on it, and we’re going to be taking advantage of that when that happens. Michael: Yeah, I just put together out summary. We sent our summary to CNBC this week on the oil market. Hopefully, they’ll want to have us on and talk about it, but if you’re listening, CNBC, we’re ready for you with our quarterly oil analysis. Feel free to give us a call. I know you, James, talking about the cuts, have not affected supply. In fact, right now, all-time record highs in the United States- 528 million barrels. That’s 27% over the 5-year average. So, I would think that still qualifies as a glut. Would you? James: Michael, that’s definitely a glut. If we have one more barrel in the world than we need, prices go down. We have just a dramatic over-supply in the United States. Ever since we’ve been counting barrels of oil in the United States, we have never had a higher supply than we do right now. At a time where production in the United States is now going to ramp up, it is a bearish scenario. Am I saying that oil is going to fall every day and it’s going to go down to zero? We’re not saying that, but as far as the investors that like the herd mentality, this June and July we’re probably going to have more ramblings out of OPEC. They’re going to say, “We’re going to extend the cuts. We’re happy with the way it’s working but we’re going to proceed to extend these cuts further.” We’ll probably get another pop from that on the bullish news, and that’s the one we’re going to use to probably lay out some calls out 6-12 months and I think that’s going to work out pretty well. Michael: For those of your listening that may not be that familiar with option selling, what James is really saying is we don’t need prices to fall, although we think that’s a distinct possibility, we just don’t need them to go skyrocketing up in this environment. With this type of supply we don’t think that’s likely, that’s why we go high above the market and sell calls. As long as the market doesn’t get there, those calls expire and investors keep the premium. Did you have your eye on any strikes you want to share right now or do you want to save that for another podcast? James: We’re going to be selling crude oils calls with a 7 on them, and I don’t mean 7 or 17, I mean 70. If they’re producing oil in Texas at 17, we’ll go short at 70. We’ll take our chances on that and I think it’ll turn out pretty well. Michael: All right. For those of you who want to read our full forecast and analysis of the crude oil market, along with some potential trades you can look at, that is coming up in our April newsletter. It’s going to be coming out within the next couple of days. Look for it in your mailbox. If you’re not a subscriber yet, you can subscribe at our website. If you come to our website and order anything you’ll be on our subscription list. We do have a special crude oil feature this month because this is the trade we’re going to be looking at now for the next several months. One thing about option selling is if you’re taking premium out of a market, you don’t just have to sell it once and take it, you can often keep mining premium into that market for months at a time. Am I right? James: That’s how we do it. Michael: Okay. In addition, in your upcoming April newsletter there’s also a special feature this month on some of the top mistakes high-net-worth investors make, particularly 1 percenters... people that are in that higher-net-worth strata, that even though we tend to be sophisticated investors, at the same time there are some blind spots there. We did a lot of research here, a lot of different reports we found, and I think you’re really going to be fascinated to see some of these things. A lot of them, James, you wouldn’t even think of as high-net-worth investors making these type of mistakes, and they do. We really put that in perspective and I think a lot of our readers will enjoy it. James: You know, money doesn’t come with instructions. So often, you hear about investors that are making their money in whatever line of work their business or company that they had, and when they go to invest on their own they don’t quite have the success. A lot of our investors, the clients of ours, made their fortunes being experts at what they do and hiring someone to do it for you is probably a pretty good idea. Michael: Well, the first hint is don’t keep it all in the stock market. I’m sure most of you probably know that. So, we’re going to move on to our lesson portion of the podcast this month. James, this month we’re going to talk about an aspect of risk management. We did a piece on some more advanced ways to manage risk this week on the blog and we got a lot of feedback and a lot of questions. Thank you, all you viewers, for that. One of the things and questions we got there was, “Well, that’s great for naked options, but what about if I’m doing a strangle? How do I manage my risk on a strangle? I’ve sold a put and I’ve sold a call on the same market- how are you managing risk on those?” I think that’s something we want to talk about and address some of our readers who maybe want to learn how we do that. James: One of our most attractive commodity options sale that I find when I’m scouring the 10 markets that we’re closely watching, and that is identifying fairly valued markets. Quite often, you will have CNBC or Bloomberg go to the pit and the gold market is down $20 or it’s up $20 and people are talking, “Oh, the gold market got hammered today. The gold market’s soaring today.” A $20 move in gold makes a headline. It makes a headline on T.V. and they go to the pits and they’re talking to the traders and what have you. A $20 move in gold doesn’t move the needle for the options that we sell. When we sell options on crude oil or coffee or gold, often they are 50-60% out-of-the-money. So, these 1-2% blimps in commodity prices for the underlining contract makes a lot of headlines, but as an option seller, whether it’s yourselves doing it for your own account or we’re doing it for you, it very rarely even moves the needle. When selling a put and a call in gold or silver or crude oil, often the distance between the put and the call is the same value as the underlining contract itself. In other words, gold is trading around $1,200. We have option sales where we strangle gold and the strangle is $1,000 wide. So, identifying fairly valued markets, gold happens to be one of them right now, we think it’s pretty close to fairly valued, the put and the call they babysit each other while you’re waiting is basically the best way I can look at it. For example, if you’re short a gold strangle, your call is $500 above the market, your put is $400 below the market, this one is offsetting the other one at the same time. So, in other words, if the gold market moves $20-$30, your call position might go against your slightly, but your put is now taking care of the differential between from where you put the initial position on. If you use the 200% rule, and we do that ourselves, it is a very, not necessarily strategic, but it’s a very easy management tool that you can use. If you have 12 positions on in the year and 2 of them double in price, do the math. That still can be a very, very great return and it does hold your risk parameters in check. If you are selling a strangle in gold, you might take in $600 on the call, $600 on the put, you have $1,200 worth of premium. Not only will a naked call or put often double, unless the fundamentals change, but that $1,200 in premium that you take in on a strangle, that will almost rarely, practically never, double in value. So, if you have a $1,200 premium in strangle, the $1,200 level for it to double to $1,400, rather $2,400, just happens so rarely. The strangle is our best approach to markets that we find that are fair valued. If you do have your put or your call pinching you just a little bit you’ll notice that the opposite direction option is doing extremely well for your account. Needless to say, you have to have risk control parameters when you first enter a position. You can put in a 100% rule on your short put or your short call. I would put 100% rule on the entire premium itself. It gives your position a great deal of time and room to work. The strangle, I think, is the very best option sale going. If you want to keep a very close reign on your put or your call you can do that. If you wind up stopping yourself out of a strangle on most commodities, in my opinion, you’re not selling enough time. A lot of investors and a lot of books talk about writing options, they talk about a 30 day, 60 day, 90 day option. If you’re getting stopped out of your short position, those are probably the options that you’re selling. I would go further out in time and in price. Commodity options you are paid to wait, and patience is the name of the game. If you’re able to put on a strangle and you’re able to wait, more times than not you’re going to have very good results. You’re not hitting homeruns selling a strangle that far out, but for those of your who want to win the game and are okay with hitting singles all year round I think that’s a great way to do it. I think our investors certainly know about that and our viewers could find that out for themselves if they wanted to. Michael: One way of looking at that, you’re talking about risking the whole premium of the strangle. In other words, you’re saying if you take in $1,200 you can risk up to $1,200 on either side. So, actually, you can be a little more aggressive on your risk management on both sides because you have that balancing affect on the opposite side. Correct? James: Exactly right. Michael: So, instead of risking your call to double value, you can almost risk it to triple value and still get away with it because you have some extra risk management with the strangle if you’re following that. James: The stay ability in a strangle, and that is the key to option selling, is being able to ride out the small blips in the market that change the premiums. Patience and the ability to wait is the key and a properly placed strangle will give practically anyone the ability to stay with that market. That is something that we find at our office for our clients that we do a great deal. The proof is in the pudding. The strangle is a great way to go. You need to identify a fair value market. If you’re able to do that, the strangle is going to be very fruitful. Michael: One of the things we talked about this week in our risk management lesson is the purpose of the risk management tactics often is just to slow the market down long enough to let them expire because time is always working in your favor. So, if you’re using a strategy like the strangle where you’re risking premium to a certain value, you can also incorporate things like a roll. You can use a roll in a strangle where you’re rolling up or if fundamentals change then maybe you just roll it into a one-sided trade instead of just a strangle. Getting a little more creative there, but all of those strategies that we talked about can also be applied to spread, even to a strangle, to get a little more advanced. James, when you’re talking about that, the 200% rule is a good basic rule that can be used either with naked or with a strangle you just described. James: Correct. For all the times you put a strangle on, there’s a chance your put or your call will double in value. As long as the fundamentals in that market didn’t change, feel free to roll down the put or roll up the call. 9 times out of 10 that will not double again and you will be collecting 75% of the premium that you originally sold for instead of 100%, but that’s a very great investment. Michael: Excellent. Well, I hope everyone’s enjoyed our first audio and video podcast this month. For those of you that are writing in asking questions and sending them, please keep those coming. We love to address those on our shows, such as this. For those of you interested in our accounts, unfortunately we are fully booked for April. We are working into our May availability now. We still have some availability for new accounts in May. If you’re interested in learning more about this, please call Rosemary at the office. It’s (800) 346-1949. She’s scheduling consultations, which will take place in April. So, if you’re interested in one of those, give her a call. She can get your scheduled. James, I appreciate your input this month. We’ll be back next month and we’ll update some of these trades and see what’s going on then. Thank you, James, for everything this month. James: My pleasure. Always happy to do this. Michael: For all of you out there, we will talk to you in 30 days. Thank you.

Michael: Hello, everybody. Welcome to the January 2017 edition of the Option Seller Radio Show. This is Michael Gross of OptionSellers.com here with head trader, James Cordier, of OptionSellers.com. We’re starting off a new year here in the week of the Presidential Inauguration. James, it appears markets may be treading water here, kind of waiting to see how things play out after the Inauguration. What are your thoughts on the markets here as we start the new year? James: Well, Michael, welcome to 2017, as well. Really excited about the next 12 months, and we’ll see what the markets offer us as far as opportunities and looking at landscape as we go forward. The stock market certainly got a shot in the arm after the election, thinking that a Trump presidency is going to be very business friendly. The stock market certainly enjoyed that; however, over the last 3-4 weeks it is simply treading water going sideways, waiting for another idea. As far as “Will this actually help the economy? Will some of the Trump policies that are being tossed around actually be and do what we are hoping for the economy?”, the stock market is kind of going sideways waiting for a little bit more information. I think you’re right – right after the Inauguration I think people are going to get either the warm and fuzzies of the new president or possibly a little bit of a caution and then the stock market has some profit taking. The one thing that’s interesting right now is the put-call ration is the most bullish it has been in the stock market in years. Usually, that’s a bit of a caution flag for the market to have a correction. I guess we’ll find out in the next few weeks. Michael: Yeah, I saw Soros is one of the guys that took a beating on betting against the stock market with the Trump election. The big shooters aren’t always right. Of course, us here, we don’t trade the stock market but we do watch it closely, primarily because: one, a lot of our investors are in it and, two, because it can have an overall impact on a lot of other things going on in other markets. So, not a direct impact, but it’s something that we do keep an eye on. What we’re going to talk about here this month is obviously diversifying into commodities and we’re going to talk about a big advantage you have as a commodities investor. That big advantage is seasonal tendencies and commodities. January offers a plethora of seasonal tendencies that we can watch and take advantage of, and that’s what we’re going to talk about this month. James, why don’t we start out with some of our listeners that may not be familiar with seasonals. We do talk about them a lot, but maybe just start off by explaining exactly what a seasonal tendency is in a commodities market. James: Michael, that’s a really good point that you make about seasonals that do come up this time of year. For currency traders, they don’t know what a seasonality is. Trading silver, you probably don’t know what a seasonal is; however, trading corn and coffee and heating oil and crude oil is simply a propensity for a market to make a particular move during a particular time of the year based on supply and demand. New production that comes online certain times of the year, some of the biggest demand, certainly, for certain markets, comes at a particular time of the year. For example, heating oil and crude oil often starts getting large demand in the winter for heating oil and driving season for crude oil. The coffee market certainly gets a bump usually in December and January as demand for coffee, especially in the western hemisphere, does increase as temperatures cool. The propensity for the market to fall off starting March, April, and May, when temperatures in the United States and western Europe start to warm, people simply drink less coffee. That’s basically the ABC’s of seasonal trading. It seems incredibly simplistic but if you followed, and certainly we follow, the price of unleaded gasoline going into driving season, and the price of soybeans going into planting season, you become a true believer. Certainly, that is something how we like positioning portfolios using a portion of seasonality to diversify accounts, and January-February seem to be 2 months that offer the most trades like we’re describing. Michael: Now, we are going to talk about some of the more pronounced seasonal tendencies that do tend to happen in January and February, but, before we do that, we want to cover briefly here one of the mistakes people make, and maybe one of the misinterpretations people have about seasonal tendencies. A lot of people, when they first find seasonals, they look at them and it looks like they’ve found the Holy Grail of investing, the secret hand behind the markets. There are certain factions of truth to that, but the mistake most people make is they use them improperly. In other words, they may look at a seasonal chart and say, “Boy, this average looks like it falls every year on January 10th, and so I’ll sell it on January 10th and buy it back on January 31st because that’s when it looks like it goes up again.” What people don’t realize is that’s an average and trying to time that to the day is extremely difficult. A lot of people that try and do that end up losing and then they say, “Oh, well seasonals don’t work. They’re no good.” That is absolutely not the case; in fact, when you combine the strategy of selling options with a seasonal tendency, it can become a very powerful asset to your investment arsenal. James, can you maybe touch on or explain why that’s the case? James: Well, option selling, as the majority of our listeners know, is certainly putting odds in your favor. A lot of our clients and a lot of people that we speak to make it seem like you’re betting against the house. We are the ones selling the options, the people that come into the casino, if you will, are buying options. When you take the percentages of options expiring worthless and you combine that with seasonalities of when the market usually rallies or usually falls, you’re really putting the odds in your favor, but you have to keep your eyes open. Every single year you’re not going to have a seasonal tendency work the way it does on its 15 or 30 year average. You need to be aware of what the current conditions are in that particular market and see if it’s trading seasonally prior going into a sell or a buy for a particular market. Michael: One thing to mention there, too, is if you’re a futures trader or even some guys try to trade ETF’s with seasonals, which I do not recommend, but for futures traders, their timing has to be perfect. Option sellers, you don’t need perfect timing because you’re selling way above or way below the markets. So, if you miss the seasonal move that happens a couple weeks early or a couple weeks late, it doesn’t really make a big difference to you as an options seller, where if you’re a futures trader it can make a huge difference. So that’s one additional reason why combining option selling with seasonals can be such a powerful strategy. As far as the markets, I want to talk about one, James, you and I spoke about earlier that’s a little bit different this year. That’s the crude oil/unleaded gas market. We talked a lot in November about some possible big moves coming up in seasonal’s tendency in crude oil, the potential for prices to start moving higher, and we’ve had a little shift this year. Do you want to talk about that and what you’ve seen happening this year in the crude oil market seasonally? James: Michael, it’s interesting, crude oil and unleaded gas normally is extremely weak in the December-January time frame. Then, as you start approaching driving season, you normally see a large increase in price, albeit slow and steady, but it does go from its low in January to often its high in June and July. 2017 is certainly a different trade this year. With the first announced production cut by the largest world oil producers in the last dozen years, certainly it’s going to change the seasonality for this year. We were seeing crude oil pushing down into the low 40’s and then, lo and behold, Saudi Arabia and Russia and some of the other largest producers in the world decided we need to do something about balancing this market. They did come together and they did announce what seems to be production cuts that are sticking, to a certain extent, and the oil market, which normally rallies from January to June, made that entire rally the days and weeks after the announcement. So, like I was saying earlier as far as keeping your eyes open in reference to what’s happening on any particular year, 2017 is a perfect example of that. Michael: So, you think as far as a seasonal move goes, where the normal seasonal for crude or unleaded tends to start pulling prices up in January in anticipation of driving season, you think we’ve already seen the bulk of that move already? James: I really do. We will have stronger demand for products such as gasoline starting in March and April; however, we have oil pushing in the low-mid 50’s right now. A lot of the production cuts that apparently will take place at approximately 1 million barrels, it’s thought that those missing barrels can come back onto the market relatively soon. We’re expecting the seasonality this year of higher prices going into driving season muted quite a bit. Michael: So, in the near term, you’re not necessarily bearish prices, you’re just not as bullish as you normally would be, simply because the price has already moved up. What’s the strategy to trade it then? James: Well, the strategy is actually one of our favorites. The fact that we do have fewer barrels coming online from OPEC and non-OPEC nations should underpin the market. We should not see oil trade into the low 40’s, certainly not the high 30’s, going into driving season. That certainly is not going to happen, especially with the OPEC and non-OPEC production cuts. We would be really interested in selling puts in the low-mid 30’s for crude oil for later this year delivery. At the same time, the fact that the market has already done its seasonal rally and we expect the U.S. production to come online, we would not see oil go into the mid-upper 70’s. Practically ideal for the clients who follow along and the listeners that we hear today that know about what’s called a strangle, you would sell crude oil puts in the low 30’s and crude oil calls in the high 70’s. I think that is a really good opportunity as far as collecting premium on both sides of the market. There’s a lot of volatility and that’s when you get the luxury of being able to sell a strangle. I think, right now, the crude oil market is practically ideal for doing that right now. Michael: … and that’s what, close to a $40 strangle there? That’s a $40 window prices could move and both options still expire worthless? James: Well, that’s how we started out the conversation today with selling options far out-of-the-money. We’re strangling oil $40-$45 from the put to the call and we feel very confident that crude oil, which used to have large swings in the past, is not going to have a move like that, not in 2017. Oil is a great value in the mid 40’s. It’s quite a sale if it gets in the 60’s. Certainly, our strangle would be $10 above and below that. That’s the way we like to play it. Michael: All right. For those of you listening that want to learn more about seasonal tendencies, how they work, we did devote 2 full chapters to seasonals in The Complete Guide to Option Selling. If you do want to see some of our favorite there and some of the ones we recommend for individual investors you can find those in chapters 15 and 16. That’s in the new Third Edition. Of course, if you want to purchase a copy of that you can at www.optionsellers.com/book. You get it at a discount at Amazon or Barnes and Noble there. Let’s move on to talk about another seasonal tendency that does appear to be tracking closely this year, and that’s over in the grain markets. We have 2 markets there we’re watching very closely. Both the soybean and the wheat market have strong seasonal tendencies that tend to start in January. I’m going to talk about wheat here for just a second. As far as the tendency goes in wheat, wheat has a strong seasonal tendency to start declining in price in January. Unlike most of the grains, wheat is the only market that can grow in the winter. In fact, you may not know this, but, 75% of the wheat grown in the United States is winter wheat. Therefore, that gives it a different seasonal tendency than the other grains, from oats to corn to soybeans. Winter wheat sprouts in January, typically. Unlike the other commodities, it doesn’t have extreme heat to deal with. There are some weather factors, but typically once that wheat crop sprouts a lot of the anxiety comes out of the market and once that sprouts and it starts growing, a lot of traders will start selling wheat because the fear of the upcoming winter wheat crop tends to start to come out of the market. That’s why you often see wheat prices start to decline in winter and continue that weakness through spring. Obviously if your investor wants to take advantage of that, you may look at a call selling approach. We’ve taken that a step further and that involves a different market. That’s the soybean market, which has a different seasonal. James, you’re going to talk about soybeans here a little bit. James: Michael, that’s interesting. A lot of investors, whether they’re close to commodities or they simply keep one eye on them from time to time, would think that corn, wheat, and soybeans are always moving in the same direction. Soybeans have very different fundamentals and very different seasonality than the wheat market does. In the winter, January and February especially, demand for soybeans and soybean meal is at its greatest, as many U.S. producers and producers around the world are feeding livestock. Of course, that is when demand is the greatest for protein seed. At the same time, in South America, quite often you’ll have weather problems because it is grown in so many areas. Especially in Brazil and the surrounding southern countries of Brazil, they seem to be having, once again, some weather developments down there that are supporting prices. At the same time, the weather in the United States, for especially the Midwest, is always either too wet, too dry, too hot, or too cold. Sure enough, a weather premium starts getting built in the months of March, April, and May. For soybeans, January is usually quite a strong buy time as far as expecting prices to start moving up, just the opposite of the wheat. For those reasons, we like selling puts below the soybean market in the months of January and February. It’s almost a squeeze, if you will, by being short wheat and going long soybeans over the next 90-120 days. Certainly, that is something that we have followed closely in the past and, sure enough, looks like it’s setting up again for 2017. Michael: Yeah, we talk a lot about combining strategies to boost your odds, how the option strategies you can’t just view them in a vacuum when you’re trading them in a portfolio. You look at how one position offsets the other and a perfect example of that is one of the things we’ve talked about here. It’s called the Minnesota Squeeze. We’re not going to go into it here, but we are going to explain that in detail in your upcoming Option Seller Newsletter, which is slated to come out next week. We have a very special combined January/February seasonal issue and we are going to show you how you can combine these two seasonals to really boost your odds when it comes to getting those worthless expirations, selling the wheat into the growing season fade, and in buying the soybeans on the potential weather rallies in addition to winter being a high-demand season for soybeans. That will be in your upcoming special issue January/February newsletter. Look for that the week of January 23rd. In addition to that, in your upcoming newsletter, it is a special issue on seasonals so we’re going to talk in a little bit more detail in some things you can do to put these seasonal tendencies in your favor. It really is an advantage you have as a commodity options seller, as opposed to being in the stock market or bonds. It doesn’t really exist in any other asset class, so it’s something you can take advantage of in commodities. We’re also going to cover another subject that’s near and dear to our reader’s hearts and that’s staying properly diversified and how sometimes investor fear, even savvy high-net-worth investors, can let fear get in the way of getting properly diversified. There’s some good stuff in this month’s newsletter. I hope you enjoy it. James, before we go this month, let’s talk about one of your favorite markets, as we continue our coverage of big seasonal tendencies this month, that is the coffee market. We just published a special coffee article this week that is available on the blog at www.optionsellers.com/coffeejan. Let’s talk a little bit about coffee. We’ve got a strong seasonal tendency for weaker prices coming up here. Can you talk a little bit about that, James, and why that tends to occur? James: Michael, the coffee market looks like in 2017 it will be trading seasonally. Often, the winter time frame is when many of the producers in South America and Central America have to watch the weather quite closely. As long as those areas get ample rains, cherries then form on trees and, of course, those become green beans and later on roasted into the lovely mocha color that we all enjoy… most of us do each morning. Once the fear of the weather patterns in South America and Central America dissipate, and they usually do, that is normally short-lived and it looks like set-up is taking place again this year. At the same time, during the winter period is the strongest demand. So, we do have in western hemisphere areas the strongest and most consumption of coffee is in the winter and colder months. As we get into March, April, and May a lot of tendency does go to either soft drinks or flavored waters and I know that sounds kind of interesting to be talking about that, but when you multiply it by 300 million people in America, changing their drinks by just a slight amount really does make a large difference. Quite often in the winter, we have the most fear for any type of drought conditions in the coffee growing regions. That is now behind us. Coffee consumption in the United States will start to taper in February and March, and that is why we usually look to sell calls in coffee at the very beginning of each year when the seasonality and propensity seems to be setting up. 2017 looks like, yet, another year to be selling calls in this market. Coffee has been trading around $1.50 a pound on and off for the last quarter or two. The market did bump up here recently on what was expected to be a slightly smaller production in exports out of Vietnam. Then, earlier this week it was just announced that Vietnamese exports were up 25-30% from the previous year. Once again, knowing your fundamentals is really important. When you can combine that with the seasonalities and the odds of selling options, you can find out just by watching this for maybe 12 months why we do follow seasonalities and why it can combine with selling options to be really good for someone’s portfolio. Not every single time, like any other investment, but, on the averages, I like where we stand. Michael: Needless to say, as an option seller here in January/February, certainly no shortage of opportunities coming our way. If you’re a managed client, you have obviously seen the majority of these trades in your account thus far, and we certainly look forward to some more of those coming our way as we work through the first quarter. If you’re not yet an account, these are markets you can look at and maybe learn a little bit more how these trades work. We do have some availability for new account consultations in February. If you are interested in a managed account that is your first step. You can call Rosemary at our main office at 800-346-1949 to inquire about availability for those. If you’re one of our international listeners you can call at 813-472-5760 or you can also e-mail… that is office@optionseller.com. James, thank you so much for your insights this month. James: My pleasure, Michael. Always great chatting about what it is we do for our clients and our listeners. Beginning of this year looks like there might be some very good landscape and some very good opportunities. We’ll just have to wait and see. Michael: Well, perfect. Everybody, have a great month of option selling. It’s 2017- if you’re not diversified into alternative assets this is a great year to think about it. We wish you all a great month of option selling and we’ll talk to you next month.

Michael: Hello, this is Michael Gross here with James Cordier of OptionSellers.com. We’re here with your October edition of the Option Seller Radio Show. This will probably be or will be the final Podcast you’ll here from us prior to the election. The next time we speak we will have a new President-elect. We have a lot of things going on this month. Some investors worried about the stock market looking like it might be getting a little bit toppy, a lot of interest in diversification and uncorrelated assets. Right now, we’d like to talk to James a little bit. James, maybe just give your overview on the state of the markets right now leading up to the election. What’s your feel on just the general vibe right now? James: Well, Michael, quite often people try and front run the candidate who looks the best and some people actually, investors alike, want to try and take advantage of who they think is going to win the election. Quite often, what does best is when we have status quo. Quite often, everyone’s expecting “Well, if a democrat is elected President, then the market is going to do this. If it’s a republican, it’s going to do that.” Looking back on the history and looking at the 12 months post election, there really doesn’t seem to be a strong correlation. It appears to me that what the Federal Reserve is doing is more important. Chances are, going into 2017, I think that’s the same way it’s going to play out if we continue to have interest rates at a quarter and a half, if Janet Yellen and the Federal Reserve continues to keep hands-off of interest rates going higher more than a quarter percent. I think we’re going to have basically the same market that we have right now, probably for the next 12 months. I don’t see a big change no matter who gets elected; however, there will be some extreme movements in the market prior to the election and probably right after. I also then see the market just kind of steadying out and then going back to the fundamentals and they’ll quite possibly be the fundamentals that we have right now. Michael: James, that’s a great point. A lot of investment shows right now and magazines are talking about which stock you want to buy if Hillary wins and which stock you want to buy if Trump wins. Do you go short the market or do you go long the market ahead of the election. Like you said, I’m guessing a lot of that’s going to be knee-jerk type reaction stuff and serious investors are looking 1-5 years down the road, they’re not looking 2 or 3 weeks into the future. On that note, we’re going to talk a little bit here about getting diversified and, of course, what we do is in the commodities markets. A very interesting sector we’re going to cover this month is the softs markets. We have some great fundamentals and seasonals but also some complete non-correlation of what’s going on there. I know you wanted to talk a little bit about that. Let’s talk about coffee and sugar, first. Some strong bull markets there. What’s going on in coffee? What’s your take right now? James: The coffee market is almost similar to the oil market, where Brent crude oil and WTI crude oil, in some cases, have different fundamentals. Clearly, if Brent is rallying $5 a barrel then WTI’s going to rally 3 or 4… they usually go in the same direction. Robusta coffee is completely in the news right now in stealing the headlines as Robusta coffee, which is produced in several different countries, namely Brazil and Vietnam. We definitely have a shortfall in the more acidic coffee bean known as Robusta. It’s normally grown in lowlands, it’s not as sweet as Arabica coffee; however, it does make up a large portion of world supply and demand. Production in Brazil right now is going to be down about 10-15% because of dry conditions for the Robusta beans. At the exact same time, production in Vietnam because of weather problems and concerns is down some 20-25%. Robusta coffee beans are absolutely on fire right now. They continue to make new 12-month highs, and that’s what has been dragging up the Arabica coffee. It has been trading between $1.40 and $1.60 for the last several months. We’re pushing up along $1.60 and we think that the fundamentals will start separating themselves and we’re probably going to have a two-tier market going into the end of 2016 and the beginning of 2017. The reason why is while Robusta coffee beans are extremely tight, Arabica beans are just the opposite. We’re looking at a record production this year in Brazil. We’re looking at Arabica coffee production for the year 2016-2017, looking at a 6-7 million bag surplus, and that will definitely be putting a cap over prices as we go into the end of this year and the beginning of next. Seasonally, it is flowering season in Brazil. Traders watch that extremely close. As long as we continue to have extremely favorable conditions for flowering season in Brazil, like we have right now, we see a very large crop production next year and the Robusta beans that we lost because of dry conditions this past year will probably be fixed going forward. We see both Arabica areas and Robusta areas of Brazil getting ample rains and we should have a pretty nice rebound in Robusta production next year, as well as Arabica. We’re probably looking at the mid to upper 50’s again for production. At the same time, we have Columbia producing a great deal of coffee going forward. They’re going to be setting new records and we think that this rally in coffee, especially the Arabica bean, is probably going to be short-lived. Michael: James, that’s a good point you’re talking about that’s the two-tiered market because you have both Robusta and Arabica prices. Arabica makes up the majority of the ICE contract that we trade. Is that correct? James: It is. It is a blend; however, the majority of it is Arabica beans. As long as that’s the case, we could have a two-tiered market. I’ve been trading coffee for decades and usually they go in lock-step with each other. We’re going to see that correlation dissipate some later this year and we think that coffee around $1.60 right now really holds a great opportunity to go short. We would be selling coffee calls for 2017 strike prices nearly double the value that they are right now. We see coffee probably settling down to around $1.45-$1.50 later this year as flowering season continues to go well and fears of a small crop again this year, especially for Robusta beans, that seems to go away and then we’re looking at large supplies again next year. Michael: It seems like the market really ran away. Looking at the fundamentals, I can see what’s going on with the Robusta and that’s driving price up, but you look at Brazil’s total coffee production estimate… I’m looking at 49.4 million bags, that would be the estimate right now, although estimates vary depending on what source you get it from. It’s lower than the last couple of years, but it’s not that low. That’s still a pretty solid figure. When you’re talking about the seasonal for Arabica coffee prices, or at least the ICE contract, looking at a 5 year seasonal right now, the thing that seems to come to a pretty good top right in the middle of October and then just falls off a cliff. You’re talking about flowering, maybe some of our listeners might not know exactly what that is. What is flowering? Why is that so important? Why does price tend to come down afterwards? James: Well, flowering, of course, is the period in the year when the tree develops a flower, the flower turns into a cherry, the cherry turns into a coffee bean. It then gets picked and it gets roasted. It is called green coffee bean after it gets picked from the tree. It then is either roasted on site in Brazil or it is shipped to different areas like New York, New Orleans, and Atlanta where they do roasting there, depending on what type of brew they want. If we have ample rains during flowering season, trees can flower 2, 3, and 4 times. If in fact the flowering season does take place like it is right now, we’re looking at a tree that has the ability to produce anywhere from 15-20% more coffee beans than it had if it was a dry season. That is why this period of October and November is so crucial to understanding the size of next years’ crop. Precipitation in the majority of the Brazilian coffee areas started off early this year. That can be a two-edged sword. If it starts early and then it cuts off, that can be detrimental to the coffee production. If it starts early, like in August and September, and rains continue through October and November, a tree can flower 3 or 4 times versus just 1 or 2. Simple math tells you that the production next year could be greatly increased by ample rains. That’s why we have a critical time period in October. That’s why the prices usually rally during fears of possible dryness, like we had last year. Once inspection of these trees takes place and the flowering went either well or very well, like it appears to be this year, you can start putting the numbers for coffee beans and bags of production next year already into a spreadsheet and you can tell exactly what type of surplus we’re going to have the next year. It’s almost like science right now as far as coffee production in Brazil. We do have the ability to do that and right now it’s looking like a very healthy crop next year. Michael: So in the flowering season, that anxiety builds prices up. After we get past flowering, that anxiety tends to come out of the market and that tends to drive prices down into the fall. The seasonal chart seems to reflect that pretty good. Let’s talk just a minute about sugar. I don’t want to get too far into that, but sugar prices kind of mimicking coffee prices – really on a tear. Are we looking at the same type of fundamentals there or is there something else driving sugar? James: Sugar has rallied for completely different reasons. On sugar we actually have a production deficit this year. It’s the first deficit we’ve had in approximately 6 years. We’ve had sugar deficits in the past. The market does rally certainly when that happens. This year, there is anxiety as to whether it’s a large deficit or small. A lot of the most recent indications is we’re going to have a smaller deficit than previously anticipated, but, nevertheless, world production is going to be less than consumption, thus a deficit. That is why sugar’s probably rallied from around 16 to 17 cents up into the low 20’s. We think that we’re going to be seeing more production in the coming year or two as producing sugar at 22 and 23 cents is a windfall for producers, especially in Asia. Of course, China is the big consumer right now. That’s what has created the deficit. Often, we’ll see China purchase sugar and it’s though they’re never going to be eating anything other than sugar and all of the sudden they just turn off the buys and all of the sudden the production deficit that you’re looking at turns into more of an even balanced. We think that’s what’s going on right now in China. We think that they bought a lot more than a lot of people were anticipating; however, they’re very great traders. Chinese buy soybeans and cocoa and sugar based on trends. You’ll notice that they seem to buying every day and all of the sudden, once they have enough, they stop buying, the price falls back, and then they wait for another opportunity to get in. That’s what we think is going on in sugar. Sugar does have a similar seasonal. As harvest in Brazil and other areas concludes a lot of sugar gets dumped onto the market. We think that’s what’s going to happen later this year. We see sugar probably falling back down to 20 cents, maybe 19, so we are looking at call opportunities in sugar much above the market. We are still doing more work on what type of production figures we have, so we’re holding off on selling right now, but we see ourselves probably doing that in either November or December. Michael: So, in sugar you have a somewhat bullish fundamental of stocks to usage ration right now just under 19%, which would be the third lowest in over 20 years. That’s what’s driving prices up, but what you’re saying is that eventually, at some point, high prices cure high prices and you see that happening right now in coffee and possibly sugar, as well. Is that correct? James: Coffee for sure. We haven’t seen coffee at the $1.60 level for quite some time. The big situation that has caused coffee prices to rally is weather. As soon as we have weather changes, of course El Niño has now changed to La Niña, so we went from a dry pattern to a wet pattern. That’s already showing up in Brazil. We expect it to show up in Vietnam, as well. So, as they have better weather for 2017, this 20% reduction in their production this year should probably snap back to a smaller sell-off as far as the value of their coffee. As long as we have decent weather in the western hemisphere, we expect Arabica beans to probably go under pressure possibly $1.40-$1.45 at the beginning of next year. Michael: Now, if you’re an investor and you’re listening to this at home and you’re hearing James talk about different factors affecting coffee and sugar prices, on the surface some of it might not make sense to you. One thing to understand here is in commodities; we’re talking about the fundamentals right now. These are the underlying supply/demand factors that really drive prices. If you really want to invest in commodities, knowing these fundamentals can give you a tremendous advantage over the other investor who’s just sitting looking at a chart, looking at technical indicators, having no idea what’s actually moving prices. That’s why these things are so important if you’re going to trade these type of markets. Knowing this information and what’s really driving price can give you an advantage in the market that frankly most investors don’t take the time to learn or they don’t know even while they’re trading. One thing we also want to point out here is diversification aspects. When you’re talking about coffee and sugar prices, those are what’s known as softs markets. There’s other softs markets, too, such as cocoa, cotton, orange juice. Cocoa has moved the exact opposite direction of coffee and sugar. So unlike stocks that tend to move in tandem, commodities can move completely on their own. Cocoa is almost in a bear market right now, James. It looks like we maybe making a low, but very low prices right now in cocoa. James: The cocoa market certainly has just fallen off the table here recently. It was in the low 3,000’s per ton and now we’re trading around $2,600 per ton… a very large move to the downside. I think a lot of anticipation was similar to what we just discussed in sugar. We had very strong buying out of Asia, and then they just stopped the buys. That’s what’s taking place right now. Production in the Ivory Coast is about what was anticipated. Production in Brazil is about as anticipated, but the buying just stopped. We feel that a lot of manufacturers, that’s what you call the people that turn cocoa beans into chocolate bars that taste so good, they’re the ones that dictate the price right now. When production is steady, what’s the difference? That is whether manufacturer companies are buying or they’re not, and they just basically stopped buying completely. A lot of traders inside the cocoa market thought that there was going to be a large shortfall and it just turned out that there wasn’t, and that’s why cocoa has fallen off so much. Michael, just to point out a couple things that you were just referring to, the data points that we’re referring to and talking about Vietnamese production and the weather in Brazil, this just not tell us, as you know, what the price of coffee is going to do next week. It doesn’t tell us what it’s going to do next month. What it tells us is where the price is not going to go. That is the key to understanding the fundamentals to the market. If someone’s listening to us today and they think they’re going to trade coffee and take 2 cents out of the market and then continue programming their computer to buy and sell on the market based on these fundamentals, that is not what this program’s all about. This program is for people understanding the fundamentals the fundamentals won’t allow the market to fall 50%, it won’t allow the market to go up 100% without our prior knowledge, and that’s what we’re doing here. Anyone listening right now, the fundamental factors will allow the market to move a small amount, but if they’re bearish the market won’t double in price, if they’re bullish they won’t fall 50%. Those are the option strikes we’re selling, and that is how we sleep at night trading markets like coffee, cocoa, and sugar. Michael: One question for you, James. These market’s you’re talking about… coffee, sugar, cocoa… they’re trading on the weather, they’re trading on what their supply is, they’re trading on how much they plan to ship next month. DO these prices care one iota about what’s going on in the stock market? James: No, they don’t. The beauty behind getting diversified, the beauty of being diversified in something like commodities, whether the stock market goes up 20% next year or down 20%, the value of cocoa will probably not change, the value of coffee probably won’t change, the fundamentals certainly won’t, and that is the beauty of being diversified. For investors listening to us now that maybe have stock holdings, or whether they do or they don’t, a lot of people need to be diversified. At least, that’s what we hear when people call us. I think we do a very good job of getting their assets in something that will not be determined by the price of Apple or any other telephone-making company. So often, the NASDAQ moves up and down based on different ideas and how many phones were sold. The beauty behind what we do, I feel, is that coffee, cocoa, and sugar have been around for a long time, and they’ll continue to be. What happens in Washington or what happens in San Francisco doesn’t make any difference, and that’s why I love what we do. Michael: Alright, let’s move over. Speaking of diversification, let’s talk a little bit about soybeans here. Nice thing about soybeans is not only are they not correlated to stocks or equities or anything going on in financials, but they’re also not correlated to anything going on in the markets we just talked about. Commodities tend to march to the beat of their own drum or their individual fundamentals for a while. Even on some of the commentary we read right here at OptionSellers.com, the soybean market has had a very bearish fundamentals. The market has been in a downtrend. As a lot of readers and listeners know, that can be very profitable if you’re a call seller. Certainly that was a market to take advantage of on the downside in the latest USDA report that came out October 12th, the USDA gives their monthly supply/demand report. That was expected to be a very bearish report for soybeans. Ending stocks were at 365 millions bushels. In this USDA report, they raised that to 395 million bushels, which is bearish but not quite as bearish as many had expected. What tends to happen, and James I’m going to pass this to you in just a minute, but talking about seasonal tendencies… when you get into the heart of harvest, which is in October, that’s when soybean supply is typically at its highest because of new supply coming in. Prices, agricultural prices, soybeans in particular, tend to be at their lowest. From that point, traders tend to start focusing on forward sales again. Prices tend to put in a bottom this time of year and then they start to rise. This USDA report might have been an impetus for that. I don’t know if a seasonal low is in but it certainly looks possible right now. Prices are starting to rally. That sets up a situation. Is it overly bullish, James, or what do you see coming up here? James: The October low and the report that just came out are probably going to coincide. We had soybeans trading $10.50, $11.00, $11.50 a bushel, recently. Now we’re in the mid $9.00. I think that does coincide with the harvest. Harvest lows normally are made in the first and second week of October. The report that just came out from the USDA showing ending stocks not quite as bearish as previously thought, that is likely the low in soybeans. We think that, going forward, all of the sudden you’re into December, then you’re into January, then there are worries about planting season. Likely, soybeans will be trading well above $10.00 at the beginning of 2017. So, we are looking at put selling opportunities for that April-May, May-June timeframe for next year. That is when the anxiety hits for planting season in the Midwest and the United States. We’re expecting soybean prices to probably rally 10-15%. If we’re looking at selling puts 20-30% below the market, which we are, that sets up a really nice safety net for the market to either go sideways, go up a little bit, or actually fall like we talk about in our book in all 3 scenarios of selling puts and soybeans. It’s likely going to be profitable over the next 3-4 months. We are looking to do that here in the next week or two. Michael: So, you could sell puts and then if it rallies a bit possibly sell calls, turn it into a strangle. James: The bullishness really isn’t there for soybeans to rally to $12 or $13. We do see the market rallying possibly a dollar from where they are now, especially going into early 2017 as we starting looking at weather conditions and things of that such. Brazil, Argentina, there will be weather problems there, possibly. It seems as though the trade always makes something up and the market does rally, especially after the harvest in the United States. So, we would look for a rally in soybeans early in 2017 and to what we say “leg on a strangle”. We would sell puts now, if the market rallies we would look to sell calls and put a very large window around the price of soybeans. We think that would work probably through the first half of next year. Michael: If you’re a high net worth investor and you’re listening to this and you’re want to learn more about some of these things we’re talking about and how we apply them when we’re investing for high net-worth investors, like yourself, you can go and watch some of these instructional videos we have on our website. If you want to learn, for instance, we’re talking about ending stocks, stocks to usage ratio, two very important figures when you’re doing agricultural analysis, you can watch our video at OptionSellers.com/agriculture. If you want to learn about the strategy of strangles that James just talked about, you can watch that video at OptionSellers.com/strangle. Let’s talk a little bit about the upcoming newsletters. If you’re on our mailing list and you get our newsletter, the November newsletter, which you should be getting sometime on or around November 1st, interesting piece in there. We’re going to talk about 5 ways to survive the next 4 years, regardless of who’s the President. We talked a little bit earlier in this broadcast about not focusing on the next couple of weeks but the next 4 years. We’re going to list 5 things that, as a high net worth investor, you can focus on. We’re going to talk about those things that should help you reap higher returns. As far as our trading strategy in this month’s newsletter, we’re going to get into some specific strategies for some of these softs markets that we talked about earlier. We talked heavily about the fundamentals today. The newsletter is going to give you some specific strategies you can use to potentially profit from that. These are strategies we’re using here. Obviously, if you’re a client, you’re having these done for you. A lot of investors at home, they want to look, they’re trying to learn this. Sometimes they’d like to follow the trades. Some people actually like to take and do one or two of them to get a feel for how it works to see if it’s something they might want to invest in. So, that’s what these are for. Also, going to talk about the two key criteria for judging an alternative investment. There’s some original insights in there that, if you do invest in alternatives, this will be helpful to you. Getting into our trading lesson this month, James, this is a question that comes up often. As far as structuring, building a portfolio to target returns that different investors want to look for. I know that when I’m talking to potential investors on the phone and, certainly, when you’re speaking with new clients we’re setting goals and then we’re putting together a plan to hit those goals through writing option premium. We have one program here, but we have the ability to scale that to a conservative, moderate, or aggressive posture. I think some of our listeners might be interested in hearing how you do that when you’re building out this type of portfolio. Can you talk a little bit about that? James: Certainly. When I speak to a new client, we go over their goals, their objectives, their risk tolerance, and what they’re hoping to achieve over the next 5-10 years investing with us. The question always comes up, “If I’m conservative, do I sell these certain options? If I’m aggressive, I sell closer in options? Or I’m trying to sell premiums that are wider than the possible $600-700 per contract that we normally sell options for.” The answer is quite simple. We are basically selecting the most conservative strike prices with the highest availability of opportunity and decay in those values that we can find. So, we are going to sell options that are 50, 60, 70% out-of-the-money. For a slightly more aggressive client, we sell the exact same options, we’re just utilizing more of their margin money. A slightly conservative client would be positioning their account approximately 40-50%. A moderately traded account, we are positioning slightly higher percent. An aggressive account is a 60% plus. We’re utilizing the same option strikes that we would for a conservative account as well as an aggressive account, and we’re simply throttling their leverage. That can make quite a difference. When we are utilizing the ability to use more leverage and sell a greater deal of premium, on positive years that can make quite a difference. We are looking at trying to produce returns of 15-25%. Conservative account is on the 15% side and the aggressive account would be 25% or greater. Very happy, as you know, Michael, to talk about how we did last year. We beat all of those numbers. We are on track to beat those again this year, whether you’re a conservative or aggressive client. That is how we throttle someone’s leverage, and that is how we understand risk for each client. Before we get started trading, that’s exactly what we talk about and make sure that everyone’s on board with exactly what we’re trying to accomplish and the risks that are involved. Michael: James, I want to throw in a disclaimer here. I’ll be the compliance guy … there’s risk involved and you can always have loss in any type of investing, including this one. Although we’re not making guarantees, these are the type of targets we go. Based on our past, we feel these are realistic targets. One of the questions we get often when we’re talking about the differences to these conservative, moderate, and aggressive stances. One program, we scale it up and down only through the use of margins. Some investors might think, “well, aggressive you use different strategies. You might write different types of options for that than you do a conservative. You might manage risks differently.” What we tell them is what you were just saying – that’s not the case. We manage risk the same across the board. The only difference there is really how much margin you’re keeping as backup and your position size. So, an aggressive account would have slightly more positions on than a conservative, but they’re going to be the same positions. Is that correct? James: That’s exactly right. It’s very easily done. We are selling the exact same options, the exact same strike prices, for all of our accounts. We simply tailor the leverage to what a client and their goals are. It’s very easily done, but we do have a long discussion before someone does start investing with us. That’s exactly how it’s done, Michael. Michael: James, one final point to make here. I know a lot of listeners out there, if you’re listening to this, a lot of index option traders. Whether you’re trading the S&P, a lot of Russell 2000 traders… one thing about this type of portfolio, if you do get into it on your own or through a company like ours, it offers the ability to diversify across a whole sloth of uncorrelated markets. We were just talking earlier about coffee, sugar, cocoa. They’re trading in complete opposite directions. If you’re just trading a Russell, you’re in one market. If you’re in the wrong side of that market and the thing moves against you, you’re not very diversified. The advantage of this type of portfolio is you can diversify over a group of different uncorrelated markets. You’re selling options and many of them, even if 1 or 2 of those markets goes the wrong way, you still have 4, 5, 6 that are working in your favor. Is that what you’ve found, James? James: Michael, it’s interesting. You know what our portfolios look like, our clients know what our portfolios look like. We’ll have a strangle around gold that we’re short from 2,000 and long from 1,000. We are bullish crude oil for the summer driving months, we’re bearish for the winter months. We follow seasonalities for cocoa, coffee, sugar, and orange juice. We watch seasonal fundamentals to trade soybeans. We follow the silver market extremely closely. The ability to diversify inside a portfolio like this, I know I’m kind of beating the drum on it, but I know so many investors right now are listening to the Carl Icahn’s of the world right now and saying, “The stock market might not be the place to be over the next 5-10 years.” Nobody knows that. Not even Carl, he doesn’t know it either, but when you hear people talk like that there is no diversification. If the stock market falls, it doesn’t matter really what stock you’re in. The fact that we have the ability to be neutral on different commodities and at the same time be bullish and bearish another basket of commodities, it truly does diversify you. Of course, we don’t have anyone have 100% of their portfolio with us, certainly it’s a smaller than that. The ability to, as we state on the front cover of our book, “Possible good returns in bull and bear markets”, and that’s what a lot of people are excited about right now as the stock market might be at an inflection point. I know I’m not a big cheerleader for shows like Bloomberg, or CNBC, or what have you because they have so many different people coming on, but you talk to these billionaires that they are interviewing and they are certainly waving a couple flags when it comes to stock market for the next several years. So, we’ll see what happens. Maybe being in commodities is not for everybody. Everything we do we are not right all the time; however, being in another asset class certainly is looking more interesting to a lot of our listeners and, certainly, our clients. Michael: James, that’s a great point to bring up just in closing here. When we were writing our newsletter and putting stats together, we pulled a stat from Barron’s a couple weeks ago. I might have to put a disclaimer on the end of our podcast here just to document where I got it and who said it, but out of Barron’s looking for a, I believe, 1.4% annualized return in the S&P over the next 10 years. That’s after inflation. Even if the thing doesn’t roll over, that’s not the type of investment I’d be looking to put money in, but take that for what it’s worth. I’ll get the stats from where it comes from. James: Michael, I’m a big Barron’s reader and I missed that stat, I missed that article. That is almost jaw dropping. Can you imagine being invested like that and that is your goal? We’ll see! To each their own. Investing is personal. When people say, “How much should I invest? How much should I do?” Investing is personal. Those are definitely interesting stats that Barron’s and the people that they were talking to are looking out at the next 10 years. I think mattress sales are going to go up quite well, as in “Put you money under mattresses”. That’s an interesting stat. Michael: Well, we’ve had an interesting talk this month. For those of you inquiring about new accounts, unfortunately we have none available until after thanksgiving right now; however, Rosie still has a few consultations available in November. If you’re interested in booking a pre-account interview consultation, you can call Rosemary at 800-346-1949. You can also request online at Office@OptionSellers.com. James, thanks for your great answers this month and information for our listeners. James: Michael, it has been my pleasure. I love doing this show and educating people who think outside the box, like our listeners, is just so entertaining and so much fun for me. Looking forward to doing so again for the next several months. Michael: Of course, anyone listening, if you’d like to learn more about our company and our program, you can go to OptionSellers.com. There’s a wealth of information there. Have a great month of option selling, everyone. We will talk to you at the end of November.

Welcome to Option Seller Radio, the podcast for high net-worth option writers. Here, you’ll learn option selling strategies you can use right now in diversified commodities markets, such as crude oil, gold, coffee, and soybeans. So, listen in and start putting decades of knowledge from the OptionSellers.com team to work for you. To learn more about OptionSellers.com, and their managed portfolios for high net-worth investors, visit www.optionsellers.com. Michael: Hello everyone, this is Michael Gross at OptionSellers.com here with your November issue of OptionSellers.com podcast. This is a special Thanksgiving edition and, boy, the world has turned upside down since our last radio show. The title of this month’s show is Trump, the Fed, and 2 BIG Markets for Taking Premium Now. I’m here with James Cordier, head trader here at OptionSellers.com. James, welcome to this month’s radio show. James: Thank you, Michael. It’s always a pleasure and, boy, have things changed since we met last. Michael: Well, if you’re listening to this before or after you’ve had your turkey-day, we hope to bring you some good insights here for selling options and understanding the commodities markets over the next 30 days. As we all know, on November 8th Donald Trump won the presidency and that has certainly presented a list of pitfalls and opportunities for the markets. We’re going to touch on some of those today. Also, have big Fed announcement coming up in December that will have a big impact on the markets, and we are going to discuss those today. James, why don’t we start out by just you giving your general comments on the election, what you think this means for commodities markets. James: What’s interesting, Michael, the pollsters both in England for the Brexit and here in the United States for the presidential election really did not get it. They weren’t even close. Hillary Clinton had a 5% lead going into election night and we all know what happened there. So interesting was the initial response to Donald Trump apparently winning the election. First thing was to sell stocks with both hands and buy gold, with the idea that is just so much uncertainty and how can this gentleman out of nowhere come in and run the greatest and largest economy in the world and, lo and behold, everyone said, “You know, maybe he can. He’s a great businessman, he has been very successful, and he doesn’t mind borrowing money and building things.” Certainly, that’s something that could definitely propel the U.S. economy to levels that it hasn’t seen in quite some time. I think, personally, that both the economy and inflation, something we haven’t had grow at any marketable levels in a long time, is going to really open some eyeballs here the next 12-24 months. Michael: We also have the other big news on the horizon here is the Fed is expected to raise interest rates in December. That could also bring some changes to the market, potential opportunities. Do you have any thoughts on that at this point? James: Michael, the topic of discussion, I think, going forward will be U.S. growth no longer at 1%, no longer at 1.5%. We think it’s going to have a crooked number for years to come, in other words, 2%, 3%, and 4% growth. What the Federal Reserve does in order to rein in potential inflation, I think, is going to be headlines constantly with the Federal Reserve talking about raising interest rates to fight inflation, but, lo and behold, I think that’s something that the Federal Reserve has just been waiting so long for and I think we’ll, behind closed doors, do everything they can just to stoke it a little bit and let it run hot. Michael: James, that’s a point you’ve been making in a lot of our articles recently, and recently, also on CNBC here this past Friday, you had a pretty informative interview on the gold market. Your big theme and our big theme here at OptionSellers.com is that we see inflation picking up in 2017 for a variety of reasons, which you, by the way, did outline very well in our gold piece earlier this month. It is on the blog. As far as your outlook on gold, you had a pretty good interview here Friday where I thought you made your case on CNBC. What do you see happening there over the next 90-120 days? How do option sellers who are looking at that possibly take advantage of that? James: Well, Michael, with what could be a stronger economy in the United States, what will likely be slightly higher interest rates, of course, we’re going to have ¼ point rise here in December – that’s already said and done, it’s like a 99% chance of a rate rise in December. This is what’s been pressuring the gold and silver market here the last 2-3 weeks, was the idea of higher U.S. interest rates. Initially, that is causing a very strong U.S. dollar and when the dollar is strong a lot of investors will dump their gold holdings in order to get possibly into securities. The timing on that is going to be really interesting. When will investors start looking at a slightly higher interest rate with the idea that that’s not going to slow inflation? The timing on this is going to be a little bit tricky this year. Whether inflation starts coming back and the Federal Reserve does little to stop it, that might not be determined until January or February of 2017, but what will get put in place and I think what will be released coming up very soon is the idea of a much stronger U.S. economy, 2.5-3%, and I a lot of people on the inside are going to think the Federal Reserve is not going to stand in the way of letting it run hot. That will be the ignition for gold and silver to start rallying next year is that January, February, we’re not sure, but going forward right now put premium is ginormous for June, October, December of next year. We are really wringing our hands right now with exactly how to position going forward. Gold puts are extremely overpriced and we really like what we see for getting bullish on gold for next year. Michael: You had some great points and you bring up a good point about the put premium- it’s higher. There are a lot of people bearish right now on gold and, from my perspective, your perspective probably as well, it’s hard to see what they’re looking at. If you do see a growing economy next year, Wall Street Journal had a recent survey showing GDP is expected to jump to 2.2% next year, possibly higher in 2018. They’re looking at inflation jumping 2.2% in 2017, 2.4% in 2018, which may not sound like a lot but, considering it may end up this year about 1.8%, that’s fairly significant as far as the ripple effect it can have. I think you made that case pretty well. As far as people looking at gold and saying, “Should I buy the thing here? Is it underpriced”, what are some of these bears looking at? Why are they bearish gold right now? Why this big premium in the puts? James: Michael, all anyone can see right now is a strong U.S. dollar. I think the dollar this past week hit a 13-year high. There is much less uncertainty about health of banking and the banking system around the world right now. Over the last 24 months, there was Greece, Italy, and the Brexit and it was negative interest rates in Germany and just certainly things in the market that no one has considered before, so a lot of investors had the idea that, “maybe I should own some gold” with a brighter picture for the U.S. economy and other economies around the world right now. People feel less need to own gold right now. It hasn’t been a hedge against inflation for several years, and that, I think, is the canary in the coal mine where for the first time, I think, in 2017 we will finally be hedging against inflation – something we haven’t seen in practically a decade. People are selling gold right now because of a stronger U.S. dollar, inflation has not been a worry for several years, and that is what we think is about to change and why someone should look at selling puts and going long on gold. Michael: Of course, put selling strategy where you don’t really have to pick the bottom, you simply go far underneath the market, that’s a little bit of confusion that mainstream investors don’t get. I think, for instance, to go back to your CNBC interview, James, you’re talking about bullish influence for gold in 2017 and one of the commentators there, I believe it was Evan Newmark, was just an all-out bear. Didn’t like gold at all, told a story about how he bought gold index and it went down and he lost 80% and that the market’s no good. Just to dismiss it like that, he has probably never heard of selling options. When people think, “We think gold’s at a value, you should buy gold here”- we’re not necessarily saying that. We’re saying it’s at a level where you can go far underneath it, collect put premium, the longer-term fundamentals support price, and you can really afford to just wait it out and wait for prices to go up. That’s the whole concept of selling options. It’s the same approach you’re taking in the portfolios now, is that correct, James? James: It is, Michael. So often, its herd mentality that drives prices too high and too low. When gold is rallying, everyone seems to be jumping on board. You have gold bugs coming out of the woodwork, buying gold coins and buying bars that you see on TV all the time. Basically, all we’re doing right now is saying that the value of gold right now is at fair value. That’s without any inflation. The gold market is down from $1,900 all the way down to $1,200 now. We really see extremely strong values selling puts at $9.50 and $9.25 for several months out in 2017. We don’t have a crystal ball, we don’t know when the gold market’s about to start rallying on any given day; however, if we do have strong growth in 2017, if we still have a relative easy fed, the gold market is going to look extremely strong as inflation numbers start coming out. Does gold bottom right here at $1,210? We’re not exactly sure, but would we go long by selling strikes at $9.50 and $9.25? We absolutely would. We think that in the 2nd and 3rd quarter of next year, gold will likely be $50-$100 higher than where it is right now. Certainly, that would put these gold options that we’re referring to $300-$350 below the market at that level. Of course, the premiums would be basically cut into maybe 90% from where the current position from where they are right now. We think the timing’s pretty good on it. When does gold start rallying? We’re not exactly sure, but the premiums are extremely large right now because of the down drafts since after the election. Michael: All right, and of course the title of this podcast is 2 Big Markets. A lot of times we’re talking about, well, last month we talked about soft markets, markets like coffee, cocoa, or we’ll talk about grain market. When you talk about major markets, for instance, like gold and silver where there’s a lot of liquidity, there’s just tons and tons of open interest there, open contracts, a lot of participation there. This is where you can really get creative with a lot of your option selling, and we’re going to talk about second big market today, which is one of our favorites. James, I know it’s one of your seasonal favorites… the crude oil market. This is a big time of year for crude oil. Would you maybe want to explain to our listeners why that’s the case? James: Crude oil certainly is one of the largest commodities traded worldwide. Energy prices seem to do quite well in the western hemisphere in June and July, as driving season and demand is as its greatest and often a time when supplies are at their least. Going into the 4th quarter of each year, we have something called shoulder season where we’re no longer heating homes in the northeast and we’re certainly not driving as far as long vacations. This is truly the smallest demand season of the year going into December and January. This year, we’ve had oil trading around $40-$45 recently, we have some discussion from OPEC that they’re going to try and reduce production, but each year we want to go long crude oil in December and January for the June and July time frame. That appears to be setting up quite well. Demand is at its least in December and at its most in June. December is when you would sell puts below the June contract with the upcoming driving season. Normally, you can sell puts $15-$20 below the current value in December and January, and you normally see a $10-$15 rise into driving season. Once again, our favorite seasonal play in all of commodities is possibly taking place in the next 30 days going long crude oil for next spring and summer’s driving season. Michael: Very detailed piece included in the upcoming December newsletter on crude oil that really talks about the seasonal and flushes it out, gives you some background info to trade this writing premium on it, how to get the biggest premium out of this market. James, you make this point well… as far as the seasonal for people listening that may not be familiar with what seasonal tendencies are, seasonal tendencies and commodities are the tendency, not the guarantee, but the tendency that prices tend to move a different direction at a certain time of year. Crude oil, for instance, as refineries start ramping up gasoline production to meet summer driving needs, they start doing it in December and January, and that’s when they start using more crude oil. Demand at the wholesale level rises. That is often coincided with the corresponding rise in price. So, these are the type of things that we look at while we’re analyzing a commodity that they don’t talk about on the news. They want to talk about what’s in the headlines but they don’t talk about these kind of invisible hands that are really pushing supply and demand. When you’re looking at commodities, that’s the kind of thing we look at here- the real underlying forces that are moving price, not necessarily what’s in the headline. James, that lead up to driving season, it appears, from looking at a seasonal chart, that that strength lasts all the way into May or June. Is that how you’ve tended to play it? James: That is how we see it, Michael. Here in Florida, and we probably have similar prices across the nation right now, we’ve seen gasoline prices dip below $2.00. Once again, you’re looking at gasoline at $1.90-$1.95 per gallon. Next May, June, and July you’re going to see gasoline around $2.50, $2.60, $2.70. I know that sounds like really making a simplistic argument to going long crude oil in December for the June and July timeframe, but it is as simple as that. The idea that prices are near their low around the holidays because demand is at its least. It’s not your imagination. Michael: As we discussed before, that is the feature piece in your December newsletter. You’ll see the seasonal chart we talked about. Also, one final thing to bring up about seasonals that we are going to talk about in this piece is these seasonal price moves, while they’re not guaranteed, past performance is not indicative of future results, of course, they tend to occur regardless of where the absolute supply of the commodity is… or the demand or the absolute price. They tend to operate independently of that. For instance, this year, gasoline stocks tend to dwindle. They hit a high in the spring and they tend to just fall off right into December. Even though gasoline stocks are higher than they typically are this year, they have followed that exact pattern straight down. This time of year they start to build them again. We have no reason to believe they won’t start building them again this year, and that’s typically what can cause that seasonal move. Going onto the December newsletter for those of you expecting it, you should look for that around December 1st or 2nd if you are on our newsletter mailing list. In addition to the feature oil piece, James, we put together a great piece this month called How to Make Your Portfolio Great Again. Obviously, a little play on the election there, but some really good pieces of advice in there you gave, especially for the upcoming year. I think anyone that’s interested in building a portfolio will gain something from that. Also, you’ll find a nice piece in this month’s letter about using premium ladders, something we haven’t talked a whole lot about on the show, and something we probably should. It is included in the book, The Complete Guide to Option Selling. It really gives you a blueprint for building a consistent income stream, if that’s what you’re looking to get out of this type of investing. James, lets move on to our trading lesson of the month now. We’re going to talk about a strategy that I know is one of your personal favorites. It’s one that we employ often in our portfolios. It’s the strategy of writing covered options. A lot of people that trade stocks think that means owning the stock and selling the option, but that’s not necessarily how you approach it. Lets talk a little bit about writing covered options and commodities and how you like to go about doing that. James: Michael, during times of low volatility, we don’t always have the luxury of doing a credit-ratio spread, in other words, a one-by-three, which is outlined in The Complete Guide to Option Selling chapter 10. Basically, what we’re doing during times of high volatility, something we just received now after the election, is the luxury of selling a ratio spread. In other words, for example, using our crude oil scenario…. We’re looking to sell the $30 crude oil puts. In order to babysit that position while we’re holding onto it we would buy 1 possibly $33 put. So, in other words, what we’re doing is we’re taking in a great deal of money selling the puts and we’re going to buy 1 contract to protect it while we’re holding it for 30-60 days to make sure that trade is exactly the way we though it would be. What it basically does is it controls the risk on your position and as you no longer need the insurance of buying that option, we can sell it off. In other words, we are taking in anywhere from $600-$700 per contract on our short puts. We’ll spend a little bit of money to hold that position as far as insurance using a long put option. It is basically, in our opinion, the very best way to take in premiums selling options and having a controlled risk parameter while you’re doing it. Michael: James, a lot of people when we talk about volatility and increasing volatility, mainstream investors that don’t sell options tend to run from volatility and they think, “Oh, I better get out of the market.” What they don’t understand and what option sellers do understand is that can be the time to really make hay as an option seller because it opens up these types of strategies. When volatility increases, that makes the premiums bigger. That means you can actually put on spreads like this and you can actually get a higher probability trade that goes a long way toward smoothing out the equity curve. You can get in a not only higher quality trade, but sometimes a, for lack of a better word, safer trade than you would otherwise. Would you agree with that statement? James: You know, volatility is certainly the low-hanging fruit for what we do. Any time we have the luxury of selling puts or calls 50-60% out-of-the-money in an area that we’re able to buy a long option to protect that position for just a short period of time, that is just the most low-hanging fruit landscape that we can ask for and we just received that since the election. Michael: If you’re listening to this discussion, and James and I have had this conversation in private over the last couple of weeks in regard to spreading the markets, and it has been a little bit more difficult to do in 2016. We’ve gone more to writing naked, which is certainly a viable strategy, certainly a good strategy to take premium out of the market, but when you can spread the markets when you get this type of volatility like we just got it opens up a whole new ball game for selling premium. We think that’s open now, we do think 2017 is going to be a much friendlier year to spreading options and certainly looking forward to that. James, I think one final point to make on this topic is you and I both know we get a lot of feedback from people that read our newsletter, maybe see us on TV, where we’ll write an article about something and recommend a possible trade – here’s a way you can take advantage of this – and there’s people out there that aren’t our clients that look at that and may take the trade. They go trade it themselves, and there’s certainly nothing wrong with that, but a lot of those people might not understand is that when we’re trading these markets we are trading them as part of an overall portfolio, as part of an overall strategy and not trading them in a vacuum, like I think some people take and trade on their own. So, when you put a portfolio together, you may be using a combination of different strategies, different strikes, different months, all designed to balance each other. I think that’s one thing that people just take a trade here and there don’t really understand. Would you agree with that? James: A balanced portfolio is certainly the key to success for any portfolio, whether it’s in stocks, or whether it’s real estate, or whether it’s selling options and commodities. We simply will have a blended cocktail almost, if you will, of our favorite positions that we see. Sometimes, it is a naked short position in coffee, sometimes it’s going long crude oil for the driving season, other times we see extremely large premiums on both the put and call side and in that case we would strangle the market. So, we utilize probably 4 or 5 different strategies and approaches to selling options on commodities and using a blending of all 4 or 5 is usually what a portfolio looks like. I know that’s what is going to be achieved here in the last part of 2016 and the beginning of 2017. Right now, premiums are extremely large and it gives us the ability to blend, what we think, is a very balanced portfolio using different strategies in applying short options. We’re really excited about 2017 and making exactly portfolios look just like that. Michael: All right, well I think that’s a pretty good analysis of spreading options and the strategy of the ratio-credit spread. As James mentioned, if you want to read more about that we have a whole chapter about it in our book, The Complete Guide to Option Selling: Third Edition. In closing, just a few announcements. As you may know or find out here in the newsletter, we unfortunately have no new accounts left available during 2016. All of our accounts are booked. The good news is, if you’re hoping to take advantage of some of these strategies we talked about in the gold or crude oil market, these should spill into January time frame. Would you agree with that, James? James: Especially what’s happening right now in gold and silver, it looks like an opportunity that even our listeners can take advantage of in January. Of course, if the oil market stays relatively low going into the new year, that is something we would certainly encourage our listeners to take advantage of. We only trade energies twice a year and one of those two times is coming up in the next 30 days. I would definitely encourage people to take a look at that. Michael: So, if you hear this and you say, “Aw, well I can’t really open the account” these things aren’t here and then they’re gone. They’re opportunities that could probably be available in January. We do have a few openings left in January if you’re looking to possibly have an account then. Consultations for those openings are still being scheduled in December. If you are interested in reserving one of those consultations, they will be taking place before the 15th of the month in December. So, if you’re interested in one of those, give Rosemary a call at our main number… 800-346-1949 to reserve one of those remaining openings. We wish everybody here a very happy Thanksgiving and, James, thanks for your insights this month. James: My pleasure, Michael. I hope everyone listening has a happy Thanksgiving. Very interesting times we’re going into. Sometimes, people feel that it’s a slow portion to the season coming up, but actually we find it quite exciting as investors are taking advantage of options and we’re going to take the other side. Michael: We will be back with you for a special New Years edition of the Option Seller Radio Show. Until then, everybody have a happy Thanksgiving, happy holidays, and a great month of option selling. To learn more about OptionSellers.com and their managed portfolios for high net-worth investors, visit www.optionsellers.com.

Episode 165: Drama Teachers: Theatre is community. Michael Wehrli thought he was going to be an actor.  Then he thought he would be a director.  And finally found a love for teaching and educational theatre - Theatre is process. Theatre is collaboration. Theatre is community building. There is nothing better than the ability to give somebody a community and the ability to provide tools for a student to build their own community. As an example Michael talks about creating a show in which students are not along for the ride in putting on a play, they are active participants in the process. Show Notes Theater Company  - www.newmoonproductions.org Personal – www.michaelwehrli.com We Open Tomorrow Night Episode Transcript Welcome to TFP – The Theatrefolk Podcast – the place to be for Drama teachers, Drama students, and Theatre educators everywhere. I'm Lindsay Price, resident playwright for Theatrefolk. Hello. Hello! I hope you're well. Thanks for listening! This is Episode 165. You can find any links to this episode in the show notes which are at Theatrefolk.com/episode165. All right, my friends. Today, today, we're going to talk about… I was going to say favorite buzzword. But then, when I formed the word “buzzword” in my head, I'm like, “Well, that's not my buzzword,” because I think “buzzword” and I think negative marketing connotation and that's not what I mean at all because buzzwords are slick. I think we can share with one another that I am not a slick person unless there is an oil spill in which case I would be the one who would slick into it. Of course, right? My world is filled with all that kind of slick. I'm talking about a word that I like to hang my hat on, that I like to use, that when I think of this word, the images that come to my mind give me all the warm feels. I think it's just wonderful and I really think it's important to use in an educational realm – an educational theatre realm – and that word is “community.” I love the title of this particular podcast. “Theatre is Community.” I love thinking of a production, of a drama club, of a drama class as a community. Our guest today, Michael Wehrli, also loves the word community. When he creates work with students, that's his keyword or hat-hanging word or his word of the day. You know, the brain goes in weird places. Does Sesame Street still do a word of the day or was it a letter of the day? Oh, you know, maybe I'm just too old to remember the structure of Sesame Street. Let's go with that one. Too old! Anyway, podcast and community, let's get to it! LINDSAY: All right, I am talking to Michael Wehrli. Hello, Michael! MICHAEL: Hello, Lindsay! LINDSAY: How's it going? MICHAEL: All is well. All is well. LINDSAY: Excellent! Tell everybody where in the world you are. MICHAEL: Portland, Oregon! LINDSAY: I love Portland, Oregon. Organ and orligan. MICHAEL: Or again. LINDSAY: Or when the tongue just… Don't you love it when the tongue gets tripped up? My favorite is I'm a real pro at taking two words in my head and then smashing them together to make something. MICHAEL: Lovely! I do the same thing and they come out. LINDSAY: Awesome! So, now that we've established all the things that we do wrong with our pronunciations, let's start over again. So, Michael, you have a lot of hats. MICHAEL: I do, indeed. My theatre company is twenty years old. What we specialize in is bringing programs to organizations and schools and community centers and that's what we do. There are a couple of schools that I've been personally working at for a long time but I am very fortunate in my career now that I, as a teacher, get to pick and choose places that I want to work at and then just hire teachers for all the other things that New Moon Productions does. LINDSAY: Yeah, and we know you because you have written a lovely play – We Open Tomorrow Night?! MICHAEL: Oh, thank you.

Michael: Hello, everybody. This is Michael Gross from OptionSellers.com, here with your August Option Seller Radio Show. I’m here with founder and head trader James Cordier and we’re going to talk a little bit about the markets here and things going on as we start September, back to school month, or, for a lot of investors and financial professionals, it’s back to work month. A lot of people go on vacation in August and when we get back in September it’s back to business. A lot of people start focusing on some of the stories they may have overlooked over the last month or two. James, welcome to the show – a lot to talk about this month. James: Thank you, Michael, there certainly is. Both markets moving, instruments happening, as well as the stock market, of course, the Federal Reserve is always interesting, and new highs in the stock market. We were talking recently about a couple articles that have some of the largest, most well known investors in the world saying that not only is the stock market going to pause but go into a bear market, then it continues to rally. Its just really interesting times right now with both the Federal Reserve and what a lot of people are considering with the stock market what it might do over the next year or so. Michael: You know, we’re going to talk about oil here in a little bit, but some of the stories coming out of OPEC talking maybe about a production freeze, and some people think maybe that’s helping the stock market, too, a little bump in oil here. James: It really is. This is so interesting how the oil market, especially, is a great example of a market that has extremely soft fundamentals. In the United States, we have all-time record supplies. We have Iran and Iraq and Saudi Arabia who are going to just duke it out for market share starting in October and November. What is OPEC come up with going into the soft demand season? Well, we are going to talk. We’re going to come up with some ideas and we’re going to try and freeze production. The part that is so interesting about freezing production, as we all know, is that productions are at record highs right now, so the market really is trying to grasp onto anything it can to try and get insight on what the market might make the next move. What’s so interesting is, as all OPEC discussions over the last few years, each country needs a specific amount of money to run their economy and if oil goes down to 40 or 38, they’re going to need to pump that much oil and everyone really knows it. This buying the market because of OPEC discussions coming up, that’s going to be a feudal end. I’ve seen it before the last several years and when the market rallies up because Iran is now going to join into the talks, they know that all they’re doing is jawboning. When push comes to shove and demand is low in winter, they’re going to be pumping oil like never before. Michael: Yeah, that’s a great point and we are going to talk about that in a second, too, because we have a big seasonal coming up in crude. I know you’re eager to point it out as well. September, as we discussed earlier, is a big month for seasonal tendencies. If you’re listening and you’re unfamiliar with seasonal tendencies, these are the type of things that happen at different times of the year - fundamentals in these underlying markets that can have an outside impact on price. So, being aware of what the seasonals are can really have an impact on your trading, really give you some direction when you’re starting to identify trading opportunities. It’s certainly where James and I start when we’re looking at markets and being aware of that underlying seasonal. September is a huge month for seasonals and one of those markets, in particular, is one of your specialties, James. That is the coffee market. As we end the Brazilian growing season here, we are at the end of harvest, some certain things happen when that harvest is done. Do you want to talk about that a little bit, James? James: Well, what’s interesting is a lot of investors were pointing to whether that wasn’t exactly perfect in many growing areas of the world for cocoa or sugar or coffee. But, in Brazil, we have a record harvest that just took place for Arabica beans. Those are the sought after variety that we drink here in the United States and through most of the western world. We have a record supply coming in. Harvest right now is about 95% complete and you’re going to see co-ops in Brazil wanting to turn those beans into cash. They’re going to try and hold back and they are going to make all kinds of discussion about how we’re going to have a retention plan and we’re going to wait for higher prices, but the bottom line is that they only have so much room for that coffee and it has got to go. As they say, bills have to be paid. If you’re in a third-world nation like Brazil and your cash crop is coffee, you need to turn that into the market. We expect those supplies to start hitting market channels in September and October as the harvest wraps up. Lo and behold, the United States, the largest consumer of coffee, we are currently sitting on the highest coffee supplies of green coffee stocks in the United States for the last 13 years. We don’t really need to bid up coffee prices to get the beans to get here. Coffee roasters can be very picky because we’re sitting on so much coffee here in the United States. With Brazil trying to find a home for their coffee, the United States has all the coffee they need. This seasonal for a downward move in java prices looks quite certain for September, October, and November, so we will be looking at selling coffee calls with both hands here in the next 30 days. Michael: James, that’s a great point. You’re talking about records Arabica production. Total crop out of Brazil, the latest estimate I saw, correct me if I’m wrong, but I believe they’re looking around 56 million bags, which isn’t a record but it is near a record. What you brought up, and maybe just a way of restating it to help some of our investors listening grasp it, is as these supplies hit the market, that excess supply is Economics 101. As supplies go up, price tends to come down. What tends to happen in the fall, if you look at a seasonal chart for December coffee, you hit the first of September and prices typically start declining. That doesn’t mean it is going to happen every year, but over the years that tends to be the cycle. It is something that we are expecting this year. An investor listening to this, you know, it sounds probably Chinese to somebody who just traded stocks and doesn’t know a lot about commodities… you’re talking about how we’re going to be selling options with both fists. How does an investor sitting at home grasp that? How does he take advantage of this? He sees coffee prices where it is right now and he’s looking at a chart. Maybe just kind of walk them through what he would do. James: Certainly. For anyone listening to our commentary today who have read our books on The Complete Guide to Option Selling and have read chapters that concern, for example, historic volatility, namely in the coffee market, years and years ago we had a large rally in the coffee prices because of a freeze that took place in southern Brazil, which caused coffee prices to jump dramatically. In southern Brazil, coffee plantations have migrated north. The chances of freezes that have caused prices to go up in the past are negligible. They no longer exist. However, the historic volatility that is still in coffee options will still be there and it does exist. We actually have the ability to go short coffee at double the price of its current level. In other words, we have a seasonal factor that should cause prices to go down in October, November, and December. The strikes and the coffee calls that we will be selling for clients, or someone listening to us today can do it themself, you are looking at selling coffee calls double the current price. As you mentioned a moment ago, will coffee prices slide 10 or 20 cents a pound this fall? It is really not that important. What we are positioning ourselves and our clients to do, is that we are wagering the fact that coffee won’t double during this price. Historic volatility gives us the ability to sell coffee calls at a very high price and at strikes that are almost double the current price. Michael: Yeah, coffee currently trading just above $1.50 per pound in that range. Good explanation there, James, of why you’re able to sell so deep out-of-the-money. I think that’s a big question a lot of investors have, is why can you sell so far our in commodities and not in stocks. A lot of it has to do with the leverage and the way commodities are priced, but it also has to do with fundamentals that may have changed over the years but that volatility is still in the market. Great, great example there. Selling calls into a harvest in a lot of markets can be a good strategy to pursue. That’s going to take us into another market that we are watching here in September. The grain markets are all big markets that have seasonals in the fall. In the United States, we harvest soybeans, corn, and wheat in the fall. As those supplies come in from harvest, historically speaking, that has tended to pressure prices because as that supply builds, it’s going back to that Economics 101. Higher supply tends to pressure price. That tends to happen in the fall as the new harvest comes in. Not always, nothing is guaranteed, but historical tendencies, however, have tended to drift that way. James, soybeans are another market we’ve been watching lately, we’ve already had kind of a drop-off there, but heading into a harvest now, talk a little bit about the crop there and what you see happening. James: Well, in corn and soybeans in the United States, it seems as though farming just continues to get more and more improved. Not only is Brazil able to produce more coffee beans, but here in the United States and places like Argentina and Brazil, growing more soybeans on the same number of acres here in the United States. We are looking at a huge crop in soybeans and corn that the Unites States is going to be harvesting starting in September and October. Once again, as you mentioned, too much supply and not enough demand certainly sets up ideas for shorter prices and going into this fall. Any rallies that we would have in corn and soybeans over the next 30 days, we would certainly be very interesting in selling call options on those, as well. I know that there is a lot to be made about something that’s called stocks to usage, which actually compiles how much demand there is worldwide versus how much supply there is. I know next year, Michael, you might want to refer to this a little bit, but from what I’ve been hearing, next year’s supply versus demand is going to be gigantic. Selling calls in that environment, I think, is a great addition to someone’s portfolio, as well. Michael: Yeah, you know, we talked about that this spring. We were looking at pretty big acreage this year. We did get a pretty big rally in June because we had some weather concerns, but once that crop was made, prices, especially corn, the corn prices just fell off the cliff since June. One of the reasons we are talking about soybeans right now is that they’ve fallen, but not quite as far as corn. The seasonal tends to kick in at the beginning of September, so we have some pretty good timing. In talking about the soybean crop, we are looking at the largest U.S. harvest ever. We are looking at a projected yield or crop size of 4.1 billion bushels. That’s an all-time high. If this comes to pass, our 2016-2017 U.S. soybean ending stocks are going to be at 330 million bushels, stocks to usage at 8.2%. Both of those will be the highest in a decade. When we talk about bearish fundamentals, that’s bearish fundamentals. That is a pretty big weight on the market. It doesn’t mean that market can’t rally, as you always talk about, but it certainly hinders rallies and certainly casts a bearish shadow, often a great setup for call sellers. It’s one of the reasons we’re watching beans right now – looking for those types of opportunities. James: Well, it’s interesting Michael, something that you and I referred to quite often – we may not know where the price of soybeans is going to go next week or two weeks later, but what we’re calculating and what we’re betting on is where it’s not going to go. That’s all we have to do is get that part right. Michael: Exactly. That is a good segway to talk about the crude market here. You started off talking about crude. You got a lot of media coverage lately… a couple of appearances on CNBC, you’ve had a lot of calls from the media on your call on crude oil because back at the beginning of summer everyone was bullish, you were bearish – you’re still bearish, and you’re still looking at that as a great option selling opportunity. So, maybe share with some of our listeners what you see setting up there and why you like it so much. James: Anyone listening to this right now who is thinking the idea that crude oil is going to continue rallying because of OPEC discussion or slightly smaller production here in the United States, I think you would be really well served to do a little research and find out how much supply is actually out there. In the United States we have record supplies. We have cars that now get 40 miles to the gallon instead of 20 miles to the gallon. We have Iraq, Iran, and Saudi Arabia that are producing record amounts of oil all at a time when we’re going into the weakest demand season of the year. September, October, and November, demand in the United States, the largest consumer, it falls off the table. We really like the idea of crude oil prices heading to softer levels, possibly in the 30’s and then bottoming out around November and December. This is one of the greatest seasonal plays there is, is being short oil going into late summer and early fall. Lo and behold, when the holidays come around, we get into December, we’re going to have some very low oil prices, at least that’s the way it looks from my desk. Then, the other seasonal kicks in and that is to go long when everyone is so fearful that the market is going to go down. So, we have two of our greatest plays as far as building a core position in crude oil, that come up now and then come up again in the 4th quarter of the year. It’s certainly something that has been a great addition to our portfolios over the last several years and we think it’s going to be again this coming year. Michael: James, you bring up a great point there on supply. When you’re talking about crude supplies here in the United States, the last report we are at 521 million barrels. That’s an all-time record for this time of year, as you said. 37% higher than the 5-year average for this same time of year. A key point here, it’s 14% higher than last year at this time. As you know, last year, we saw crude prices dip below 30 down into the high 20’s. We are headed into a seasonal time of year now with supplies 14% above where they were last year and if anybody listening to James talk about the seasonal tendency, you’ll be able to see a chart of that seasonal tendency in the September newsletter. It should be in your mailbox next week by the 1st of the month. You’ll see a crude oil seasonal chart there. I want you to take a look closer at what tends to happen to crude prices at the beginning of September. James hit on it pretty good there – this is why we look to build positions in markets like this that have strong fundamentals that don’t tend to change quickly. They tend to take a while to change why you build things called a core position, James, and I think a lot of our listeners might be interested to hear what that is. You talk about something like a core position and building a portfolio. That’s not something that people read about in books. That’s something that often comes from experience. Do you want to share that with some of our listeners? James: Michael, it is interesting because, for those of us that watch CNBC, Bloomberg, and Fox, you would think that there’s a bull market and a bear market in these different commodities and different stocks every 30 days, but there really isn’t. When the market moves 2 or 3% it gets so much fanfare if it’s going up and it gets so much depressed looks on TV if it’s going down. The options that we sell when we are building core positions, as we like to refer to them, they are 50 and 75% out-of-the-money when we sell calls and puts on these positions. So, when gold or silver or crude oil, in this instance, moves 2 or 3%, it gets so much fanfare. With the OPEC talks recently, they are going to bring one oil analyst or oil company CEO onto the set daily talking about oil getting to 55-60 this year and 65-70 next year based on nothing. You mentioned a really important point, and this is something we discuss often when we’re building core positions, crude oil supplies in the United States is 14% greater than last year. Last year’s low in oil was $27 a barrel. Fundamentals is the key to price projections in commodities. We like to project out 6-12 months and that is what we talk about when building a core position. The fundamentals in a market that is over-supplied won’t change in 30 days or 60 days or 90 days, so what we will do is when we get out of the high-demand season, which ends in May and June, we will sell calls for several months out. As we get into December and January, which is normally the low price-point for crude oil, we will then sell puts 6-12 months out based on the idea that the market will then bottom. Core positioning is basically the meat and potatoes of someone’s portfolio. I know we are not into the holidays yet, but commodities like gold and oil and coffee, these are core-building positions because the fundamentals don’t change and they have huge volatilities from the past. What we then like to blend in with them, it’s almost like Thanksgiving meal. You have the meat and potatoes, which will be things like gold and oil, and the cranberries, the gravy, and the dressing will be soybeans and cocoa and sugar. It’s interesting. Being diversified like that gives a portfolio a lot of staying power and the ability to withstand small movements in the market. So many people, Michael, as you know, look at commodities as a highly speculative, incredible form of gambling, and that may be true for investors who are trying to time the market. As we discussed earlier, we are building core positions at levels that the market cannot reach or very likely will not reach. Like options do, they expire worthless some 80% of the time, building core positions that last the entire year. Basically, that’s hitting singles for 12 months. Michael: Yeah, you talk about that quite a bit in the upcoming newsletter – that concept is a recipe for building a portfolio, structuring a portfolio, and if you’re listening and interested in that type of concept, you’ll get a pretty good dose of it in the September newsletter. While we’re on that subject, I wanted to mention that some of these markets we talked about today, such as the seasonal tendencies and soybeans, seasonal tendencies and coffee. If you missed those articles they are on our blog. You can go back and see those seasonal charts and see how some of these prices tend to perform different times of the year. If you’ve never traded commodities before, it’s a real eye opener to try and get a feel for maybe what some consider an invisible hand behind prices and getting kind of a peek at some of the things really affecting price in different commodities. While we’re on the subject of the upcoming newsletter, James, I want to talk about this for our listeners and readers. We have coming up, as I said – you’ll probably get this at the end of next week, we have an article called 3 Reasons to Love Commodities Now and we kind of go into why commodities are such an attractive investment at this point in time. We talk about some of the warning signs we’re seeing for stock prices right now. As you mentioned at the top of the show, a lot of big names getting pretty bearish on stocks, a lot of big investors thinking the prices are getting a little scary now with what’s going on in the world, so they’re looking for alternatives. We really dig into that a little more this month. Something we also have is a crude oil piece that you talked about here briefly, but we outline a little more detail in the newsletter. We also have a guest column this month by former commodity hedge consultant Don Singletary. James, I know we talked about Don and looking for ways to maybe work with him a little more. Don spent 25 years advising a lot of these big commercial hedgers on hedging hundreds, millions, and even billions of dollars worth of product, whether they are harvesting corn or hedging their oil or gasoline. He kind of came to the same conclusion we did as far as option selling – he came at it from a different angle, though. He came at it as he played, pretty much, to these individual investors. It is tough to compete with these pros, but here’s how they did it. He kind of came to the same conclusion we did and he talks a lot about the same philosophies that we do about selling options. Great piece in our newsletter this month - You don’t want to miss it if you have an interest in that. Let’s talk a little bit about our lesson this month, James. I know we talk a lot about fundamentals in this month’s lesson. We want to talk a little bit about technicals because that’s not something we discuss a lot when selling options, but we still use them and I think some of our listeners might be interested to hear how you use them when you are looking for a trade. James: You know, Michael, when we have very discernable bearish fundamentals, we are watching for a market to rally and reach over-bought conditions. Watching technical indicators, like Stochastic Bollinger Bands and RSI, basically that’s going to help us with timing. It is certainly not necessary, but when we see the oil market rally on short covering, for example, if you were to look at open interest in crude oil you can see that this entire rally was based on investors that were short and were forced to cover. That is an extremely important tool to have in your toolbox is watching open interest in a market that’s trending against its fundamentals. You can almost see by watching open interest when the market is rallying against its fundamentals or its falling against its bullish fundamentals, you can almost see when the last bear got out of his position. It’s not splitting atoms, it’s nothing that the average investors can’t do for himself, but it’s something to be cognoscente about. When open interest balloons to all-time highs in crude oil on the short side, you know what’s coming. Everyone who wanted to be short is already sold the market and the least amount of bullish factors that hits the market will cause the beginning of a rally. By watching open interest, you can see when the last guy got out of his short position. That just happened in crude oil here over the last few weeks. Watching fundamentals gives you the idea of which position you want to take and sometimes, being very cognoscente of the technicals, it can tell you when to get in. We’re not trying to be market timers, but when technicals and the fundamentals line up that is when we put our tuxedo on and jump in. Michael: You know, that’s a great point you bring up because a lot of people watch technicals and maybe they can time a little blip in the market or time a little turn around in the market for a short term, but the big point you make, and it’s one we make often in a lot of our writing, is that knowing the fundamentals is what tells you if that blip in the market is the start of a change in trend or is it a buying or selling opportunity on a correction. That’s what the importance of the fundamentals is knowing that big fundamental picture. I know that’s something you stress a lot. James: Well, Michael, these 8-10 markets that we often discuss have been my friends for the last couple decades. They have personalities and they have seasonal tendencies. You can tell when they get a lot of hype on TV and you can tell the difference between hype and fact. The more you trade these the more you get used to them. They are kind of like friends you keep in your back pocket, and when they are over-bought or over-sold against the fundamentals that is when you add to your core position and making building portfolios so much fun. Michael: As a trader, James, portfolio manager, I know a lot of people have their technical indicators. Maybe talk a little bit about the top 1 or 2 we like to watch in our office. You and I know what they are, but maybe our listeners would be anxious to hear just out of curiosity what we like to watch. James: As far as technical indicators, Bollinger Bands is one of my favorites. Putting a Bollinger Band calculation on a weekly chart, and it really helps you understand what the exact outer limits on what a market can reach simply on short covering or news item or headlines that often push the market because that generates computer buying and computer selling. I would suggest to anyone listening to us today who wants to get more averse with technicals, I would look at weekly charts instead of daily charts. I would look at things like Bollinger Bands instead of simply Relative Strength Index. We look at weekly charts because during the time that we are in a trade or in a position, it’s going to get several buys and sells and the fundamentals never budged. The name of the game is patience. The name of the game is fundamentals. We get paid to wait, and following weekly charts allows you to do just that and the noise in the market doesn’t affect you because you’re looking at the big picture. Michael: Well, what a great synopsis there. This has been quite an information-packed radio show, don’t you think, James? We’ve covered a lot of ground here! James: Michael, you started out by saying September is one our favorite months, and you and I talk about that because we’ve experienced so many Septembers selling options on commodities and we expect this September to be quite a lot the same. Michael: I agree. Well, everyone, I believe that is going to wrap up our show this month. For those listening, our September account slots are closed for this month, they are all filled, there’s no availability this month. We still do have a few slots remaining for October. If you’re interested in pre-qualifying interview for one of those slots, you can contact Rosemary at the office at 800-346-1949. For the rest of you, have a great month. We’ll be updating you on portfolio progress in the bi-weekly videos if you’re a client. Have a great month of premium collection. James, thanks for all of your great information this month. James: My pleasure, Michael. I enjoy doing these and look forward to doing them again many, many times. Michael: Great! Everyone have a great month, and we will talk to you at the end of September. Thank you.

Michael: Hello, everyone. This is Michael Gross of OptionSellers.com, here with head trader of OptionSellers.com, James Cordier. We’re bringing you your monthly Option Sellers Radio Show. This is for the month of July. Today, we’re going to talk about quite a few things. I want to start off with the gold market, because, James, you were featured on CNBC this month talking about gold, taking a little bit less than bullish view on that. Is that still your view on the gold market right now? James: Well, Michael, as you know, everyone’s bullish gold simply because of 0% interest rates and negative interest rates around the world. The last time that quantitative easing was introduced in the United States, that’s what raised gold from $1,100 up to $1,900. Now, a lot of investors are thinking basically along the same lines. Quantitative easing was supposed to create inflation. Several years ago in the United States, when we went to QE, it didn’t happen. Now, I believe investors are falling maybe into the same trap, thinking inflation’s on the way. Because of negative interest rates, it may not play out that way. As a matter of fact, lower prices for commodities because of a weak global economy, we think, is more likely. Michael: That’s counter to what a lot of people feel right now because of times of anxiety, we have terrorist attacks again in Paris this month, seems to be a lot of turmoil in the world right now that’s bringing a lot of investor interest into gold. You seem to feel that the inflation argument probably will be what dictates the direction here over the longer term. Is that correct? James: Michael, eventually it always does. Quite honestly, inflation is the catalyst for gold and silver to go higher. If we have deflation, we just don’t see how it can produce gold prices of $1,600, $1,700, $1,800 an ounce, which a lot of investors are looking forward to. But the fact of the matter is, gold did rally to $1,800 and $1,900 an ounce several years ago. Commodity prices were raging, soybeans were at multi-decade highs, so was copper, so was crude oil, so were many of the foods. We are going into a very weak economic/global state as far as demand for commodities. We have overproduction of everything from steel, to zinc, to iron ore, to copper, and silver. We just don’t see the inflation scenario taking place. Is gold good for hiding out when there are situations going on around the world? I guess it is; however, inflation eventually dictates the price, and we’re seeing probably deflation at the end of this year. Michael: Well James, you make some good points, and maybe they’re listening to you because since your appearance on CNBC at the beginning of July, gold has had a pretty good retracement down. I also noticed, and this is something that we mentioned in the article that you did last week, that we have a very big speculative long position in gold futures. It’s on the record that with 50,000 contracts it’s pretty heavy, so oftentimes when you have that heavy speculative yet small speculators pouring into the market, they’re heavy along the market and you have commercials getting short. Sometimes that can be an indication of a trend change. James: Michael, we think this is one of the most crowded trades ever. Just about practically everyone who’s a gold bug is double down on getting long gold. We have had a decent rally. It rallied nearly $100 an ounce. We’ve come back about $50 real rapidly over the last 2 weeks or so. Basically, the U.S. economy is doing okay. We’re not looking at negative interest rates anytime soon here. We think that the smart money, who probably was buying gold around $1,100 and $1,200, probably feels that they just have too much company right now. We see gold probably retracing into the $1,200’s over the next quarter or so. We think gold is a great market to trade. We would not be stuffing it under our mattresses… not at this price, certainly with commodities headed lower, we think gold and silver are going to probably be sold off slightly as we go to the end of the year. Michael: Now, that brings up a good point, James, and I know you’ve made this point before, as well. When you’re talking about gold prices, or writing about it, people have the viewpoint of, “Well, what is it going to do? Is it going to go up? Is it going to go down? Where do I need to buy it? Should I buy it now?” Obviously, first of all, our listeners know that’s not really how we’re trading here or how you’re supposed to. What you can’t say on CNBC is “Look, I don’t know if this is the top, but we’ll see it going through the roof and you want to take advantage of selling some of those high option premiums.” Do you have any you’re looking at now or how would you go about trading that market? James: Michael, we like talking about volatility and low-hanging fruit at the same time. That just took place in gold and silver the last 2 or 3 weeks. Gold is probably fair valued around $1,300, and silver is probably fair valued around $20. The gold bugs and silver bugs just came out in full force over the last 2 weeks. Silver bugs buying $40 calls for silver out several months in time, buying $1,900 and $2,000 gold calls several months out in time. We just feel that the likelihood of that happening is so minute. It simply isn’t going to happen, in our opinion. Gold production is doing quite well, as a matter of fact. A lot of investors are familiar with the fact of oil production has gotten better and more productive with fracking. There’s a new technology in the gold production. It’s similar to oil fracking except it’s in gold production. There is no shortage of gold, and as we see investor appeal go towards other markets and realize that buying gold of $1,350 and $1,375, they’re buying the top price in the last 2 ½ years and that might be a good place to be taking profits. We think that selling calls, you know, $1,900 and $2,000 in the gold market right now is going to be ideal. We think that silver and gold are probably going to be around 10-20% cheaper than where it is right now. That’s probably the best sale on the market right now is selling silver calls at 40 and gold calls at $2,000. We think that’s probably the best way to find yield anywhere right now. Michael: Yeah, and I love that strategy, James, and I know it’s one you and I have talked about. You get so much investor interest and you get media interest and it kind of feeds on itself. That’s what brings us speculators in to start buying those deep out-of-the-money strikes. Targeting them is what you’re talking about now. A lot of investors probably aren’t aware that there are strikes available that far out of the money when you’re trading futures, and I’m sure a lot of them appreciate you pointing that out just now. Speaking of the anxiety, a lot of anxiety now coming about the election season. A big election coming up and the question I get a lot when I’m consulting with investors, and I’m sure you do too, is “How is the election going to affect commodities? How can it affect the price of my selling option portfolio?” How would you answer that question? James: Every time we have an election, all of the smartest minds in the world trying to figure out if that is going to be bullish or bearish for the stock market. Is it going create inflation if the democrat or republican wins? This has been going on for the last 200 years in the United States. We feel what it does is it provides opportunity because it’s uncertainty. Investors will buy puts who think the market is going to fall, they’ll buy calls at extraordinary levels that think it might be bullish, and we never use the terminology at the end of the day because let’s say at the end of the year from now on. That does not change the supply and demand of raw commodities. It changes it so little that going into an election, when there’s a type of fear on the upside or downside of a particular market, you want to sell that going into an election, because when the dust settles several days later, we’re right back to supply and demand, and that never changes with an election. We don’t see that happening in 2016 either. Michael: Yeah, that’s a great point. You get in an election year, especially right around the election, and maybe a couple days after you get sometimes a reaction in the stock market, and maybe even in some commodities, but the fact of the matter is, at the end of the day, no matter who gets elected, people are still going to eat their Corn Flakes, they’re still going to put gas in their car, and they’re still going to want their cup of coffee in the morning. The supply and demand cycle goes on, and that’s really how it affects the commodity portfolio. In the longer term, it probably won’t have that big of an impact. Speaking of coffee, you have a nice feature in the newsletter coming up this month that you put together on the coffee market. That’s kind of an example as where you get a news story or something pushing up prices against the fundamental. Can you talk a little bit about that? Just maybe give our listeners a preview of what’s coming up in that piece? James: Michael, what’s happening in coffee in 2016 is so similar to what has happened over the last 10 or 15 years. We have several fronts right now. We have dry conditions in some of the growing regions in South America. We have free season in Brazil, which historically was a big driver to higher prices. Of course, we have a lot of investors thinking that coffee consumption has increased dramatically. These are 3 things that have pushed coffee up recently. Coffee was trading around $1.30-$1.35 a pound. It has rallied up to $1.45-$1.50 a pound recently. Historically speaking, coffee rallies in June and July based on the fact that it is free season in Brazil. In all actuality, come September, October, November, Brazil is picking beans and Brazil, like all other nations, need to turn their commodities into cash. We see very large sales happening in September and October of this year. We see that the price of coffee will likely be around $1.30 to $1.35 at harvest time and we are very much salivating over selling calls at the $2.60, $2.70, and $2.80 level. We think that coffee will be half that price this fall, and that I think is probably one of the best examples of low-hanging fruit here in the month of July. Michael: So, it’s high right now, you think it’s fundamentally over-valued, if that’s a fair statement. You made some good points there, but is any of that based on where we are with supply right now? I know Arabica production hitting a record this year in Brazil- 43.9 million bags. Is that already priced in or is that yet to be priced in? James: The Arabica production in Brazil this year will be a record. The Robusta production in some of the northern regions of Brazil is down this year. It’s down about 2 or 3 million bags. However, there is no shortage of coffee by any means. We did have difficult weather because of El Niño this past year. La Niña is now taking place and we think that is going to return a lot of the precipitation to areas in Columbia, Brazil, Honduras, and Vietnam. That will help production in the upcoming year. Supply is worldwide; it’s practically a glut. Here in the United States, they call something known as green coffee stocks. That is counted and announced every month. In June 2016, coffee supplies hit a 13-year high here in the United States, 6.2 million bags, and no shortage of coffee in the United States. We’re the largest consumer, and as long as there’s a lot of coffee around the consumption country of the United States, we don’t see prices getting any higher than a weather scare, which is basically what we’ve had here recently. We think this is going to be a short-lived rally. Supplies are burdensome and demand is about the same, believe it or not. Michael: So, in short, this is almost like the ideal market we talk about in our book where you have a fundamental situation. The market, for whatever reason, rallies against that fundamental, it gets overvalued, the call options get overvalued, and we don’t necessarily now where that top is going to be, but when you know it’s overvalued you know it’s going to be there somewhere. When there’s options so far out-of-the-money, that’s a time you start cashing in on, that’s the time you start collecting premium. James: Michael, what we’ve noticed last 12 months is that any time a commodity rallies on headline news or slight weather concerns in different parts of the world, especially in producing nations, you have investors chasing yield. It happens in silver, it happened in soybeans, it has happened in coffee recently. When you have negative interest rates around the world it sets up opportunity, because what winds up happening is investors will end up buying commodities above and beyond their fair value, they come down to their fair value after the frenzy ends, and during that time there’s a crescendo, and that’s when you sell calls on commodities 30, 40, 50% above the market. In some cases, like in silver and coffee right now, you can sell calls 100% over the value of the market. That is just ideal for option selling in our office. Michael: Yeah, you made a point there. I want to go back to because I want to segway into talking about the upcoming newsletter this month. The front-page article we were talking there a little bit about modern asset allocation because it’s becoming kind of a hot topic in the media right now – is 60/40 – 60% stock, 40% bond, that’s what everybody is supposed to do. That’ll make you healthy, wealthy, and wise into retirement. Given the way the economics of investments are right now, you have negative interest rates, a lot of people worried about stocks, alternatives are about to get bigger. In fact, I don’t know if you’ve seen it, but there’s an ad now on TV, I believe it’s for Invesco, that they are making that statement: “60/40 is dead. The new allocation is 50/30/20, with 20% going to alternative investments.” Do you have a viewpoint on that or what type of asset do you favor? James: You know, that asset mix is becoming more and more popular. Reading the Wall Street Journal today, they were talking about CalPERS, of course the largest investment fund in the world. They made .7% and their fiscal year ending in June there is no question that investment funds, CalPERS, and everyone down to just someone investing their $1 million account of their own are looking for return. Simply put, the stock market is going to go up and down 5% at the end of the year, it might be down 1%, we’re not sure, that’s not the game we try and play. Selling options on commodities is just a great way to diversify in our opinion. It allows investors to take advantage of bull and bear markets, the economy gets weaker, it gets stronger, and it just continues to be uncertain. That’s ideal for what we do. A 20% allocation of a portfolio into diversification, if you will, into, for example, alternative investments like what we do, I think that’s about right. I know a lot of the investors that I speak to are probably around 15-20% and I think they’re happy that they are. Michael: James, I have kind of a personal story to share here. My mother came to me the other day and she wanted me to go with her to her financial advisor to meet with them. I said, “Why?” She said, “Well, I used to make money and now I don’t make any money.” It hasn’t grown, it doesn’t go anywhere, and she’s concerned she is in the wrong stuff. I said that I’d be glad to do that. I took a look at things and they have here in about 70% bonds, which may or may not be right for a retiree, and we’re certainly going to discuss that. I had to explain to her, “You’re in this bond market that maybe used to pay you yields, but it’s not paying any yields anymore, so that’s why you’re not getting money from it. I think that there is probably a lot of people in that mindset of, “Why isn’t there money coming out of this anymore?” It’s because of the state of where interest rates are right now. James: Absolutely. Central banks all around the world are doing everything they can to try and increase investment and how they do that is they punish savers. They punish people who wanted to be conservative in the past, and that’s a perfect example. 70% in bonds, getting absolutely zero return and it is just not right. Why in the world savers and people who do things as they were always taught, work hard, save your money, get a fair interest on it. Why in the world do central banks around the world force you to invest in a fashion that you normally wouldn’t do is just what has taken place recently. That is what is basically changing the real value of assets. The stock market this past week has gone up to all-time highs and what is the global economy? It’s awful. Why do you think interest rates in Germany are negative right now? Because the economy is doing good? No. They are forcing investors to take on more risk than they normally would. It is creating opportunities and everywhere from commodities to stocks, a lot of investors are fearful of the stock market right now. It’s going up right now because it has a FED put under it. In other words, the Federal Reserve and central banks around the world are going to continue pumping money into the system, punishing savers, and making people invest, and that’s really a scary scenario for sometime down the line. When the stock market bubble blows, who knows, but I can’t imagine that there’s going to be a chair for everyone when the music goes off. I don’t think I’d want to be long stocks on that day. We don’t know what the stock market’s going to do the next 12 months, but a lot of the investors I speak to right now are getting a little bit fearful of it. When the stock market makes all-time highs on bearish news, you really got to think twice about what you’re doing. Michael: Yeah, I don’t know about you, but the whole thing is starting to feel like a house of cards to me. I did a little research this weekend on that figure we were talking about, the asset allocation. There was a survey, there was a number of different big banks on here, they all add up different opinions, there’s no real consensus. They interviewed Barclay’s, Goldman’s, you know, a bunch of the larger organizations, and there is quotes there anywhere from 5%-45% of your total assets and alternatives now. I’m imagining some of those are starting to skew upwards, given the current state of affairs. We’re going to be talking about that a lot more in this month’s newsletter. The Option Sellers Newsletter for August should be in your mailbox, or at least your e-mail box, by August 1st. You should expect your hard copy probably a couple days after that. James, not to totally give away the newsletter, but there’s also a discussion in this month’s newsletter about option selling as an alternative investment, but it’s a type of account that doesn’t really… it acts like a business more than an investment. What we mean by that is a lot of people think that an investment, you buy something and hope it goes up, where a business, you get paid to sell something. If you’re explaining that to someone who doesn’t know how to sell options, it’s probably a better way to explain it. Is that how you would explain it to somebody that doesn’t how to sell options? James: Michael, it’s interesting, so often we’ll have investors who are really astute. They’re very intelligent, they’ve been trained in the stock market, and they understand economics 101 all the way to 1,001. But, when it comes to explaining option premium selling to them for the first time, it is a complete mystery. It is so much like owning an insurance company. It’s like running a business. Basically, you’re selling to people buying. 80% of the time these options expire worthless. The insurance company probably has even a better ratio than that, but you’re basically running a business. As opposed to an asset, like Apple stock or gold, and hoping that it rallies, you’re basically running a business by selling insurance premiums to whether investors are familiar with the price of calls or puts that they should be buying or not. The fact of the matter is, we’re basically running this investment more like an insurance company. It’s been that way for the last several years and, with the uncertainty abound right now, it feels like it’s going to continue over the next 2-3 years, at least, until a lot of the uncertainty around the world gets unsettled. Premiums are much too high for the underlining value of commodities. It is a lot like running an insurance company and, as long as option buyers continue, we’ll continue selling them. It is a whole lot like taking in premiums. Every once in a while you have to pay them out, but for the most part, it’s a good place to be. It’s almost like being in the house in Las Vegas or an insurance company, depending on which scenario you want to look at. It has been interesting and it seems to be getting better and better. Michael: Buffet says insurance is the world’s most profitable business. I think that’s a pretty good analogy. We will be covering that a lot more in the newsletter. You can look for that, again, on August 1st. James, let’s transition here and do our lesson for the month. There’s a good thing I want to bring up because we ran a series of blog entries this month entitled 7 Ways to Get Higher Premiums. It was, as you know, we discussed different ways you can get higher option premiums. It doesn’t necessarily say that we recommend all of them or we use all of them, but we talked about 7 different ways. I know you have your favorites and I thought maybe you could talk about some of the ways or some of the methods you use when you’re managing portfolios. How do you or what do you look for to target higher premiums? James: Michael, it’s interesting. When selling options, there are many different ways described as to how much time to sell, how far out-of-the-money, what type of premiums to look for. One really easy secret that I can share with our listeners today, is that if you look at options that are 30-40% out-of-the-money and you look at options that far out-of-the-money that are 30 days left before expiring, 60 days left before expiring, 90 days before expiring, they’re almost practically at the exact same price. If that is the case, why wouldn’t you go out an additional 90 days when you sell an option? If 30% out-of-the-money a 1 month, 2 month, 3 month option is basically at the same price, go out an additional 90 days because you will get, when you initiate that short option, you will get 40-50% more premium by going out that much further in time. Yet, when it gets closer to expiration day, whether you have 1 month left on your option or 90 days left on your option, it’s practically the same price. The easy secret is to go an additional 90 days further than you think you normally would because, come expiration day, as we approach that time, you are able to cover that option 90 days left, 60 days left, 30 days left at practically the same price. So, very easily said, go out further in time. It allows you to get much more premium, in some cases 30, 40, 50% more premium, and as you near option expiration, you can cover it at 10% of what you initially sold it for. That is something that we do for our clients constantly. There are a couple other secrets. I can’t give them all away today, but, for those learning exactly what we do, that is something for you to consider. Quite often, a portfolio opens with us and they’re surprised at how far out-of-the-money we sell. Often, people think that gives the market a long time for you to be wrong. We don’t look at it that way- it gives us much more time to be right. That’s the way it has been turning out for the last several years. Michael: James, that is a great point, one that strikes home with me because I remember back in the day, years ago, we used to debate that. You used to always say it was better to sell further out. I kind of favored selling a little bit nearer. Over time, I came to see the light. Your way of going at it, I really saw the logic in it and the years have proven that to be an astute way to approach this. It seems to give you a lot more leeway, there’s a lot more margin for error, and you get a higher premium off of it. James: Michael, trading a lot is not what we’re interested in. Increasing high, high, high probability of option expiration is what we’re after. It all really pays off in the long run. Michael: Yeah, and you shared your favorite strategy for getting higher premiums. I’m going to share mine, too. We’ll give our listeners 2 out of the 7 that are our favorites. This is probably one of the ones you like, as well, because I know it’s something that we do often. In selling credit spreads, and a lot of people think that protection is expensive, you’re selling an option, you take a premium, and then you’re buying that protective call or put to limit or curtail your risk, which can be a great idea. Often times, after that first few months, and those options are already well into decay, the odds of those options ever going in the money begins to drop substantially. If you can unload your protection and sell it back to the market, that brings in some extra premium for your credit spread. You just let the nakeds expire. I know that’s one you like to use, as well. James: Michael, the time to do that is when volatility is the highest. Buying protection when volatility is low is expensive. Right now, buying protection is very cheap. Once again, it increases the odds of the trade going favorably for you. Buying protection right now is absolutely excellent timing to do that right now because of the high volatility, the high premiums. It gives us the luxury of buying protection and, talk about sleeping at night, option expiration happens worthless so often. If you can add protection to that, it just increases everyone’s odds that much more. Michael: Excellent. For those of you listening, if you want to hear more of those strategies, obviously we recommend our book, The Complete Guide to Option Selling: Third Edition. It’s available on our website, OptionSellers.com/book. We cover those strategies and many more for getting higher premiums and protecting your downslide, hopefully building a long-term income stream. We’re going to close this month by letting you know that we do have a couple spots left for our President’s Club. I have a client group this month that’s accounts $1 million and up. Those accounts do receive some special benefits. If you’re interested, you can feel free to give us a call at 800-346-1949. Other accounts, we do have some pre-qualifying interviews left in August. If you’d like to inquire about an account and schedule an interview, you can contact Rosemary at that same number… 800-346-1949. If you’re out of the United States, you can reach us at 813-472-5760. Obviously, if you’d like more information today, you can also find out at our website, OptionSellers.com. We’d like to wish you all a great month. We’ll be updating you on your portfolio progress on the bi-weekly videos. James, thanks for your great insight this month. James: Michael, it was my pleasure. There’s nothing that I like talking about more than short options on commodities. They’re getting more lucrative and certainly something that’s near and dear to our hearts. Michael: All right. Well, everybody, thanks for listening. We will talk to you again next month, and have a great month of option selling. Thank you.

Michael: Hello everyone, this is Michael Gross at OptionSellers.com. We’re here with your monthly Option Seller Radio Show for June. We have a lot of stuff to talk about here this month, simply because of the news going on this month. Probably first and foremost, James, what we want to talk about here is the FED decision or inaction, as we say. Obviously, that was a big topic on Investor Mines here in June. The FED did not act – the reasons why were kind of obvious to everyone so we don’t need to talk about it here. I think probably one of the first things we should talk about for out listeners is what the means for commodities right now. What’s the macro picture in commodities? James: Michael, the macro picture right now is perfectly mixed. We have 0% and negative interest rates all around the world, which is extremely the main reason why the Federal Reserve here won’t be raising interest rates at all this year, possibly once maybe after the election, something along those lines. U.S. companies certainly can’t afford to have a strong dollar. With everyone else racing to zero and now below zero for interest rates, clearly the Federal Reserve is going to hold off on raising interest rates here. The strong dollar would be a catalyst for other strong economies to do well, and for the U.S. economy to suffer, and certainly we don’t see that happening. So, we’re looking at the newly 0% interest rates here in the United States, negative interest rates everywhere. Generally speaking, historically, that is going to be bullish for commodities; however, the fact that we have such low interest rates because economic growth around the world is so weak right now. So, on the flip side of 0% interest rates is that economic growth right now is small. Copper demand, steel demand, zinc demand, and soybean demand is way down. For that reason, we see a very mixed picture for commodities for the last half of 2016. We see a lot of up and down because of that, and we think a lot of commodities are fairly priced, and what the Federal Reserve is doing right now is simply jawboning to get the market to do what they want it to do. At the end of the day, we’re looking at very few interest rate hikes this year. That is, I think, what Janet Yellen spelled out in June. Michael: Yeah, it has been all the talk on the financial channels and the paper and what the effect is going to be on equities now, and you have Jim Cramer talking about buying defensive stocks because he’s more concerned about the global financial picture. Do you have any thoughts on that? Stock traders have two choices: they can be long or short. The typical investor gets advice like “Well, you buy defensive stocks and hope to try and ‘ride it out’.” So, they’re playing defense if they’re expecting lower prices. A lot of times, shows like Cramer’s don’t cover “Well, why not go on the offense with strategies like options?” You certainly brought that to my attention, because now’s the time you can go on the offense with different commodities markets, even the stock market if you want, but commodities in particular. James: Michael, I think that’s why we have so many investors knocking on our door right now, simply because they do want to diversify away from the stock market. Buying defensive stocks, if the stock market falls, isn’t going to help your portfolio all that much. Basically, as Mr. Cramer’s referring to, getting involved with defensive stocks is simply going to make your portfolio fall less. As we know here at OptionSellers.com, if we see something developing, whether it’s a bull market, bear market, or something in-between, take advantage of that, and that’s what we’re able to do selling options on commodities. We can actually bet on lower values. As a matter of fact, that’s what we like doing best, as you know. Of course, call options on commodities, sometimes 50% and 100% out-of-the-money, certainly a great way to participate in what might be a bear market 2016 and 2017. Go on the offense, and that’s certainly what we do here at the office for our clients on a daily basis. Michael: Something we talked about in the newsletter this month, and I don’t remember if it was a letter you got or not, but somebody asked, “It seems like you guys sell a lot of calls. Are you perpetual bears on the market?” Your answer was, “No, we’re not perpetual bears on the market. We can be bullish or bearish. It just so happens that oftentimes because it’s public speculators, calls are often more over-valued than puts.” Can you talk about that for a minute? James: It’s certainly true. When we have a move up in silver, silver recently moved up from $16 to $17.50, when soybeans rally because of dry conditions in the Midwest, the public really pushes prices on call options further than they normally would be. Fair value is still something that we follow. Puts sometimes get overpriced, but call prices on commodities get absolutely inflated. We had made note recently in one of our videos that we think that June and July we’re going to look back at the end of the year, that absolute crescendo in call premiums on many commodities, and so many stock portfolios that sell options on stocks. We’ll talk to new clients and they’ll say that they’re selling options 2%, 6%, 8% out-of-the-money, when you can bet on a commodity to not double in price by selling a call 100% out-of-the-money. What would you rather do? Michael: Alright, James. Speaking of taking alternative approaches with options, etc., a lot of high net-worth investors have an interest in hedge funds or may have investments in hedge funds. I wanted to bring up an article here from the Wall Street Journal, last month, from May 13th. Its called Hedge Funds Annual Bash is Downer as Industry Flags. The whole thing is about this big annual party they have out in Las Vegas for all these hedge funds managers. Bernie Sanders would not be happy – I’ll put it that way. They have all these bands and celebrities and everything else. This year, there’s a real downer mood there because a lot of investors are pulling money out of hedge funds. Major hedge fund clients, including Chinese sovereign wealth funds, during this thing aired doubts. The general feeling was that 90% of hedge fund managers probably weren’t skilled enough to navigate the markets. That’s how they felt and that’s why this money is coming out of hedge funds right now. Do you feel that’s accurate or do you have any input into that? James: Well, Michael, I read the same articles. A lot of that was floating around over the last month or so, especially in the Wall Street Journal, paying hedge funds two and twenty, simply trying to chase return right now is extremely difficult. I think there was a record number of hedge funds that closed in 2015 and the first half of 2016. It’s easy to be a hedge fund when the stock market is going straight up. It’s easy to produce returns that way. What happens when interest rates are at zero? What happens when the stock market goes sideways for the last 18 months? Where do you make 15%? Where do you make a 20% return? It doesn’t exist. I think my favorite piece out of that Las Vegas soirée this past month was some of the biggest banks sticking out their biggest chests over the last several years. We’re telling they’re clients that they had to get to the club and back using taxis and they weren’t using limousines this year. When the hedge fund industry can’t get their best prospects to and from the restaurant and they need to get their own vehicle and their own transportation, I think that says really something. Going to Vegas once a year, you have to just be absolutely confident that the returns are still coming and sticking your client in the back of a cab probably isn’t a good sign. Michael: Well, the thing about hedge funds, and they argue that it helps reduce volatility etc., etc., and that’s why you shouldn’t bail out, but a good piece of the article was about that stocks have been going up for the last how may years. Nothing against hedge fund managers, there’s a lot of great strategies and very gifted individuals, but, on the other side of the coin, a lot of these guys are just glorified stock pickers. If that market’s going up they’re going well, and a lot of investors look at that and say, “Great… I made 8% or 10% last year. I could have done that on my own. Why am I giving you 20% of my profits and 2% of my account?” So, that’s what I saw and that was my takeaway from the piece. It was an interesting piece, nonetheless, and for those of you that invest in the hedge fund industry, maybe look for some alternative strategies other than ones that focus entirely on stocks. Speaking of alternatives, we did a special report this month on natural gas. A lot of that revolved around the seasonal tendency, James, and how a lot of people get it wrong. The pop analysis is you buy natural gas in the summer, and that’s not necessarily the case. Can you talk about that a little bit? James: Michael, I think what happens in natural gas during the summer is similar to other commodities that people just jump on. Fundamentals are what dictates eventual price, and short-term headlines is what creates opportunities for investors like OptionSellers.com. The bottom line is this: everyone is watching the weather, everyone is trying to chase return, everyone’s looking for the next best way to make a buck, especially with interest rates flat like they are. It’s 120 degrees in Arizona, breaking records, let’s buy natural gas for this heat wave. This sort of thing happens all the time. Fundamentally, we have ginormous supplies of natural gas, both in the United States as well as around the world. What investors need to know when the jump into a commodity like natural gas, because it’s going to be hot this summer and they think we’re going to need electricity to cool homes and cool factories. The bottom line is this: winter demand for natural gas is 5 times greater than natural gas consumption during the summer. So, as investors pour into natural gas because it’s 120 degrees in Arizona and they think they’re going to get rich going long natural gas, that probably isn’t going to work out so well. Natural gas demand is needed in the winter. We have production ramp up for natural gas supplies that are going to be needed in the fall and wintertime of the year, not in summer. We are looking at selling natural gas here with both hands. We had a one handle on natural gas, Michael, as you know, just a month or two ago and the November and December contract are pushing up towards 3 and 3.50 per million BTU’s. That, in our opinion, is a sale. We have the public and headlines pushing natural gas right now. This fall, natural gas is going to be pushing the low 2’s and possibly the high 1’s. Once again, don’t trade your investments and your hard earned money based on headlines. By the time it hits the headlines, you probably want to go the other way and, if you have the ability to sell options, we actually can go the other way. Similar to being on the offensive, Michael, like you mentioned at the beginning of our show today, there are ways to go on the offensive. You don’t have to just get out of the market, you don’t have to buy defensive stocks, you can go on the offensive, and I think selling natural gas for the rest of the year is a great example of doing just that. Michael: The best defense is a good offense. You talk about selling deep out, so the thing just rallied. Funny you brought that up, because natural gas was in the Journal yesterday. They’re talking about warm weather and a lot of specs coming in, so the thing rallies and obviously that drives up volatility, but how far out-of-the-money are you looking to sell calls now? James: Natural gas, the timing is a seasonal trade. Quite often, we sell options 6 and 12 months out. On this particular, what we think is a great opportunity; it’s not that far out. The spot month, of course, for natural gas is going to become August here in the next week or so. The November and December contract are the ones that we are keying on. September, October, November, a lot of investors and analysts think that’s the beginning of winter, but, in all actuality, in Boston, New York, and Philadelphia, it’s not that cold in October. So, we’re looking at selling options for early winter delivery and we’re selling options anywhere from 30%-40% out-of-the-money. We checked the margin rates on these and the possibly decay and that trade looks excellent, so we’re starting to position our clients in that this week. Michael: One thing I like about it, as well, is that it’s not just a seasonal trade. Overall supplies of natural gas right now are 32% above the average for this time of year. As you mentioned, just a huge glut in the market right now, which that’s the bottom line fundamentally in natural gas, regardless of what you’re reading in the headlines. James: Michael, that brings up a great point. A couple months ago, we were talking about trading seasonally, however you want it to line up with fundamentals, and vice versa. Every once in a while, we’ll have a seasonal trade comes up and it’s not geared with the fundamentals. This trade has both. As you mentioned, the supply of natural gas is just huge and it’s several percentages above the 5-year average. It’s 30%-40% above what it was last year. This trade appears to be lining up quite well. The fundamentals is how we trade: that always comes first and seasonality comes second. The fundamentals right now, as you mentioned, are very bearish long term for natural gas. Michael: If you’re listening to this, this isn’t a discussion where we’re saying the natural gas markets are going to crash tomorrow and you need to short it today. We don’t know if the market is going to turn around tomorrow, it could keep going up for the next month. That’s one reason why we are talking about selling so deep-out-of-the-money is you give the market room to do that and still take advantage of those longer term fundamentals and seasonals that James was just talking about here. Speaking of the longer-term fundamentals, in our upcoming newsletter, we also have a feature piece on the cattle market for the summer. That’s going to be coming out here at the end of the month in June. It’s steak and barbeque season and, again, another seasonal there that some people don’t really understand, so we really get it straightened out for you in this month’s newsletter. You can look for that at the end of June, probably July 1st, most of you should be receiving that both electronically and via hard copy in your mailbox. Also, one thing I want to point out in this upcoming newsletter…. We have a very unique interview this month with a gentleman named Don Singletary. Don recently published a book called Options Exposed Playbook. He worked in the commercial hedge industry for over 25 years, so he really brings a unique insight into the difference between what commercial traders do and what the public is doing. If you have any interest in commodities or selling options, it’s just a really insightful interview. I really like this guy and I think you will, too. James, you also had some media coverage this month at a little debate on CNBC with a gentleman named Andy Lipow. How do you think that played out on air? James: Well, it’s interesting. We’re not on CNBC all that often, but we’re on from time to time. What I like most about when CNBC calls, either the gold market or the oil market or the coffee market are at extremes, whether they be the high or the low, and that’s when they often bring us on. We, of course, think that the oil market is probably overpriced. We think it was a seasonal rally and the fundamentals, we think, are going to probably bring crude oil prices down later this year. Andy was bullish. There were several reasons for his side in the interviews that we did. He was siding on Nigeria, we have problems there, and, of course, the Canadian wildfires. I went on to say that all of those are temporary. Iraq and Iran are now producing record amounts of oil. That’s okay for overproduction from certain countries when demand is high. Here in the United States, of course, driving season is the highest peak for consumption of oil anywhere in the world during this timeframe, but overproduction when demand is down this fall and winter, that, I think, is going to spell quite a different story. We went on to say that we expect oil to be in the high 30’s later this fall, like November and December. That, of course, is one of our favorite positions that we have on right now. We recently sold $75-$80 call strikes for fall and winter delivery on crude oil, and we believe that prices will be roughly half of that. Once again, the call options that we sold might be 100% out-of-the-money this fall. We think that what makes a market is a bull and a bear. Andy was bullish, and we think that it’s time to start looking the other way. As a matter of fact, that’s one of our favorite positions that we have on going right now, going into fall of the year. Michael: James, you made some good points. Backing up the hypothesis that oil prices are getting overpriced right now, I want to bring up another piece in the Wall Street Journal recently. This was from May 27th. There was an article in the paper titled Everyone’s Trading Crude, from Moms to Millennials. If this sounds familiar to you, it’s similar to what typically happens when markets get a little frothy. If you remember back in 1999 with the tech bust when everybody and their brother thought they could trade tech stocks, it’s kind of the same thing going on in crude right now where you have 22 year old college kids and moms all trading crude oil and different crude products, talking about how fun it is, and how they like to watch the market go up and down. Here’s a quote from a lady. This lady’s a math tutor. She says, “If oil goes from $43.50 a barrel to $43.70, you’ve made $100!” So, this lady is doing this for fun and entertainment, and when you have that crowd that are coming into the oil futures markets, that can often be an indication that the thing is possibly getting a little bit out of hand. Would you agree with that, James? James: You know, Michael, when the stock market is at all time highs and the barber is invested, and the guy who shines your shoes is talking about stocks, that sounds familiar. The gold market, when it rallied up to 1,900, everyone was going into coin stores and buying gold. This move in crude oil feels a lot the same. Once you have moms and millennials staying home to trade crude oil and, of course, be on the long side, because the market is bullish, that has signaled a lot of tops in the past and certainly it has all of the makings of one, as well, this summer. You know, crude oil was down at 27, rallies up to 50, that’s going to make a lot of headlines, but it’s maybe not the right time to get in. Michael: Well, for those of you listening, if you missed James’ debate with Andy Lipow, you can see it on our website at OptionSellers.com/CNBCJune. Also, we had a question that came in from people asking how to get our newsletter. There’s no specific place on our website you can request our newsletter, but if you request anything from our website, whether you request our booklet or buy our book, or you get on our e-mail list getting our free report, you’re automatically subscribed to the newsletters. So, if you do want to get copies of the newsletter you can go on and request our free report and you’ll start getting the newsletter. James, let’s shift gears a little bit here and do our strategy lesson for this month. This month, what we’re going to cover for our listeners is not so much a strategy, it’s the approach to the strategy, and that’s selling deeper and the ability to sell a very deep out-of-the-money in commodities. As a lot of you listening right now may be stock options sellers or sell options on indexes, commodities allow you the ability to sell much deeper out-of-the-money and it’s really a matter of trading time for distance. James, can you talk about that a little bit about what your philosophy is on that and how you go about employing that? James: You know, Michael, that’s probably the most frequent asked question when we have a new client come on board with us is how far in time do you want to sell out-of-the-money. I normally have felt like everyone else did the 90-day option, as it probably gives you the best decay, gives you the furthest amount out-of-the-money. That’s reasonable when you’re considering risk and reward. I have now sold millions of options on commodities over the last several years, and what I simply do is look for the furthest out-of-the-money that I can find that offers the greatest amount of decay. You can simply look at option tables by pulling up your CQG or your Bloomberg Terminal and you simply look at what the decay is probable for the next 8 weeks, then the previous 8 weeks, and the previous 8 weeks. So, if we sell an option that is 9-12 months out in time, we can judge by looking … for example, if we’re looking at selling the July silver options, we simply look at the May. If it’s roughly 50% of what the July contract is, we know that even if we’re selling 9 months out, we can expect to see 50% decay in just 8 weeks. You then will look at, say, the March contract. That will often be 50% of what the May contract was for a particular strike, for example, in silver. You are now looking at a short 16 weeks, have an option practically go from $600-$700 down to just $100 per contract. That is fertile territory for selling options. Though we are selling strikes that are 50%-100% out-of-the-money, and it appears that we are selling out nearly a year in time, the sweet spot is much closer than that. You’re looking at simply 2 sets of 8 weeks for an option to lose ¾ of it’s value. That is what I consider low-hanging fruit and that is who we detect the best time value as far as selling options. It’s something that anyone who is interested in learning more about that, I can explain it to them further so that you can understand it maybe a little bit better. The ability to sell 100% out-of-the-money is just priceless. In commodities, you can do that and you can gage what the decay is by looking at the previous options that are just before it. The decay can be fantastic in just a very short period of time, even though you’re selling options that far out. Michael: It’s quite a contrast from a lot of the options books and courses out there that tell you if you’re going to sell options then you have to sell them 30 days out because you get the fastest time decay. But then, you’re also selling them right at the money almost. James, an important point you made there is you sell an option 6, 8, 9 months out. That sounds like a long period of time, but what you’re saying is “Look, you don’t have to stay. If you sell an option, it’s 9 months out, you don’t have to stay in the thing 9 months. You can be out of it in 3, 4, 5 months because you’re buying it back early when it’s nearly worthless.” Is that correct? James: My job, Michael, is to fundamentally position our clients in fundamentally sound trades. By finding that 90-120 day period where the decay is going to be the greatest is my job. If we have collected 80%-90% of the premium, we’ll buy back options that have 2, 3, and 4 months remaining on them. Our job is to find the most decay, the furthest distance out-of-the-money, and, after selling millions of contracts of commodity options, I get paid the same whether I sell a 90-day option or a 9-month option, and we sell the 9 month option because those are the best ones to sell. Michael: Well, that’s a great discussion. I was going to do an example here, but I think we already did one with the natural gas here earlier, kind of a perfect example when you talked about natural gas. If you want to go back and listen to that part of it, you get a pretty good example of what we do here. As we mentioned, the newsletter will come out at the end of the month if you want to look for that in your inbox. Also, I have a note here that new account consultation interviews are booked for June, but we do still have some available after July 7th. So, if you’re interested in talking to us about an account you can certainly call and schedule a consultation. That’s 800-346-1949 or 813-472-5760 if you’re listening from outside the United States, and, of course, you can always email us at office@optionsellers.com. And final thought before we sign off here during this podcast, we didn’t mean to ignore the elephant in the room, which is the Brexit Vote. We have the disadvantage of recording your podcast this week 2 days prior to the Brexit Vote. Right now, the surveys seem to indicate that it is pretty much split down the middle. It’s going to be a really close vote. It could have different impacts on the market, but initially we may be looking for some more volatility in different markets that can certainly be an advantage to option sellers. James, would you concur with that? James: Michael, that’s what the first half of 2016 has been, is turmoil, uneasiness about several different things, and lots of headlines. This just feeds into option selling and premiums being too high. We certainly enjoy this and will be addressing this in upcoming videos that we make for our clients and for the audience. Michael: Exactly. James is going to be doing a special video on the Brexit Vote. That will be available next week on the blog. If you like this podcast and the information you get here, you can certainly subscribe to us on YouTube, and subscribe to us as well on iTunes. We also want to invite you to follow us on Facebook. We apologize. We’ve been a little negligent to our Facebook, but we are correcting that. We are going to start providing a lot more content on our Facebook, so feel free to follow us there, as well. Everyone have a great month of premium collection. We will talk to you in July. Thank you.

Michael: Hello everyone, this is Michael Gross of OptionSellers.com, here with your monthly guest expert interview. This month’s guest expert is Don Singletary, author of the Options Exposed Playbook. Don spent 25 years as a consultant for commercial commodity hedge plans, helping him to implement option strategies to lower cost and increase their efficiency. He has also spent much of that time as an individual options trader. He is going to bring a unique perspective on that to you today. Don, welcome to OptionSeller.com Guest Expert Series. Don: Well, thank you very much, Michael. I’m glad to be here. It’s my pleasure. Michael: Don, let’s start off by telling us a little bit about your background and how you got started in the trading industry. Don: Well, there is a lot to talk about today about options and making money, so I’ll get to the buy out part pretty quickly here. I started in broadcasting at the age of 15 and I grew up in a small town that only had 2 radio stations. I worked for both of them- they used a different name at each one. While I was in high school, I became a licensed broadcast engineer, continued electronics in the Air Force, worked countermeasures during the Vietnam era, and worked for the Motion Picture Bureau at the Florida Department of Commerce and Economic Development. I had the pleasure for several years, a week every month, I spent in Hollywood, California. It’s a pretty remarkable “bubble-world” out there, and it still is. Patty and I were just starting a family in those years and that took a lot of travel, so I gave being a stockbroker a try. One of my specialties there was introducing customers to the covered call writings, sort of a specialty of mine. Now, back in those days, in the mid 1980’s, it was very much a bull market. I think a drunk monkey with a dartboard could’ve made money. As luck would have it, I got to be a broker during those few months. I got a good offer to teach at a technical college right before the big bust in October of ’87. I took a lot of my customers in cash before I left, not because I was smart or I knew a market crash was coming, I just needed to make a lot of money and they had become friends of mine and I didn’t want to leave them hanging. I kind of put them all in cash and gave them a proper goodbye. Now, when the market crashed 30 days after I left to take the college professor job, my clients thought I was a genius. That’s certainly not true- I was just lucky! So, the greatest work and financial undertaking I ever had was the last 20-25 years. I never saw it coming. I don’t think anybody grows up to be a consultant to private corporations for risk management. I never even knew such a thing existed. I spent thousands of dollars on commodity books and the best option modeling software that I could ever find, and I bought a few of the newest and most powerful computers in the early 90’s. I think I thought I was going to be a trader and make a lot of money, but fate stepped in. That was coming, but it’d be later. It was something I never even thought. I got a call from a commodity producer who’d seen some of my option modeling that I’d faxed to a buddy. That phone call resulted in the working in risk management for the next 25 years. I got to work with some amazingly smart and creative people at the top levels of some major corporations, and it was just my good luck. I really got an education that money can’t buy. Michael: Well, we’re hoping you can share some of the pointers you picked up there with us today, Don. I know one of the reasons we wanted to have you on was that you kind of have a unique insight and you have insight into the commercial side of this business, but you’ve also been an individual investor, so you have insight into that side as well and can give maybe people a perspective from both sides of that coin. Before we get into that, Don, I want to talk just a minute about you book, Options Exposed Playbook. Just a great options book for anybody that’s interested in learning about options. Don does cover some option selling strategies in there that I thought were very excellent discussion of. Don, you told me a great story earlier about how you came about writing the book. Can you share that with our listeners? Don: Yeah, I’d be glad to do it. I was winding down my standards of risk management consulting, and I decided to stay home. There’s an old saying by Ernest Hemingway that says, “I drink in order that my friends are more interesting”. I wanted to take some time off and give that theory a test. Fate wasn’t to be. A friend of mine had called and we often talk investments. He said “Hey, I got something here I have to show you. I want to get your opinion. You’ve got to see it!” I said okay. So I met him for breakfast one morning and he showed up with two or three pages he had printed out on the Internet. Attached to the papers, the first thing I saw was that he had already made out a $3,500 check to some investment guru to buy this system. Now, my friend, he’s usually not that excitable, but he was just real excited and said “Look here”, he put his finger on the paper, and I read with him. It said “98% winners for 5 years”. It promised that anyone could probably turn $25,000 into $2 million in that 3-5 years, and that it would only take a couple hours a week, and it took almost no work. I stopped believing in the tooth fairy a long time ago. There are people that live in Austin, Texas in a little bubble who still believe in him, but I’m not one of those. So anyway, I took a good look at the pages he gave me and this magic system used vertical credit spreads, covered calls, and iron condor spreads. It promised the subscribers all they need to make themselves plenty rich with almost no work and in quick time. Now, years ago, I did a stint in the Air Force and I lived a while in West Texas. West Texans have a colorful way with language, so I told my friend a little saying I picked up back in those days in West Texas. “If a fella comes at you with a ten gallon hat pulled over his ears in an ear to ear grin, and he seems too glad to see you while shaking your hand a bit too much, you better look down and make sure he ain’t peeing on your boots”. We’ve all seen them, and we get these kinds of things in e-mails and in the regular postal mail all the time. By the way, Boone Pickens didn’t say that, but maybe he should. I took a couple of sheets and scratch paper and I showed my buddy how to do these pre-strategies. I had a little experience with them doing options. But I just told him, this is all the guy is really doing and he is doing it over and over again. Personally, I don’t believe for a minute the fantastic claims he makes. My friend interrupted and said, “Well, if he’s half right, I’m going to do really good!” I said “Yeah, that’s true! I can’t argue with that!” After I took a couple of pieces of note paper and scratched out some diagrams and made a few notes, suggested a few places where he could find some more information, he tore up the check and he said “You should write a book about this”, and I was giving my friend all the reasons why I was not, absolutely not, going to write any book on options right now. I left that meeting thinking that I had done my good turn for the day. When somebody tells you not to think of elephants for the next 2 hours, every time you close your eyes it’s all you can see. So, I started thinking about it if I was to write this book. I’m more or less retired now, but if I were going to write this book, what would be in it? Before I knew it, I was consumed by it and it only took about 10 weeks to write the book. That’s the Options Exposed Playbook that I have and I was a lucky man as far as selling really well right away. I got very interesting e-mails from a lot of readers. Some had absolutely no experience and ranging all the way up to Ph.D’s who were asking me about the inadequacies of the Black Scholes Formula, and that’s a conversation that I did not want to get into. Before I finish this story, I was preparing for this interview this morning, and here’s one here from The GURUS Selling System. It says “I know I’m reaching you on Sunday, so I’ll be brief, but you’re about to miss out on the best opportunity to make money you’ve ever seen….You see, this guy selects trade recommendations with a high probability of doubling your money. For example, on May 16th, made 106.9% gains in 3 days. May 17th- 70.4% in 2 days. May 23rd, I made an amazing $8,000 in 24 hours.” Now, these kinds of ads prey on people. Often, it’s people who are desperate who could believe an ad like that. Here’s another one that says “Just 7 days, you pocket $2,000 on one trade and you make $725 the next day in 4 short days. You make another $950 and people make $100,000 a year this way”. These types of ads cater to people- not a sophisticated audience, but they cater to people who are hardworking people and think like my friend did that if they’re half-right, they’re going to make a fortune. One of my motivations in writing that book- I don’t spend a lot of time in it bashing these kinds of systems, I think that’s a waste of time- I simply wanted to save beginner and small intermediate investors, beginners small and medium sized accounts, I wanted to save them from playing the slot machines. I noticed in your book and mine, as we did this completely independent from each other years ago, we used casinos as an example when we talk about selling options. In my book, there’s a line in there that says “You went to a casino and the manager said ‘you’re kind of stupid. We’re only going to let you play the slot machines’.” You can’t sell options if you’re not sophisticated yet because you don’t have the experience. The slot machines pay out 95-98% of the money that’s put into it, and there’s always somebody that’s at the machine ringing and flashing its lights. When I go to Las Vegas, the first thing I do, just to remind me where I am, is I go down… Las Vegas is a Petri dish for human behavior, and I’m a people watcher…. I go down and I pick out rows of a hundred slot machines. At any given time, one of them is ringing and flashing loud bells and whistles, but I’m looking at the other 99 who all have losers sitting in front of them. Those things are like parking meters. The more you play, the more you lose. I think buying options can be that kind of game, but somebody hits it big once in a while. It’s like playing golf- you tell somebody about your hole in one you made for years, but you never talk about the ones you lost flushing them into the woods. I think investing and gambling may have some of that human behavior in common. There’s an old saying that says “Experience is what you get when you get what you didn’t want”. I’ve had a lot of experience! Michael: Well, your experience has certainly resulted in an excellent book, Don. Wanted to congratulate you on that and certainly recommend that to anybody reading the book. I wanted to go back and touch on the point you made about the guy selling courses for thousands of dollars, and usually selling them to the people that aren’t really educated that much in trading, although not always. Even experienced investors sometimes will buy these courses. I don’t want to bash all of them, because I know some of them have some good information. Don: Sure they do, Michael. One of my favorite books is by the old guy Will Rodgers. It’s what keeps me humble- that and investing. He said that everybody’s ignorant, just about different things. When I’m talking about neophyte investors, who earnestly are hardworking people, are very prodigious people in their work and their demands, and they’re just trying to do better, their motivation is absolutely stellar. Anyway, go ahead. Michael: Sure, no, that’s a great point. But there are a lot of these courses at there that they are charging these thousands of dollars for promising outrageous profits. In fact, I wrote about one in the upcoming newsletter where there’s a guy on CNBC now that said he took $4,600 and turned it into $460,000 in 2 years. I would be a little skeptical of those types of claims. The thing about it that a lot of these people don’t realize, even these courses that are good, a lot of that information you can get by picking up a couple of books for $30, $40, $50 a piece. Your book is a perfect example. When I talk to you about this book, I said “So, are you selling a course? Do you have a seminar?” and you said no, I just wrote the book to help people understand how to do this, so you don’t have anything you’re selling. It’s purely a book that is showing people option strategies that have worked for you, kind of bringing a perspective of both the personal and individual investor side to it. When you wrote the book, what would you think the biggest difference is or maybe the biggest advantages of being a commercial player or the advantages of being an individual investor? Don: That’s a great question. A lot of people- just hate the word hedge fund, which when you’re in risk management working with a corporation, usually ad commodities, it’ll be something like cotton, coffee, or orange juice or sugar. The goals of the commercials and the individual speculators are almost polar opposites. In helping people with their commercial risk management plans, and the term hedge fund is not the same as a fund you use to hedge for risk management. I don’t want to get into the semantics of it, but there is a big difference between the two. Commercial players I work with and the people who use hedge funds, their motivation is to preserve their capitol, to eliminate risk, and to get the highest possible margins on their products that they can. Now, some of them are selling commodities and some of them are buying them, and these can be commercial players on both sides of the same market, of course. It’s not just the speculators vs. the commercial players. I’ll give you an example: Maybe a speculator is selling a $5 bushel call for a relatively small premium and maybe this plant makes ethanol and has to buy corn. If corn goes over $5 a bushel and he has to pay that price, then he’s not going to have much profit margin, if any at all. So, what he does is buy a $5 corn call and if pollination doesn’t occur right, or weather gets too hot, or demand ceases or whatever the reason, if corn prices soon pass $5, instead of going out of business or having a year so bad he has to work the next 2 years just to make up losses, then they buy $5 calls and pay too much for their product, corn, which helps them make ethanol. At the same moment, somebody else on the other side of the market is saying, maybe a speculator, “Boy, corn has got some of the lowest stocks it has had in 5 years. Last year topped at $4.60 and maybe it’ll hit over $5 this year. Maybe I can afford to spend a few hundred dollars to bet that corn prices are going to hit the ceiling. Then, these two orders at the markets someplace meet, the transaction occurs, and everybody’s happy with what they did. It’s just about a zero sum gain. I don’t really see what we did. In fact, we used to have a rule and I explained this to my customers because I knew the CEO’s I was talking to would be talking about risk management. I discouraged them from using the word “profit” at all, and substitute the word “margins”, because we don’t care. We lose a bunch of money in a risk management account, and they say they’re startled to hear me say that. I say “Well, if it means you make more profits, then that’s fine! A higher profit margin is the goal and we’re not going to call them profits because they aren’t profits for the company.” Motivations in conserving capital to get rid of price risk and delivery risk, weather, or government upheavals, or changes in the laws and all those things. Plus, frankly, in the risk management programs, they can make some very creative contracts about buying options that they can offer their potential customers to give them an edge over their competitor…. things like that. Michael: Okay. So, a lot of the things you did in the commercial side of it was really helping to manage the true definition of hedging, where you’re helping them manage their risk for the price of the commodities they’re actually working with, whether they’re taking delivery or selling them. You have speculators on the other side that are taking the other side of those trades and both sides are getting what they want. Don: Many times, I work for an orange juice company, _____, at a processing plant, and they had a lot of their products sold, but they still had millions of gallons of orange juice in the tank. It wasn’t priced yet, it wasn’t sold, and they had uncertain profit margins to consider. Another of my clients, at the same time, was on the other side of the market. It was a very large grocery store chain, and they knew how much shelf space they had for orange juice, and they knew from years and years of selling orange juice about how much they were going to sell in the coming year. All the orange juice they know they have to put on the shelf but they haven’t bought yet is a price risk to them. If you had a freeze and all of the sudden prices went up and people who couldn’t even deliver the orange juice because of the damaged crops, the grocery store still has the same shelf space and demands from their customers. So, they would hedge and release themselves by selling options and contracts to speculators, they could insulate themselves so the contingency of price and delivery risk, that kind of thing. What’s fascinating is I felt like Dr. Jekyll and Mr. Hyde for working both sides of the market, but, actually, they weren’t really at odds with each other, they were at odds with the risk that was in the market – and both of them could successfully make trades to help meet their margin goals. Michael: Yeah, that’s a great point. A question we get often here is, a lot of people ask, “Well, you guys are selling these options. Who’s buying these deep out-of-the-money options? Yeah, sometimes it’s other speculators that are buying lottery tickets, but a lot of the time it’s these commercial players that don’t want to buy them, they have to buy them to insure their business. It’s like buying insurance. Don: Absolutely. It may be from a speculator who said, “Man, I’d never do that. Who’s crazy enough to take the other side of this trade?” 80% of the options expire worthless, as you point out in all of your material, too. That’s pretty good odds from the start. The thing I love most about selling options, and this is all in your book and mine I supposed, it doesn’t demand that you have to guess price direction. The amplitude of the price changes, nor do we have to do that within a defined time. Buying options is like standing on one leg and shooting at a moving target. Selling options can be like making a partnership with gravity. Gravity and time decay both work regardless, rain or shine, 24/7, in all kinds of conditions. They’re not dependent on the stock market and commodities, and they don’t depend on public opinion or on anything. One of the things about the financial channels, and, you know, this is July of 2016 and we’re in the middle of this presidential thing going on, which is the real Petri dish of human behavior, I think. It’s interesting no matter which side you’re on. It’s just crazy what the news channels do. It was all about the candidates a few days ago, they were running out of news, they were getting in experts to talk about every contingency that might happen. It was a slow news day, so they would take the small stories and somehow embellish them a little bit and bring them to the top so they could keep listeners, so they can sell adds, so they can make more money. It’s really funny on the financial channels, they even do that. This tragedy that happened in Orlando, Florida 2 days ago, now the financial channels are not talking about politics, but they’re talking about terrorism and what that means to investments and which investments would be best if there is a terrorist attack. These guys, with all do respect, they have some very bright people, but they have a tough job. They have to show up every day to a non-scripted program, and this goes for network news, too, and they have to take whatever is in front of them and make it sound like the sizzle on a steak and sell it to the listeners every day. With TV, they’re able to do that. Aaron Spelling, I think it was, said one time “The TV, you don’t have to be really good at programming because TV is a medium that has a default that’s kind of the most effortless thing to do- you just sit there and watch it.” I do it, everybody does it sometimes. It’s a rest for your brain sometimes, or whatever your reasons. It’s interesting and all of this fast Internet information everywhere we can get, it’s a lot of toxic half-truths and innuendo information. My mother-in-law, who’s in her 90’s, I tried to keep her from watching the news because she would just buy a new lock to put on the door every time she saw the nightly crime report. I think investors made that mistake when they watch the financial channels, and maybe some of the other news. It’s just a type of telescopic fear. It’s like you never think about an asteroid hitting earth. Matter of fact, just 3 weeks ago, there was a comet that came within 2.2 million miles of the earth and it was ½ a mile wide, and it would have had a giant impact and probably killed hundreds of millions of people. But you didn’t hear about that in the news, and we’re always in that unlimited risk like that, or satellites breaking, or things like that. I think unlimited risk gets a really bad rap because people are always taught to be afraid of it. There’s some merits that you go into in some great detail, and you and James Cordier’s material about what unlimited risk is and what other people sometimes fear. There’s a way to understand it and a way to be able to use and to do it intelligently and within the laws of a very good mathematical probability. You guys do a great job with that. Michael: Thank, Don. I appreciate that. You made a great point there I want to go back to for just a second, because I think it’s important and we talk about it a lot as well. The role of the media in both stock and commodities prices… we talk about, in some ways, you can actually use it to your advantage. The way you do that is by doing your own research or knowing where to go to look for that fundamental research on your own, and knowing what’s important and what isn’t, because if the media, like you said, they have a slow news day or they feel like covering something, they can take something that’s really, in the big picture, somewhat insignificant, and make it seem like it’s a big story for that individual stock or commodity. That can move the price- maybe not for the long term, but for the short term. If you know what the real story is, you can take advantage of that as a trader. It’s one of the reasons we spend a lot of time on fundamental research here and we recommend individual traders, if they’re trading on their own, they do the same thing. Don: Right, and that’s another reason why I love commodities. I have great respect for the work that you and James do there. It’s because you study the fundamental information on these markets. You know where the corn stocks are, you know the seasonal patterns, you know when grain pollinates, you know when the harvest begins, you understand world market, and you understand the United States Market. There was a story on TV on something that kept the commodity prices really not in sync with the true supply and demand. You have the ability because of your experience and because you stay up on these things- that’s your job. You can talk with your investor and let them know that it’s a puff news story or rumor or whatever. A number of years ago, there was one case of mad cow disease in Canada or someplace that crossed the Northwest United States. This sent ripples through the commodity markets, just on potential that we might not be able to buy a steak in 6 months. As a result of that, on down the line, prices went way up on the cattle. A lot of people that thought they wouldn’t be able to afford cattle got rid of the breeding stock and we’re still recovering from that, even though it was years ago. It takes a specialist in commodities and in these markets. Each market can be very specialized, and I don’t know very many people, any people, who are good at all the commodities markets. I know people claim to be, but I’ve never seen it and I’ve never heard of it. You have to go with 4 or 5 markets that I’m familiar with and have experience with and it’s kind of like writing a book. You have to write what you know and you invest what you know. You take things that you have all that experience in, rather than take a whack at something that might look attractive temporarily but you really don’t understand the market. That’s the value of having somebody like you at Option Sellers. These high net investors you serve, that’s the pivot and the very heart of what you do. The other side of that is being able to know the math and understand the mechanics of the market and things like seasonal volatility, and you incorporate fundamentals in there. With a high net worth investor, they can do things that most of my readers probably will never be able to do. They have a large enough capitol. You take a small investor that’s just starting out and maybe has an account of $10,000. There’s no way he can afford to draw down $5,000 the first week he makes a commodities option investment. I find net worth investors are not only able to tolerate that, but able to use the system that you guys use. I think it’s amazing and they can have a great deal of success with that. The huge benefit to investor for the types you do, I don’t recommend people start off dealing with a highly complicated commodity market, and the strategy that might be a naked option with unlimited risk, because, for a small investor, that can put you out of business in 2 days. You’re done. I teach that we’re going to start this way, we’re going to practice it, and we’re going to build it slow and sure and they can be able to do that. They can’t afford the same programs you offer for high net worth investors. For the people who do fit that category, I’ve never seen a better way to do it than what you guys do. Michael: Well, I appreciate that Don. I do, that’s a great point to make, as well. I do agree with you. I think there are some advantages of economy of scale when you get into and working with higher dollar amounts. Obviously, that’s one of the reasons why we have our minimum where we do. There are strategies that can fit almost any size of investor. It’s just a matter of matching the strategy. Let’s talk about that a little bit, Don. You’ve traded commodity options, you’ve traded stock options, do you have a preference for either one or an advantage(s) you think one might have over the other? Don: Yeah, well, like you just said, you’ve got to find suitable investments for the right advisors. For myself personally, since I have a lot of experience in both stocks and commodities, I stay in both. To me, normally, people will trade stocks first because some of the volatilities and some of the limits on all the smaller accounts, and they will start off in stocks and things. Those are the people that I suggest in my book a great deal, and I don’t talk a lot about commodities in there because I don’t want to give beginning investors the impression that they can make a killing in commodities. I’d start to sound like one of those ads I read a moment ago. Those things are doable, but they have to be doable to the right investor. Giving advice to my readers, one of my favorite trades is the vertical credit spread. They can put a capitol on a risk and make a relatively high return in 30-60 days out selling some options, and then they buy an option further out-of-the-money so they put a cap on any lawsuits they might have. When you do that, you can compute the risk of war ratios and it helps you with your money management in the account. Just like a floor trader, your first job every morning is to get up and survive to invest another day in preservation of the capitol, whether you’re a large investor or a small one. That’s number one above everything else. Now, I don’t get paid for selling any advisory services. I just do not want to do that. I ran around for a long time and managed a lot of money in hedge accounts and things, so it’s not something that I want to spend, at my age, the rest of my life doing. So now, I just love being able to write and share some of the information every day. I had a note here that I wanted to go over with you… These days, the old pros that learned years ago when they were doing Black Scholes computations, slide rules, it’s so 1985, to tell new investors that you don’t have the experience, you’re better off not even going with those options at all. You go find yourself different stocks. I read a Warren Buffet story one time that had a great impact on me. You remember the old mutual funds, and still many people have them these days. The ETF did kind of a better version of some of that type of investing. I don’t miss mutual funds lately, but I don’t choose investing in them. It’s because of what I read that Warren Buffett had said. I’m paraphrasing, “If I own race horses and I have a stable of 80 horses, and I know that 10 of those horses win 90% of their races. I’m not going to run all 80 horses, I’m just going to run the winners and stop picking now when the market has a new normal because of the news channels, the types of investments, and the sophistication. I think you have to find some winning bets. Frankly, 80% of options expire worthless; they’re certainly investigating to be able to go there. But you don’t race the whole stable, even though they are all thoroughbreds, because you just tend to jot down your profits. We live in an age with Internet and all the toxic information along with the good. The trick is being able to shift that out and to be able to discern which kind of investment is right for you.” I think Warren Buffett was on to something there. You know what they say about normal- it’s just a setting on the dryer. None of us are normal. Our needs and aspirations and everything are just not the same. I think those are decisions everybody has to make for themselves. Michael: I love that analogy of the racehorses and I also like the way you applied it to the options because it really does carry over like that. As you mentioned, if Warren is listening to the OptionSellers.com Radio Show, we certainly invite him to call in and give his opinion on that. Don: Well, he has been known to make millions off of covered calls. Michael: I know. It’s surprising if you go in at times in different part of the Wall Street Journal articles about who bought or sold these many options in the options market, and you don’t picture guys like Warren Buffett and Carl Icahn making these big option trades. You see them taking positions in stock, but they sell a ton of options. It’s well documented. Don: They’ll buy a great dividend stock these days that’s 2 ½ or 3% and then they sell covered calls on it. I don’t have their numbers in front of me, and I never will, but they might be able to make 5-15% more a year depending on the markets and the timing, but they can make a very nice return. Putting your money in the bank these days, you remember the old rule of 72... you just divide the annual interest rate into 72 and you get the years that it takes to double your money. If interest rates are 2%, it’ll take 36 years with your money in a bank savings account in CD’s to be able to double the money. For most of us, that’s just not acceptable. Michael: Yeah. I agree. I want to go back to something you mentioned because I did want to re-visit your book for just a second. You describe some really solid option strategies in there, but you said your favorite option selling strategy, you preferred vertical credit spreads. That’s one of our favorite strategies, too. Can you maybe just go through a quick description of how you would write that if you’re writing it on a stock or commodity, for instance? You probably talk about stocks in the book, so maybe just talk about how you would do that on a stock. Don: Sure. Well, first of all, I’d pick a stock. The nice thing is, and you go over this in your material too, anybody selling options has to understand that one of the major advantages is that I don’t have to guess prices direction or the amplitude of the timing. I just need to know where I think the stock price will not go. Then, in ¾ of the time, I’ll make money with it. That’s the whole thing. Vertical credit spreads limit themselves to this. If I had a stock that I think is going down or that it has already gone too high, I don’t try to press the reversals, but maybe it starts reversing. You want to be able to try and sell some options. With the market near it’s top all-time highs now, there’s a school that thinks it’s going higher, a school that think it has got to turn around and go lower, citing the bad economic news given daily now. I have no idea which one is going to be right. That’s why I don’t sell the apart, out-of-the-money call if I think the stock is going down. That leaves you with unlimited outside risk, because if price overruns your strike price, you’re going to be in the hole- it’s going to cost you and you’re going to lose money. With a vertical credit spread, you go just a little bit above the strike price. You go a little bit above the price where you sold the call and you buy a cheaper, less expensive call, and that puts a cap on your potential losses. So, with a cap on your losses, let’s say you’re a beginning option writer in stocks. You may collect $150 in premium by selling the call at a lower strike and then by buying one of the higher strike you might spend a third or a half that money, say $50 out of $150 to put a cap on your losses. So, if you have losses that are at the most $500, and you can make $100 profit off of it, that’s 20% in 30-60 days, which is great return on your money. Michael: Now, that’s a great strategy. I was glad to hear you say that because a lot of books and going back to some of these courses out there, they’ll talk about things like converted butterflies and everything. I know those can have their place, but a lot of times, especially for individual investors, they can be difficult to implement, especially if you’re doing it on a larger scale. We always say simple is better and vertical spreads are a great, simple strategy that can also be very effective. Don: One of the things, I get a lot of e-mails from my readers, and a lot of these people have never dealt with options. Most of them have little stock experience. A lot of them, frankly, are young millennials who had a couple of babies, they’re married, and they’re working as hard as they can, and they have money saved and they want to be able to use their laptop or iPad or whatever it is to be able to fiddle with options to try and make a little extra money. Of course, I try to tell them fiddling is not the preferred word and let’s get to work. You can make some money that way, but you have to be very, very careful about what you do as part of that with money management controlling your risks. The vertical credit spread and small steps are able for that. Another thing about most of the e-mails I get from my readers- almost everybody and I think that as a society, the financial planners have taught us to think this way. Maybe they’ve heard too many bank commercials, I don’t know what it is, but people immediately start thinking in terms of making thousands of dollars over years of time. I think that doesn’t allow them the focus that they need. It’s fine to dream and have a plan, we all do it, but when you wake up in the morning and you have something in front of you that you have to deal with, investing some place, so I try to tell them just to find an easy goal. Maybe start with trying to make $50 or $100 a day or a week or whatever suits their account. That’s very doable. You can’t get up in the morning and make several hundred thousand dollars and put it away and wait 20 years to collect it. I suppose there are some ways you could do that, but for an individual investor, you have to deal with what’s in front of you. I think trying to help people focus their attention to something they can do right now to begin to achieve some of the longer-term goals is the way to go. Michael: Yeah, that’s a great point. It’s a great discussion on options there, Don, and I appreciate that feedback. Let’s just talk a little bit briefly here to talk about how you pretty much trade for a living now. Would you say that’s a fair assessment?... or professional trader? I know you trade a lot of your own money, but do you have an opinion on the stock market right now for 2016? What’s your outlook? Don: Well, it depends on what the talking heads on the network say. What’s so funny to me is that those guys can come out one day and explain a bull market and then get up the next morning, go in at 6:30, and they’re talking about the bear market that we’re in and they never bat an eye. They can change. There’s a reason for that- it’s almost impossible to forecast what the market is going to do next. I can’t do it- I’m not that good. For that reason, I choose options and I try to make my money by knowing probably ¾ guess on what’s not going to happen instead of trying to predict what is going to happen. I think my odds are a lot better. I know it’s a disappointing answer, and when they get these experts on CNBC or wherever, at the end of the interview they say, “Well, what do you think about the market?” They always have a good answer and then they back-petal a little bit. Then, when it’s all said and done, I’m thinking, “What exactly did you say?” It’s confusing to me. I can’t tell the future. All of us can connect the dots backwards, but trying to do it forward is just impossible, which we talked about the other day. Nassim Nicholas Taleb has a book called Black Swan, and it’s about improbable events. If you’re a little bit of a sophisticated investor and you love to figure the odds of investing I think it’s a must-read. It’s a really interesting book. Whether you’re an investor or not, it’s a little walk down probability and philosophical terms. Michael: I’m familiar with the book. It’s a great book for especially sophisticated investors- somebody that’s really looking to get into trading and understand the nuances of it. Your answer was not disappointing at all. In fact, the guys that say “I don’t know what the market’s going to do. Nobody knows what it’s going to do”, those are usually the guys that really know what’s going on. I like that answer. Don: It’s like you say in your new material- sometimes you can take a news event or whatever happened, whether it’s stocks or commodities, sometimes those over-reactions or under-reactions can present some great investment opportunities. Michael: I agree 100%. One of the things we like to say is, and it takes people a while to get their arms around that, because it’s almost the opposite of what everyone else is doing, but you’re saying “Look, I don’t know what the market is going to do. I’m just going to pick something I think it’s not going to do.” Once people can understand that approach, it changes their whole outlook on how they invest. Don: That’s right, and a lot of people will tell you otherwise. But by and by, just keep your boots dry. Michael: Yeah. That takes a minute to think about, but that makes a lot of sense. Going forward, I know we’re not making predictions here, but do you have any favorite sectors of stocks or commodities or anything you’re keeping an eye on for the rest of 2016? Don: Well, I think part of the new normal that is developing, and we don’t know if it’s right, hindsight or not, but I look at the individual stocks and the ones that are my favorites are not gambles on new technology, but trends because of disruptive technology. The greatest example of that right now is a stock that I own known as Amazon. To these people, there seems no end. Half of their income now is from AWS, Amazon Web Services, in this cloud computing that they’re selling. They’re not even famous for that and it’s half of their income for the company. I’ll be the first one to tell you, on our way downtown, my wife asked me the other day what I want for Father’s Day. I said, “Well, I have a few items”, and she said, “Well, I’ll take you shopping”. Immediately I’m thinking, “Whatever it is, I can get it cheaper on Amazon and have it here in 48 hours”. I’m guilty. I know people do this all the time but I’ll admit it that I walk into brick and mortar stores and I’ll find something there and I’ll just think that I can make a better deal by internet shopping. I’ve done it for years. I’ll step outside the store and get a cup of coffee, get my iPad, and I’ll order one. A lot of retailers get mad at me for saying that, but it’s just the elephant in the room- that’s what people are doing. Not in every instance, of course, there is still people who enjoy going through the deals and being able to go out, it’s a social activity. When I need something, I’m busy and I don’t want to spend 30 minutes in the car to go down and buy what little item I needed- I’ll just order it online. Again, that’s my point with disrupted technology. This is what happens for investors, too, specifically smaller investors. Maybe you and I were investors a few years ago and we didn’t have the same information the pros have, we didn’t have instant quotes, and our smart phone has more electronics in it than the Apollo 11 Moon Mission to put a man on the moon. Commissions have fallen- first it was the discount commissions, you know, Charles Schwab and those who were innovative in that area. Now, electronic trading on a portable computerized device - iPhone, iPad, Tablet, Microsoft, whatever it is – that has displaced a lot of the brokerage business. For small investors who want to use self-directed accounts, it’s a perfectly great way of doing it. Conditions are low and you have the same (virtually) news and quotes that the pros have. Of course, for high net worth investors, they have the option because of their accomplishments of being able to probably find an easier entry point by finding somebody like you guys. Michael: Well, yeah. I agree with your assessment there. Disruptive technology is really affecting almost every industry. It’s certainly a sector to keep an eye on if you’re a stock investor. Don, just on a personal note, what’s your favorite investment book? Not counting yours or mine… Don: Well, like I say, although it’s not written as an investment book, I like books like Black Swan. I’m a voracious reader and I always have 2 or 3 books going at one time. I’ve got all 3 of the Taleb books right now and I’m alternating between them. There’s such good information out there in many things. I’ll just say Black Swan for right now, it’s not the book of a lifetime, but it’s one of the books I find pertinent in the type of environment that we have to invest in. We have to be aware and keep in mind those black swans – if you’re read the book or heard those terms, those are things that seem to come out of the blue and they’re totally unexpected but they have a very profound and lasting impact on society and culture and finance and everything else. It’s a wonderful topic and it’s very interesting to explore. Michael: Absolutely. Don, how can investors buy your book? If they want to get a copy of it where can they go? Don: One word: Amazon. The quickest, fastest way to get the best price, just go to Amazon.com and you can search for Options Exposed Playbook. That’s it. Michael: Excellent. Well, Don, this has been a great interview. We really appreciate you coming on. We hope you’ll be willing to come back again sometime to give us some great information here. Don: You bet, Michael. It is a pleasure to be able to talk with you more. I appreciate the opportunity and I want to thank all of the listeners you have out there and the people who have been reading your blog. Thank you very much, good day, and I’ll see you later. Michael: Great, Don. Thank you.

Michael: Hello, everyone. Welcome to the monthly Option Seller Radio Show. This is Michael Gross here with James Cordier, coming to you from Tampa, Florida- our main office. We’re going to talk a little bit about the markets, a little bit about trading this month. Quite a bit going on, including what could be the final game of the series between the Tampa Bay Lightning and the Pittsburgh Penguins. My colleague, James Cordier, happens to be a Tampa Bay Lightning fan, and, being from Pittsburgh originally, I’m a Pittsburgh Penguins fan. James, what do you think on the series possible finale tonight? James: Well, it’s interesting, Michael, we’re using our backup goalie and he had little butterflies the first game or two. He wasn’t getting any support from the other players, and finally he is, and certainly a great series right now. We’re ahead 3-2. We being the Tampa Bay Lightning. For your sake, I hope it goes a little bit further. For our sake, hopefully we get to win tonight and we get to watch for a day or two before the Lightning hopefully take on the San Jose Sharks. We have a couple clients in the San Jose area and it would be fun to get a little friendly bet going there, too. Michael: By the time our listeners here this, they’ll know the results. They can visualize our reactions, I suppose. What a lot going on in the markets this month. Volatilities are subject of the month as an options seller. Volatility is obviously a very good thing, and probably the best place to start this month. You’ve been talking a lot about volatility in some of your videos, and I know we’re talking about it in the newsletter this month. Maybe just kick off, we’ve seen a lot of pick-up in the last 6 months across many sectors in commodities in volatility. What are some of the macro-reasons or why are we seeing this rebound? James: The rebound in volatility is coming from the uncertainty, especially from the FED. Earlier this year, as we described, they were going to have four rate hikes in 2016. That got backed off to maybe one. Now, the Federal Reserve, one governor is being walked out after the other in front of the microphone, talking about possibly three or four rate hikes again. This back and forth is really gyrating currencies around the world, and certainly the currency play is directly affecting gold prices, silver prices, and oil prices. Volatility right now is through the roof, and this is certainly low-hanging fruit for option sellers. I know not everything applies to option selling however, because there is a world outside of this, but the volatility right now this is certainly a by-product of what’s going on, and certainly that does help what we do immensely. Michael: Yeah, and a good point to make as an option seller, a lot of people asking now “Are they going to raise rates? Are they not going to raise rates?” People positioning on one way or the other are really gambling on a decision, and, as an option seller, you don’t have to do that. In fact, it really ushers in some of the strategies we talk about in our book as far as credit spreading. I know it’s one of your favorite ways to sell options. Maybe talk a little bit about that, how volatility does favor credit spreads, what advantages come to an investor for using a credit spread in this type of environment. James: Michael, this environment, as we are referring to, certainly has the large volatility, which is blowing out premiums on option prices. In times of low volatility, in order to get decent premium, you do have to sell naked calls or puts based on if you’re bullish or bearish. Being naked is certainly not our first choice. Certainly we sell naked options because we don’t have the premiums available that further out strikes. Right now, it’s available by being able to sell protection against your short position, slow and steady option decay is what we’re after. Now, this environment offers that luxury to do that. Michael: Yeah, you not only get the protection aspect of it, but a thing a lot of investors don’t always realize is, often times because you have that protective aspect, your margin requirement drops. There are certain occasions where credit spreading can even offer a higher ROI than selling naked. Would you agree with that? James: It does. Not only does it help you stay in your position through ups and downs in the market, but it offers smaller margin requirements and it allows you the ability to participate in practically all the opportunities you see in the different markets. Often, if volatility is too high, selling naked just doesn’t allow you to protect assets like you’d like to. Smooth and steady is what the goal is, and having the ability to buy protection against your short position is the utmost performance year’s end. What we’re always looking for is slow and steady currently, and the only excitement we’re looking for is on December 31st reading statements. Michael: Very good then. Let’s talk a little bit about volatility in particular markets. We’ve seen a little burst of volatility in the soybean market here over the last several weeks. We had talked last month about selling calls in soybeans, and we had a big move up in that market. It’s a good market to address because I think you can’t just assume that every option you sell is going to slowly decay to zero. Sometimes, the market moves against you. Maybe talk to our listeners and clients right now about how we reacted to that and how we recommend reacting to a market like that. James: That is true. We’re selling options in eight different markets, and, from time to time, the market exceeds our expectations. A lot of what’s going on in commodities right now is headline driven. There are so many hedge funds and money managers right now chasing performance and chasing return, and they’re looking at eight commodities like we are. They see headlines for the gold market or for the soybean market or they’re having problems in Argentina getting soybeans to the market. That kicks in buying or selling form computerized generated funds, and that’s what happened to soybeans the last two or three weeks. There were headlines from Argentina and China was buying a little bit more soybeans than a lot of people anticipated, and soybeans rally an extra dollar probably above their fair value. As we talked about recently, later this fall, I think the United States is going to be producing a great deal of soybeans, probably in excess of what we need. The headline news really moves the markets and that is what happened over the last week or two. We did cover some of our short positions. We rolled up some of them to higher strikes, and we’re still holding a short position there, but from time to time the market exceeds your expectations and you know you have to take evasive action from time to time, and that’s what we did last week. Michael: Sure. You’re talking about headlines; the big headline driving the soybeans was the May USDA report. The number that really jumped that really caused the spike is, not this year’s ‘15-‘16 ending stock, but the USDA is looking at next year, ‘16-’17 ending stocks. The trade pretty much had them coming in around 400 million bushel, and USDA says it’s only going to be 305, which is a pretty significant drop. It’s interesting, because the harvested acres are, more or less, the same as last year, but they knocked down the yield estimate. Not really sure why they felt they needed to do that yet, but they also bumped up demand substantially for next year. That, at least for now, they’re looking for substantially low ending stocks. I know you and I had talked earlier that we thought they would have to increase acreage because we’ve had a little bit of a wet spring, and that can cause them to shift some of the corn acreage over to soybeans. So, the jury is still out on that. The market has backed off since we got the big spike, but when we talked about defensive strategy, taking evasive action, so we’re short the calls and the market rallies, maybe explain the strategy we executed there to deal with that. James: Well, we are selling calls earlier this year, based on the fact that we are going to have a very large crop come this fall. Quite often, soybeans will have a weather rally, a spring-summer rally. This year’s rally was based on a very large cut from the USDA, as far as ending stocks. We did cover some of our shorter positions. We rolled them up to higher strikes. That’s a trade that is going to not perform the way you hoped it would, but they don’t always do that and that was certainly one of them. Michael: Yeah, and you had emphasized this previously, but the reason we roll strikes up like that is, often times after a big rally like that, that’s when the volatility is the highest, that’s when the premiums are highest. The fundamentals did shift a little bit, but they didn’t shift that much to where those higher strikes we felt would be threatened. In fact, as you mentioned, they were so far out that it was a difficult opportunity to pass up. So, often times, even if you’re in a market, you get a big move like that, the volatility that’s created by that move can often make it an optimum time to be selling options in that very same market. That’s one benefit of the roll. James, let’s move over and talk a little bit about oil prices. You have been in high demand this month from various media sources. You had an appearance on CNBC earlier in the month, and you’ve made a pretty bold prediction there on oil prices. Let’s talk a little bit about where prices are now and where you see them going later in the summer. James: Michael, similar to headlines that have been driving a lot of the different markets, crude oil certainly is included as being one of those. There were some difficulties in Canada where some of the fires there were actually keeping production down. They’re looking at 2 million barrels a day in certain regions of Canada, which was knocked down to just 1 million barrels per day, simply because workers couldn’t get to the oil fields. That is going to be a situation that is going to be calming down in the coming days and weeks. That was a headline, there were some headlines out of Nigeria, Saudi Arabia has been making noise about getting away from production of oil as their main economic resource. All of these headlines will not change the fundamentals in oil going on later this year. As driving season, we’re into now, starts wrapping up a little bit later this year, investors and traders alike start looking at global supplies. Right now, there are tankers that circle each other just off the coast of China, just waiting for the phone call to come into port and unload their oil. There is so much oil right now floating on the Seven Seas, it’s record breaking. As this little bit of euphoria that’s right now developed in oil because it has finally rallied. When that subsides, and we think it will this fall, I think we’re going to see oil prices back down into the 30’s. Right now we’re trading in the upper 40’s, and we think this is a great opportunity based on fundamental availability of oil later this year. Supplies are going to be in a glut situation again, and selling calls right now in oil is one of our favorite opportunities, we feel. Michael: It’s a pretty solid fundamentally based case, and I know when places like CNBC and Fox come calling, they typically want you to make a call. A lot of times, they don’t understand that we do that for them but we don’t necessarily have to do that in trading and the way you trade- you’re selling options. But, when you’re talking to reporters like that or you’re on camera, do you ever get a feel that they’re pulling one way or the other for what they want you to say? James: That’s interesting, Michael. CNBC, I think, is probably notorious for bringing people on when the markets are rallying and they want to talk bullish. When oil is falling, they want to bring analysts on that are talking bearish. I think CNBC is probably the biggest culprit for simply frenzied, if you will, interpretation of what the market is doing. Rarely do they want to hear an analyst or trader talk about it’s a good time to buy oil when it’s falling. I remember back in January and February, we were on CNBC and saying this route in oil is probably almost over. Our girl in Los Angeles who helps us get on to the different television stations when they call us, they simply didn’t want to hear about buying oil back in January. Finally, they thought maybe we should take another perspective, and CNBC rarely wants to put someone on that has a contrarian view. I think they’re learning a little bit. Back in January, we were talking about going long oil and the whole world knew it was going to zero. Lo and behold, the market did rally. Now, recently, we were asked to be on CNBC, reluctantly, talking about bearish oil factors later on this year. So, you know, we talked about how we feel about the market. We’re not “Ra-Ra” cheerleaders when the market’s going up or down. We look at the base fundamentals and we make predictions on 3-6 months out. I know CNBC loves talking about what the market’s doing today and what it’s likely going to do tomorrow. As we know, no one knows these facts. If, in fact, a person that comes on CNBC knows what the market’s going to do tomorrow they wouldn’t be on CNBC, they would be on an island right now eating cracked crab, like they did at the end of Trading Places. Can’t we have both? Michael: I know when they’re shooting you remotely, they’re shooting you from the studio here in town, but you’ve been in the studio right there with them before, as well. Do they ever talk when the camera goes off? Do they ever say, “I think it’s going this way” or “I wish you would’ve said that”? James: I think one of the most interesting memories I have of being in New York and being on set was, I think, when we were interviewed on Bloomberg. They probably have several hundred people walking through the lobby, going in and out of the offices, going in and out of the green rooms, making sure that you have everything you want. When you see the anchors walking through the lobby at Bloomberg, they’re like gods there. When you’re sitting in the green room you’re also like a god, because everyone’s job at Bloomberg resides on providing great content. So, when you’re going to be on for a half hour-an hour, they’re looking at you like “Dude, don’t screw up. I hope you do something really interesting and speak intelligently, because my job relies on great content”. I think Bloomberg walking through their offices there was very memorable. We’re going to be invited to do that again this fall. We’re going to be on set there for probably a very long segment. I think Bloomberg, which is a fantastic operation, I think they cover the fundamentals more than anybody else. Some of the Fox, not as much, but CNBC, they’re “Ra-Ra” stations. Bloomberg actually gets down to the nitty-gritty. They actually talk about the fundamentals, the markets that are actually moving for fundamental reasons. It’s so much fun being on Bloomberg and that operation, I’ve found, is just a Class-1. It’s just fantastic being on there and to walk through the lobbies there, you have your credentials and people are looking at you like “Yeah, you’re the man”. It’s pretty cool. Michael: That’s an interesting point. You know, in this month’s newsletter we interview Mark Sebastian. One of the many things he does is he’s a writer for the Street and Mad Money, and he works a lot with Jim Cramer. One of the things he said in the interview is that Cramer is a really smart guy, but he can’t always say what he thinks on the show because the network has certain rules or guidelines they have to abide by, or I don’t know the reasons- he didn’t really go into that. But, he says if you really want to know what he thinks you have to read what his blog on Real Money… I’m not going to spoil the interview. He was kind of speaking to that same thing, where they have a framework of where they want you to go and where they don’t want you to go, and it sounds like Bloomberg gives you a little more freedom to explore the fundamentals. If you do want to see that interview amongst our other items we’re covering in this month’s newsletter, you will be getting it next week. I think you’ll find that a very interesting interview. Mark brought some things to my attention that I was not aware of that takes place up there. James, we started off the show today talking about credit spreads. I know, we’re going to spend a little time here talking about one of your absolute favorite credit spreads that you describe as the “Maserati of option spreads” in our book, The Complete Guide to Option Selling. Maybe talk a little bit about what this spread is and how it works. James: Of all the option trades that we do, a credit spread generally buying one against selling three, buying one against selling four, gives us an incredible amount of flexibility to be in the position for slow and steady decay. If in fact we see a market that we determine to be fair valued, we’re actually going to sell a credit spread on both sides of the market. Anyone who has read the Third Edition: The Complete Guide to Option Selling, I really suggest you take a look at chapter 10. It talks all about the “Maserati of all option sales”. Basically, what is does, is it allows the investor, whether they’re clients of ours and we’re managing the portfolio for them, or if you’re doing it yourself, it gives you an incredible amount of flexibility to stay in the position, allow your fundamental analysis of the silver market or the coffee market to actually play out the way you thought it would. So often, investors get involved in commodities or in Apple Stock or what have you, and the gyrations of the market simply take you out of your position. The “Maserati of all option sales” is a credit spread that’s done sometimes on both sides of the market, and it gives you an incredible amount of staying power to allow you to be in the market when your options expire or at the time that you want to pull profits and close out the position. Being in a credit spread, sometimes on both sides of the market, allows you to adjust the position, at the same time, keeping 80-90% of the premium that you sold your options for. Quite often, the protection that you buy you only need for 30-60 days. Sometimes, you want to keep it on until the end of the position, but the idea is for all of your options to expire worthless. Anyone reading chapter 10 in our book the Third Edition: The Complete Guide to Option Selling, can learn and understand the greatest trade in option selling that there is. If you do it yourself or if you want to manage an account that we do for you, I think you’re going to find that it allows you to stay in the trade and allows you to see the end of option expiration on the positions that you have. It seems to be boring, it seems to be slow, it really locks down your position, but, in essence, that’s what you want. More often than not, at the end of the year, having this credit spread on, you’re going to be very happy with the results if, in fact, that’s the way you traded throughout the year. Michael: James, for those that haven’t read the book yet or read that chapter, you’re referring to the ratio credit spread where you’re selling maybe 2, 3, 4 options out-of-the-money, and then for every 2, 3, or 4 that you sell, you’re buying a closer-to-the-money option for protection. The reason you do that is it protects your distant calls, but it’s one of the only option spread that I know of, if the market moves the wrong way you can actually end up taking a higher profit on that. Is that correct in some circumstances? James: There are some circumstances where your long protection actually goes in-the-money, and the further out options that you sold stay out-of-the-money. It is truly designed to hit singles and doubles all year long. If the market does make a slightly more dramatic move than you first anticipated, that long option can actually turn out to be extremely profitable. Of course, your options on the other side of this strangle, if in fact that is the position that you’re implying, that expires worthless and your one long option can actually go in-the-money. That is more than a single or a double. That’s not how we have positioned, that’s not the rationale for doing it, but if you are selling 10. One of those options can go in-the-money and just dramatically increase the profitability of this trade. The long options are there for insurance, they’re there for stayability in the position. The ability for this option trade to produce profits in extents of what you first anticipated is there, but primarily it keeps you in the trade and allows you to be there when the options expire, preferably worthless. Michael: Again, for those of you that would like to read about it, that’s in chapter 10 of The Complete Guide to Option Selling. You’ll certainly want to take a look at that if you’re interested in it. That’s all we have for this month. We do recommend you look for the newsletter next week in your mailbox and/or e-mail box. If you’d like more information on accounts this month, learn all about what’s available, the different programs we have, you can get a full information pack at www.optionsellers.com/discovery. We also do still have some new investor interview consultations available in June. James, I don’t believe you have any account openings left in June, but do you know or do you have to check with Rosemary? James: Rosemary said we are full for June. Michael: Okay. We do have consultations available in June for July account openings, so if you would like to book one of those, feel free to call Rosemary at 800-346-1949. Have a great month of premium collection, and we’ll look forward to the outcome of the hockey games over the next 2-3 days. We’ll talk to you all next month. James: As we say here in Tampa, “Go Bolts!” Michael: Have a great month, everyone.

Michael: Hello everybody, this is Michael Gross of OptionSellers.com here with your Option Seller Radio Show. We have a very special guest for you this month. This month’s guest is Price Headley. Price is the founder and president of BigTrends.com. He is one of the nations most well known experts on options trading and technical analysis. Price was also inducted into the trader’s hall of fame in 2007. Price, welcome to the show. Price: Thanks Michael, great to be here. Michael: Price, I know you’re very familiar with many different types of options strategies. I’m sure several of our listeners have been to BigTrends.com. It’s a very informative website. Maybe we can start out, Price, by you just telling us a little bit about your background and how you got started in the trading industry. Price: Sure. I was a student at Duke University, actually, studying to be an equine veterinarian. My family’s been in the thoroughbred horse business for generations, and I think I was going to go down that path and then got hooked into a trading contest, a collegiate contest, where ironically I was in the bottom quartile of participants in a four month contest with a month to go, and realized I needed to do something different. So I started actively trading it every day. This is just paper money back in the late 80’s. Turned around and finished in the top 1% of participants and said “Yeah, I think there’s some opportunity here, something I’m really good at, so I told my dad I wanted to do something more conservative than thoroughbred horse breeding. I wanted to trade stocks and options. He thought I was a little crazy, but actually it worked out really well. That was kind of a formative point for me of realizing I really enjoyed more active trading and saw lots of opportunities there. That was back in the day before the Internet, just reading the paper and seeing things that were happening. Now, of course, there’s just even more at all of our fingertips with the Internet, and the ease of access of information. Michael: Okay. So tell us about BigTrends. What do you provide there? How can investors benefit from that? Price: Yeah, sure. I launched BigTrends.com back in 1999 and did it because I thought such a push for information on the web. At the BigTrends.com site, for starters, a lot of free educational information about active trading, and, in particular, you allude to option trading. I’ve always felt like once you learn the core principals of how to find the right stock or market to trade, you of course then can learn option strategies to figure out how to trade that with a lot less capital and a lot more potential return on your investment and still control your risk. We teach people all kinds of strategies, not just in technical analysis, which is pretty much a driving factor for active traders, but then also aspects related to the psychology of trading related to how to build your trading plan. Really just all the different aspects that a trader’s going to go through to assess how to create essentially a business plan to be successful in trading over time. Michael: So, if somebody wanted to be a self-directed trader or, especially, self-directed options trader, your site would really show them a system of a way to get set up to do that. Price: Exactly. Whether you trade stocks, options, even futures, you can apply those principals, but yes, the options is really our focus so that you can really take more control over that part of your portfolio that you want to control. We don’t tell people that you shouldn’t put all of your money into options strategies. We recommend diversification across a lot of different vehicles, but for that piece that you want more of a kicker on your portfolio for additional growth, and then come opportunities. We see more and more people taking that step to empower themselves, and, of course, education is really the starting point to have the proper knowledge to then do things correctly over time. Michael: Okay. You authored a book, Price, called Big Trends in Trading. It’s an Amazon.com investing bestseller. Can you explain a little bit about what that title means and what type of an approach you recommend in the book? Price: Absolutely. So, Big Trends in Trading, I really wanted to take a more quantitative approach in terms of showing people. I wasn’t just talking the talk but actually backing up what I was suggesting as the appropriate strategies to have a meaningful edge by actually showing a lot of systematic trading that I had done and testing that I had done, so actual results based testing. Everything we do here at BigTrends is really geared around that philosophy, which is it has got to have a meaningful edge, not just a little edge, because you’ve got to, obviously, as a trader overcome the cost side in terms of the commissions that you pay, plus any of your other setup costs for your computer and what not. Basically, our view is looking at systems that had a meaningful edge. I started BigTrends in trading with really the overall market-based systems how to really effectively time the market. A lot of the conventional literature says you can’t time the market, but my experience has said that there are a lot of opportunities where you can time the market. More importantly, all of the big mutual funds will tell you that you can’t because they want to have you keep your money with them so they can keep collecting fees on your mutual fund money, but the reality is that would have you miss the best twenty days how much return you give up. But actually, if you miss the best twenty days and the worst twenty days, you’re still ahead of the game because of how painful those crashes can be if you’re invested. Of course, we also like to teach people on options, you know, how to profit from the downside as well as the upside. So, to me, options open you up to a lot more opportunities. We take big trends in trading from the overall market to then stock selection trading, including some indicators I’ve developed, like one called Acceleration Bands, which of course is, as the name sounds, geared around finding faster moving situations which is pretty much how I built my capital to be able to start BigTrends from money I made myself in the 90’s. Basically, from that point, taking you into options strategies and then some people even say the last chapter is the best one, which is the trading psychology money management piece, where there’s a lot of smart minds on Wall Street that have blown themselves up because they basically flew too close to the sign, had too much leverage, got too aggressive. So, it’s about how to keep yourself balanced through the invariable winning and losing trades and how to stick with the game for the long haul. Michael: You made some great points there, Price, and anybody listening, if you want to take some notes there there’s some great insights to any type of trading there that Price just mentioned. Price, one of those things, the reason I bring it up is because we preach a lot of those same principles when we’re talking about applying options in the commodities markets. Two things that I wanted to touch on that you made a good point of there: One is the importance of systems, which we talk about a lot. I think a lot of people, especially investors I talk to, they start out on options “Oh, I’m going to try one here, try one there”, and a lot of people that just dabble end up losing initially because they’re just testing it out. The people that really benefit over the long haul use a system. They have system, they have rules they follow, and it sounds like that’s one of the big things that you’re talking about in your book. Price: Absolutely. Those systems can be critical. If you’re just kind of saying “which way did you wake up on which side of the bed this morning”, and kind of just trying to react to the news, that reactivity is what gets a lot of traders in trouble. You really have to take a more proactive approach and, as you said, Michael, that’s what the systems approach will help you with. Michael: Price, there was another point there that’s very interesting you brought up. Tell me if you agree with this. It’s been my experience that a lot of investors that aren’t real familiar with options yet, they tend to have a biased to the upside, where we have to buy and hope the price goes up. One of the biggest adjustments, or benefits, you could possibly make for any type of options trading really is it doesn’t matter which way the market is going. If you have the right options strategy on, you can benefit if it’s going up, sideways, or down, just depends on the strategy you have on. Price: Absolutely. Like we were saying, it just opens you up to so many more scenarios. That was always the attraction to me to options. I’d say tell me which scenario you want- up, down, or sideways and under what timeframe, and we can construct an options strategy that will succeed if that basic view plays out. You can start cash-flowing markets that are going nowhere. You can, like you said, make money on the downside. As we all know, stocks fall faster than they rise. So, when you catch it correctly, there’s even more money to be made more quickly in put options, which are essentially rights to sell a security, which will become more valuable as the market drops. It really does open people up to a lot more opportunities, but as you said, the typical beginning trader comes in and maybe does some cover call options on stocks they own, still essentially neutral to both bullish types of strategies or just looks to buy calls, so I’m betting on the upside. You’re right, it’s a big conversion in mindset. You can’t just buy low with options, you can’t just think, “Well, stocks are down, so therefore I’ll buy some calls and it should start working it’s way back up”. You’ve got that time component on options are a limit life asset. So, basically, if you just sit still in a stock, it’s not going down anymore, but if it’s not going up and you bought calls betting on it going up, a lot of people, of course, buy the at-the-money calls that are about where the current price of the stock is, those are most vulnerable to the passage of time. So you really need to get speed of movement, which is why the techniques like the acceleration bands are so important to catch. That phase of a trend that’s moving faster than essentially what the market expects. Michael: Sure, those are all great points as well. I’m going to talk to you a little bit about your preferences in trading here. I know you’re both an expert in technical timing as well as options, but in reading some of your blog entries and articles, CBOE and on your website, you also provide an incredible amount of fundamental data on stocks, the economy as a whole. Do you feel fundamentals play a role in technical trading? Price: Certainly, fundamentals really create the backdrop. If you think of it as kind of a time frame sort of a differentiation, the fundamentals create your long-term backdrop and your technicals are much more of the short-term, sort of how your zigging and zagging within what kind of an environment fundamentally you’re in. Remember, also, it’s not just the environment we’re in, but the markets are going to anticipate when the environment is due to change. You know, if we’re talking about changes in interest rates, obviously interest rate policies had a huge impact on the bull market that we’ve had in the last seven years or so. Basically, you’re looking at that quantitative easing, creating that kind of easy money approach where really made stocks the only game in town, comparatively at least. From that perspective, that pushed a lot more money into stocks. When that starts to shift and you start to see when and if higher rates ever do come around, that obviously will change that fundamental, and not become more of a monetary landscape, but it’s still part of this bigger picture of fundamentals you allude to. You’ve got to be careful though about certain fundamentals like if you look at, say, the unemployment rate and the jobs data, that’s a very lagging kind of indicator. So yes, the unemployment rate’s been cut in half over the last seven or eight years, but basically if you say “buy because they unemployment rate’s low”, you’ve got to make sure those fundamentals are really catalyst in drivers of future impact. We put a lot of energy into things like earnings, because earnings are very important in determining the ultimate value of a stock, as essentially the amount of anticipated cash flow, not just now what it’s generating, and how it’s anticipated to generate in the future. From that perspective, I’d say if there’s one fundamental that I constantly look at, it’s earnings and how not just the actual earnings but how the stock is behaving after those earnings reports. So that’s a really good one to keep in mind, because good news tends to beget more good news, and ones will tend to pile on to positive news and start upgrading the stocks, so those things kind of almost become self-fulfilling prophecies when you’ve got a really positive earnings surprise. On the other side, when it’s starting to roll over and you start to miss earnings estimates, you really do see the analysts jump ship a lot and you see a lot of pressure on stocks that are missing their estimated earnings. Watch the news and, of course, watch how the stock behaves after that news with different rallies, after earnings news it also can be a pretty good sign that there’s still more institutions that want to be a part of that earnings story going forward. So, you get kind of an extended catalyst that can last from quarter to quarter and even from year to year. Michael: Okay. Yeah, that’s very similar what we do over here on the commodities side, Price. We’re using the fundamentals as the background, maybe leaning on them a little bit more because we’re focusing on supply/demand here. From what you’re saying, it sounds like the fundamentals are the backdrop, and if you do get, say, a stock that gets a positive earnings, maybe you’re watching technical signals a little bit closer for buy signals at that point. Would that be fair to say? Price: It would be fair to say that, assuming you’ll align your technicals with that backdrop of the fundamentals. If they don’t align, you’ve got good fundamental news but you’re seeing things that look bad technically, we kind of will pay attention to that, but maybe just not try to take those trades where you don’t have that alignment between the technicals and the fundamentals. So, to us, a lot of traders think, especially newer traders, when they get into the game they’ve got to trade every day to justify their choice to be a more active and more involved trader a big part of their time, but, actually, a good thing to remember is that being a good trader means you’re first a good observer of what’s going on. You know when the odds are in your favor versus if they’re not in your favor, you get these cross currents between those technicals and fundamentals, and you learn to back off and that it’s okay to have a good portion of cash if you don’t have a clear edge, and wait until you have your edge to start to then make your investments accordingly. Michael: Okay. Let’s talk about technicals for a minute. I’m sure you could probably talk to us for the next eight hours about technical trading. From a real technical guy like yourself, do you have any favorite indicators that you like to lean on? Price: Absolutely. There are several that I go back to again and again. I’ve mentioned my Acceleration Bands, which people always ask “Is that like a Bollinger Band”, you know, John Bollinger developed a standard deviation band that’s become a real staple in a lot of people’s analysis. There are some similarities to it. The difference I would say with Acceleration Bands is they factor in the trend component more, in addition to the volatility component. We want to know what the expected range of prices should be for a stock or a market, but then we want to know when it moves out of that expected area. That’s when you see shifts in people’s perceptions of value, that’s when you see major trends develop to the upside or to the downside. We’ve added in other indicators, some of which are out there on most platforms, for example, Larry Williams developed an indicator called the Percent Range Indicator, or often just called %R, and it measures where the stock is in it’s existing range from typically a low to high range, 0-100%, essentially is what we look at. We’ve found that actually stocks that continually stay in the upper quintile, that is, the upper 20% of their readings, are stocks that are usually continued to make higher and higher prices. So, therefore, it becomes almost a trend definer when something is staying in that “over bought” area. A lot of people have been trained in the technical world that over bought is a very bad word- that you should be looking for the downside. We found that, actually, over bought can be very good if it fits a certain profile. Does that idea that in an uptrend, sure, strength begets strength, but people want to be a part of things that are going up and want to bail on things that are going down. So, sometimes in the bottom 20% where you see some of the crash-type scenarios happen for stocks and markets, or the institutions keep saying no, they don’t want to be a part of that, they want out. From that perspective you’ve got to sometimes retrain yourself, and that’s what we’ve ended up doing at BigTrends a lot is retraining newer traders that come to us or traders that think they know how it works from other things they’ve been doing, and saying yes, in a trading range, over bought/over sold, it’s kind of just going to chop around, up and down. We’re looking for the more meaningful moves where you get really a flush. For example, January of 2016, beginning of this year, you had just a quick initial gap down in the markets very first day- very unusual. Usually that’s a positive day, more often than not, to try and see if we can get off to a good start for the new year. It gaps down and then we fall through the downside right behind that, and that led to really several weeks of persistent selling pressure in January. That created a real opportunity for downside traders in put options or, you know, other strategies geared toward the bearish side for options. So, my view is that you have to see something like that through the Acceleration Bands or through the %R, what we call the BigTrends way, which is just looking at those top 20 and bottom 20 percent areas where something can really start to really move more dramatically. Make sure, if you’re the typical trading range trader, that you don’t get caught trying to fade or bet against those over bought periods and think it’s going to come down or in over sold periods think it’s going to bounce back up, because as the old trading motto goes “the markets can remain ‘irrational’ longer than you can remain solvent”. So, the idea becomes see what the wind up trend opportunity is and learn how to take advantage of it. One of the nice things too, Michael, that we have showed people within say a %R trend phase is re-entry strategies. Once you see that first break down point, how do you get back on the wagon to play it for another pot down after a bounce? What we have taught and found quite useful is finding these what we call “re-tests”, and variably, of course, you’re in a downtrend, you will get a bounce. It might be a one or two day kind of a bounce on a daily chart, the short-covering rally kind of phase, and the question is, is that the bottom or is that just a quick short list sort of flush of some of the we cans, and then you see it stop, and you see it go into another leg down. That retracement phase is really where we find some really good, especially on a risk-adjusted basis, a really good opportunities to hop on board a train. If we’re wrong, and it does violate that little retracement area, then we’ll get right back out, but if we’re right about it kind of retracing and holding into that support of resistance, then we get the wonderful entries within a trend. That’s something a lot of trader’s miss, is they think “Oh, I missed the first breakout move, therefore I’ve got to watch from the sidelines. I can’t chase it now, it’s too late.” Yet, you’ll go back and look later and see wow, there’s a lot more life in that trend. We show people those retracement points to get back on the horse. Often times two, three, four, five times in a daily chart trend we’ve seen some that have lasted up to as many as ten really good re-entry points before that trend will finally fade. So, if you’ve got multiple times you can hop on effectively and then you finally get stomped out on a trend, it gives you a lot of confidence to say “okay, I can keep my risks low. If I’m wrong, I’ll be out quickly”. Especially with options that’s important because you don’t lose a lot of time, and if I’m right I catch a wonderful spot to hop on board for the next trend phase. Michael: Thus the term Big Trends. Price: Exactly. That’s what we’re looking for. Leave the little trends to everybody else and focus on the bigger trends for sure. Michael: Okay. Let’s talk about options strategy a little bit. Most of our listeners here, Price, are options sellers, but I’m sure a lot of them are interested in all different types of options strategies. I noticed BigTrends offers quite a bit of information, courses, and resources on trading options in general. Having experience in so many kinds of options trading, do you have one or two favorite bread and butter options strategies that you tend to favor in your personal trading? Price: Well, the first step would be to identify that there are opportunities, I believe, on both the selling side of options and the buying side of options. We know markets don’t trend the majority of the time, although there’s always a bull market and a bear market somewhere. That’s why we look at, of the 4,000 plus optionable stocks in the ETS, we probably look at several hundred of them we consider to be liquid and active enough to handle plenty of volume for our subscribers. On the sell side, we tend to prefer the credit spread approach where you’re sewing an option out-of-the-money, so you’re benefitting from that time erosion. Then, at the same time you sell one option, you’re buying another option a little further out, a cheaper one to protect yourself, so you’re still getting that credit, that initial premium, in that an option seller wants, but you’re also protecting yourself and defining what your worst-case risk is. We just found that we just like the credit spreads better for the defined protected risk. You know, if the market has a crazy gap or stock has a crazy gap, then you’re on the wrong side of it. You’re avoiding that bigger hit in the case of some kind of really bad news day that goes against you. So, defining your risk is very important, and we always want to go into a trade knowing what our maximum risk is on the trade. So, that’s why credit spread’s a favorite neutral to time-based strategy to collect premium. Michael: Okay, so your preferred selling strategy is the vertical selling spreads. Price: That’s right. Michael: Sure. Okay, that’s some great insight, Price. Let’s shift gears here a bit and talk about today’s market. There seems to be just kind of a general sense of anxiety right now about the state of the world and the markets. Are you seeing that reflected in stock option values you follow? Is anxiety still driving the VIX or do you see it calming down now? Price: Well, certainly the VIX has really plunged back down, you know, as the markets have rallied back up here and by mid-April the volatility indexes have really fallen. You know, those things tend to move kind of in opposite fashion as the stocks were dropping. In January, you saw that big volatility spike upwards, so those things and patterns really haven’t changed, in my view. We do expect to see a lot of second half volatility in 2016 as we head into and even after the presidential election coming up in November. We would expect, as you look back when we elected new presidents back in 2008 and also in 2000, those were pretty rough times for the markets there in the second half, and into really even the beginning of the next year, if not further. So, our view would be that, not to say we’re expecting there has to be another great recession and another 2008 necessarily to kind of collapse, but we are expecting that we will see more volatility. Of course, that’s where you can kind of use options accordingly. One caution of course would be some people will look at the VIX and look at the VIX options and think, “well, the VIX is at 13. If I’m buying a 13 call or a 13 put it should be the same price”. Well, it’s not, because the VIX is priced against the futures on volatility, which are expecting that we will see a snap back in volatility in the second half. So, I’m not necessarily saying anything the market’s not already expecting to some degree, the question is can we get more volatility than what the markets expect? So, just be careful on that when you look at your options. You’ve got to make sure you’re pricing against the proper vehicle on volatility levels. Bottom line, we think that there is some bit of resonance, even as the market’s snapped back towards these highs, we see that people are kind of worried with the way the markets started in January this year, and worried about if that’s a pattern that is going to be played out again like what we saw in 2008. I would say, that’s a real simple, technical indication that you can keep an eye on with the 200 day moving average. That’s just a simple trend line looking back to the last 200 day closes. If you look back in 2008, we never retook that after the break down early that year. We got back up into it about April/May, tested it, and then failed there. This year, we’ve actually retaken it on the major averages, at least on the SNP, the Dow, the NASDAQ 100, the rest of 2000 has not retaken it, so the small caps are lagging here. We said stay away from those. Some other areas like Biotech and Healthcare have been lagging, you know, so if you watch just that simple trend line, that will tell you, in the longer term sense, kind of who’s winning the war between the bulls and the bears in that bigger picture battle. So for now, we’re back above it. We’ll see if we can hold it here, which will be a good sign if we can, and if we can’t, that’s probably where you’ll see a lot more caution starting to develop if things start to unravel below that support line, which is maybe a couple percent below current levels right now. Michael: Price, do you have any gut feel for the year 2016 and the big election coming up? Do you see stocks continuing higher or do you feel like there may be another correction? Price: I’m kind of at two camps there. I kind of gave you that little overview that we’re expecting more volatility in the second half. I think certainly in the short term, we’ve been rioting the up-trend signal that we got on %R and from the other tools back in late February, and basically have been benefitting from that kind of steady adjustment back up. I am expecting, based on history, the uncertainty, the fear factor, of who the president’s going to be. You know, we know we’re going to get a new one, one way or the other, but we don’t know which one, per say. A lot of potential of adjustments that can happen there, so basically I’m expecting that we’ll probably see some selling pressure in the second half. So, with that in mind, it wouldn’t surprise me to come back and eventually retest the lows some 10% lower than current levels right here in mid-April. My view would be that, short-term, we think we can get a little bit more out of the market on the upside, but, longer term, we’re expecting that the markets will probably have some adjustment down in the late summer through the fall, and then we’ll see what happens, how the markets behave after the election. The big thing, regardless of what you kind of lean towards on some of those longer term expectations, is you still have to trade what you see not what you believe, right? So, you can’t start to buy a bunch of put options here betting on it, and then, meanwhile, watch those get eroded further because we’re in a short-term up-trend, and then basically blow them out because you just couldn’t take the pain, kind of a thing. Of course, like in life, timing in trading is everything. Our view is pretty much short-term. We’re riding the up-trend while we can, but kind of keeping maybe a little smaller allocation, maybe a little less exposure than we might otherwise have with those longer-term concerns. Again, like we said before, you don’t have to try to hit a home run on every trade, you don’t have to be allocated heavily on every trade. You can, certainly, if you have those lingering concerns in your mind, you can always take smaller positions. You can always sit on the sidelines if you’re really not sure, but if you’ve got some opportunities happening in the short-term, you can still trade them, you might just trade them a little smaller. So, that’s part of trading too, is knowing when to pressure bets, when things will wind up short-term and longer-term, versus if you have some of those crosscurrents, when to maybe trade smaller and be a little quicker to tighten your stop or pull the trigger on a trade at a smaller profit target if you’re just feeling like, “Well, we’ll take it and be happy with it and move back to cash, and wait for the next low risk entry point”. That’s the big part of it, right now, expecting some of those crosscurrents we’re going to trade a little smaller and try to wait until we really see things line up, if we move into the second half in front of and after the election. Michael: Okay. Price, I know you’re not a commodities guy, per say, but a lot of stock guys follow some commodities like gold and oil because it can have an impact on overall global economy. Do you follow any commodities prices like that? Price: Certainly oil and gold have been ones that have been on our radar for a long time. Oil is one that we were real bearish on in the middle of ’14 and as we got some of our really major breakdown signals. Those downtrends, in the longer-term, still remain in place. We’re getting some stabilization in oil here, but certainly nothing that I would view as any kind of a longer term buy signal yet. So, we continue to side with being cautious on oil and meanwhile, gold though, the other big one that would fall into the commodities space, you know, that saying that started this year, we had some wonderful breakouts. So, my view would be that, yeah, that looks like it’s an improving trend that might create some real nice opportunities perhaps in the near term as we stay in this very accommodative monetary policy, not just in the U.S., but around the world. So, paying very close attention to gold here as we go through the rest of the year and into next year. Michael: Okay. Alright, Price, it’s just kind of a personal interest question, but do you have a personal favorite investment book? Not counting yours or mine. Price: Yeah, what I always tell people, I mean, there’s so many great ones, but Reminiscences of a Stock Operator by Lefevre. It’s based on the life of Jesse Livermore, the famed trader who lived some hundred years ago. Those principals still apply. I always have myself and my staff read that book at least once a year, because it’s just, more than anything, about the psychology of trading, how the crowd kind of reacts during different stages of a move, how Livermore essentially was trading it in the day and it’s a fascinating read and it’s one that those timeless psychological principles still apply, not just for stocks, but for any type of trading. I just think there’s something great about reading about what was going on a hundred years ago and seeing this stuff even with all the changes in technology, even with all the changes in computers, and what not, and hey, we can have a systematic approach, and guess what? Somebody’s still programming the computers, and that’s humans. There’s still a human element and you can’t eliminate emotions, but it’s like learning how to manage those emotions in your trading will, I think, give you a big leg up on the rest of the crowd. Michael: It’s a great book and it’s still in print and they still reprint it today. It’s certainly a classic and any investor should read if you’re really considering being a trader. Price, as far as your website goes as somebody just coming there, just looking at BigTrends, where would you recommend they start? What resources would you recommend first? Price: I mean, obviously, on the BigTrends.com site there’s so much free content there. That’s a great way to just kind of dive into the educational link on the top. I’ll walk you through a lot of free educational articles and content. Then there’s a way that people can, with my compliments, become a BigTrends insider. There’s a sign-up box you can just put in your name and e-mail, and basically you can get on our list for, not just the newest articles, but also other special education events. We do a lot of complimentary webinars, depending on the time of year and where we see things we want to point out to people that might be opportunities to consider. So, getting into becoming a BigTrends insider on that little sign-up box there, on the top right of the site there on BigTrends.com, gives people the ability to get invitations to those complimentary events from time to time. So, that’s become a real popular starting place and we realize that everybody’s educational journey is different. Some people can absorb a lot real fast, other people want to take it a little slower, and we tend to encourage people to make sure that you get educated first before you try to rush into trading, because, of course, you rush into trading without the proper education, the markets will give you an education of it’s own that probably won’t be as favorable to your portfolio as if you actually get properly educated first and really make sure you understand risk as well as the right way to trade going forward. We’re big believers that education is critical. A lot of people think they get out of school, when they’re done with school, for their life. I think that’s the exact wrong approach. I always say it’s better to be grieving growing than ripe and rotting. So, you want to make sure that you always feel like you’re looking to add that next edge into your portfolio, that next opportunity. I’ve been trading for more than 25 years and still always looking and testing for additional edges, additional things to add, because that just keeps you sharp. That way, you don’t get complacent, and the markets have a way of humbling those that get a little bit too overconfident in their ability. So, we always want to stay humble and stay in that constant learning mode. I think it’s a really powerful value that can serve you for the rest of your life, in trading and in life in general. Michael: Great points, Price. One thing I want to mention to our readers and listeners is one of the things we talk a lot about is, not only diversification of strategy, but diversification of asset class. Both of those things are important. If you’re listening to our radio show here or reading our newsletter and you probably have an interest in either commodities or selling commodities options, a lot of people want to diversify into stock or stock options, or vice versa. That’s what Price does. That’s what BigTrends does. If you want to learn more about it, it’s a great website to learn more about stock options, stock option trading, and I looked at it and I certainly recommend it to anyone interested in that aspect of that asset class of stock and stock options. Price, I want to thank you. This has been a great interview. You got some good information to share with our listeners here, and we hope to have you back again at some time in the future, if you’re willing. Price: Oh, anytime Michael. I really look forward to it. It was a lot of fun and I enjoyed it as well. Look forward to staying in touch and wish everybody great trading in the rest of 2016 and beyond. Michael: Perfect. Thank you, Price, for everything.

Michael: Hello everybody, this is Michael Gross of OptionSellers.com, here with James Cordier for your March Option Seller Radio Show. James, welcome to the show. James: Michael, as always, a pleasure doing this and speaking to our audience and everyone worldwide. Michael: Well, we have a lot going on in commodity markets this month. James, let’s start off with the metals markets. We are having another surge higher here as we enter into late March. What’s going on over there? James: Well, we started rallying here, over the last week or two, with negative interest rates worldwide. Certainly, both in Europe, China, and Japan the first time people have been discussing negative interest rates. That certainly gives the catalyst for investors in these parts of the world rationale to get into precious metals. Obviously, when you’re putting your money in a bank and you have to pay the bank, that certainly gets under people’s tragh, and why not look for other investments? Certainly, Michael, when interest rates are negative, people think about inflation and we haven’t seen inflation yet. It appears to be right around the corner, and that’s what gold is pointing out with this recent rally. Michael: Yeah, they’ve been interesting markets to watch. Also, over in the energy markets, a market we’ve been talking about a lot over the last couple of months – crude oil, pushing the $40 level. Where do you think we’re going from here? James: Michael, you and I talk about seasonalities, especially in crude oil and gasoline, we’ve been trading these markets for over a decade. In regards to seasonality, one of the most ideal setups right now is taking place in energy. We are looking at perfectly fairly priced oil market, based on both supply and demand. We will often see energy prices fall October, November, December, going into what we call “shoulder season”. Then we expect this seasonal rally as driving-season approaches, and that’s exactly what’s happening now. So many people are pointing toward OPEC getting together and cutting production, and, actually, this past week they didn’t do that. They simply froze production at what level? The highest level ever. Yet, crude oil rallies $15 a barrel and gasoline rallies 20%, simply on seasonalities, and I think that’s what’s going on right now. Certainly, here in the United States, we have crude oil supplies at all time highs. You have Russia, Saudi Arabia, Iraq, and Iran producing the most oil ever, and yet the market rallies. This is the power of seasonality and it’s certainly flexing it’s muscles again this year. Michael: Well, I’ll say in a big kind of way, and bringing up seasonals, this is a very active time for seasonals in commodities. We’re going to talk a lot about that today, simply because we’re entering into a time period here… April, May, where you have a lot of strong seasonality in a commodities markets. James brought a great one up, crude oil… perfect example. We also have some strong seasonals in the grain markets this time of year, and even over into softs markets in coffee. Coffee is a highly seasonal market, as well. Grown in Brazil, their seasons are opposite of ours, where we’re having spring right now they’re having autumn. James, I know coffee is one of your favorite markets to trade. What’s going on right now? First of all, let’s talk about the seasonal. What’s the typical seasonal for coffee this time of year? James: Generally, the seasonal factors have switched to demand for this time of year. Fourth quarter and first quarter, in the Western Hemisphere of course, is the largest demand season. It’s thought that people drink a lot more coffee when it’s cold, and down here in Florida, I think we drink the same amount, but certainly the populations, northeast especially, and also regions in Europe, it’s thought that someone drinks 150% of the coffee they do in the winter, versus the summer. Generally speaking, demand is largest in the United States in January, February, and March. That often kick-starts a bit of a rally in coffee prices. That’s what we’re seeing right now. Harvest in a lot of the Central American countries and Brazil, as well, isn’t in earnest at this time of the year. We’re looking at that starting in the next three to four months. Then, supply comes on at the same time that demand weakens, and that’s why this seasonal, that we’re going to talk about right now, is going to be in play probably in the next thirty to sixty days. Michael: … and that seasonal is from the seasonal charts. Looks like we get a pretty steep drop off in coffee prices, at least historically speaking. We typically see that at the end of our spring, sometime in the April-May time period. Is that a function of harvest beginning? James: That’s a function of the end of demand season and a function of the beginning of harvest season. It’s almost the perfect storm for coffee prices. Generally speaking, demand has sapped a lot of the supply once winter is over. At the same time, we’re looking at big production in most of the Central American countries. Vietnam right now is thought to be sitting on the largest stockpile of coffee ever. Brazil is going to be producing upwards of sixty million bags this coming year. Once we get past the flowering season, once the flower turns into a cherry, and once the cherry is in good shape in Brazil, you can start counting coffee bags. Right now, we’re looking at a record for 2016-2017. Seasonally, ideal situation for the market to fall off again this year, starting April and May and the low of the years, normally made in June and July, and that is something we’re certainly going to be positioning for going forward. Michael: Record crop out of Brazil is a big story. Coffee, I know, could be one interesting development here that you mentioned earlier, before we started the show here. We have report of some type of bug in the northern part of the coffee crop from Brazil. What’s going on with that? James: That is correct. Certainly, El Nino has produced certain weather conditions in coffee crop, sugar crop, cocoa crops, all around the world. The Brazilian coffee crop is no different. The regions that are experiencing this bug that’s been eating some of the berries is in the northern fringes of the coffee plantations in Brazil. It’s primarily where the Robusta coffee is produced, not the Arabica. So, it’s not so detrimental to the coffee production this year, as if it was eating the cherries on Arabica trees. It’s not doing that. So, that will dent probably a couple million bags of production in Brazil this year. Fortunately, for someone who is going to go along with this seasonal play that we are going to be doing, the Robusta crop we probably can afford to lose a couple million bags, because the Robusta is what’s grown in Vietnam, and they’re sitting on stockpiles as high as you can see. We will not be short of Robusta coffee this year. As a matter of fact, we have quite a glut. Michael: James, one thing I was thinking, as well, is you get a news story like that where the media grabs it, you bring speculators into the market. That pushes up the volatility one the options, especially the calls, wouldn’t you think? James: Exactly, that’s playing into our hands perfectly. We’ll see, in fact, if it does play out that way. Once again, just like we have seasonalities in grains here in the United Sates for planting season, there is a seasonality for coffee prices, as well. They normally have a bit of a rally in either the months of March or April. Low and behold, here we have a rally going on right now. Primarily, it’s from the dry condition in the northern parts of Brazil. Also, this bug has been hungry for cherries recently, and who can blame it. I would be too. What a beautiful cherry to ravage, and that’s what it’s doing. It looks like it’s going to possibly reduce this year’s production by a million or two bags. We don’t think that’s going to make a big difference come harvest time. Michael: And as far as strategy goes, we have a market now coming into a time where typically it has a bearish seasonal. We have somewhat bearish fundamentals, this strategy we probably look to do there would be put together some type of call selling strategy. What do you see there, James? James: Well, quite often, a lot of the markets that we’re following right now are fairly priced. However, coffee is not going to be fairly priced. We’ve been trading around 130, 133 recently. If, in fact, the market gets up to the mid to upper 130’s, possibly 140, that will be above fair price. That will be above fair value. That should spur call buyers in coffee all the way up to the $2.40-$2.50 level, practically double the price of coffee. If we time that to sell these options to expire in fall and winter, later on this year, we’re expecting coffee price to be back down to the 120-125 level. If we’re short from $2.50-$2.60 strike prices in coffee, ideal for a seasonality and ideal for option sellers over the next 30-60 days. Michael: That’s a great point, and, if you’re listening to this, coffee is a great market to trade fundamentally and one of the big advantages if you’re an options seller. If you’re trading in this market, there aren’t a lot of traders out there who understand the fundamentals behind this market. They’re trading it technically, they’re watching the news, but if you understand the fundamentals in markets, especially like these- coffee, where you don’t have a lot of mainstream media coverage, it can be an advantage to you as a trader, especially if you’re selling deep out-of-the-money options. So, that’s one of the things we try and bring you here. James, there’s a lot of seasonals this time of year. We can’t cover all of them in just this podcast, but grains are a market that has a lot of seasonals in the spring. Corn is one market that we covered earlier this month. If you got our e-mail, you get our monthly e-mails on the markets, we did feature the corn market, we’re also getting some volatility there. Let’s start off talking about corn, James. We have a seasonal, tends to go down once we hit March-April. Can you talk a little bit about that? James: You know, the seasonality for grains, corn and soybeans, grown primarily in the Midwest, here in the United States, generally we have an idea that it’s too wet, it’s too dry for planting season. It can be either delayed, it can be the ground is simply too dry from the previous year. It seems to have a rally as we go into the end of the first quarter. We’re getting a small rally right on the grain market, and that might be primarily what’s happening right there. We expect, with corn supplies at ten-year highs, we have carryover one of the highest in almost two decades. We expect corn prices to probably head back down in late spring, early summer. Certainly, with supplies as large as that, corn is going to have a difficult time reaching some of the levels that we can sell corn calls at. Any strong move to the upside here in March or April would be ideal for selling corn calls for the end of September, October time frame. That’s something we’re going to keep our eye on, certainly. As you know, Michael, the best thing about selling options on commodities, it’s purely supply and demand. There is nothing technical that creates a bull market, there’s nothing technical that creates a bear market. It’s simply having not enough of the commodity to go around, or there’s too much of the commodity to go around. That causes prices to fall. At the end of the year, the weather is not going to be an issue, the technicals are not going to be an issue, the United States is going to be flooded with Corn. That is going to be meaning lower prices and corn calls purchased by those who buy lottery tickets, as you like to describe them. I think they’re going to be throwing them out the window, because that’s what they’re going to be worth this fall. Michael: Yeah, I agree with you, James. In corn you have a market similar to coffee, where you have a strong seasonal tendency for prices start to break right into planting season. Interesting conversation this week with Jerry Toepke with Moore Research, who is going to be featured in our upcoming April issue of The Option Seller. Jerry plays a big role in building those seasonal charts we all see online. We were talking about the corn market and corn’s one of those markets where, just as you mentioned, sometimes you get some anxiety building up to planting season. Once the crop starts going into the ground, corn tends to go in a little bit earlier than soybeans, they tend to finish up a little bit earlier than soybeans. That anxiety starts coming out of the market, price starts to break. So, you have a strong seasonal tendency for this to happen, and we also have, on top of that, some bearish fundamentals. It’s hard to state them any other way. You have corn stocks at 10 year highs- 1.8+ billion bushels. Planting intentions are expected to be 2 million acres higher this year than they were last year. At the same time, we have some things putting a little bit of volatility into the market. You have the anxiety over planning coming up, there’s some talk of some wetter soil levels in southern growing regions, and we also have the USDA planting intentions report that comes up on March 31st. We’ll get a little bit more refined picture of what planting is expected to be this year. Right now, they’re expecting it to be higher over last. Two things- you have bearish fundamentals and a bearish seasonal, so any one of those things that brings more volatility pushes call prices up, unless there’s some type of real challenge to planting this year. I agree, I think we’re going to have some great call selling opportunities there. It’s a market to watch. James: It sounds as though we’re piling in on corn, but the fundamentals don’t lie- the numbers are true. Any excitement or pandemonium over weather conditions this spring is going to create a great selling opportunity. Hopefully, we get that excitement in volatility, and, if we do, laying out calls is going to work real well, I think. Michael: Yeah, I think so, and soybeans are in the same boat to a certain degree. We’re going to be talking about them later in April. The point there is they’re a great time to trade grains this time of year, certainly a market to keep an eye on. As I mentioned, coming up in the April newsletter, you will hear my interview with Jerry Toepke of Moore Research- some great insights into seasonals. We’re also going to be featuring the coffee market, one James just talked about here, spell that out a little bit, and show you a strategy you can potentially use there, depending on where we go. While we’re talking about seasonals, James, I thought we’d go ahead and move in and talk a little bit more about how traders can use seasonals, because I’m sure a lot of people listening they’re saying “What are seasonals? I’ve heard of them. Maybe I’ve never heard of them at all”. In commodities, there are seasonal tendencies of certain markets. It’s not guaranteed, but they can be a powerful tool to use, and we use them here extensively. I think they are a very important part. James, maybe it would help some of our listeners if you talked to them a little bit about how you use seasonals. What’s the type of thing you look for in a seasonal chart when you’re looking at these things? James: Michael, quite often, commodities are fairly priced. Each day, when the bell rings on the exchange floor in New York and Chicago, the price of corn, the price of coffee, the price of gold, trades at exactly the level it’s supposed to be. Fair value. We decide that by auction, open outcry, that anyone can vote on at the end of the day, and that is where the market settles each day. For certain reasons, technical trading takes place, speculators get into the market, sometimes it’s fundamental selling or buying. The idea of trading seasonally is it reverses what inevitably is an incorrect rating. In other words, the market is falling in crude oil again this year. We are sitting at $27-$28 a barrel January and February, and everyone in the world is betting that oil is now going to $20 a barrel. Watching CNBC, watching Bloomberg, watching Fox, one talking head after the other is talking about $20 oil, $18 oil, $10 oil. That sets up the perfect seasonality for what we do. Going into January and February is when supplies are at the largest and when demand is at the least. Low and behold, what do you do? You start selling puts for the June-July time frame. Why? Because the seasonality kicks in in March and April in the United States, and that is when the beginning of driving-season happens. Seasonality allows you to define how you should be positioning yourself in the market. You don’t listen to the noise trading seasonally, you don’t get excited when the market’s at it’s high, you don’t get scared when it gets to the low. It gives you the intestinal fortitude to trade commodities, and if you allow the 82% of the time when options expire worthless, that gives you the rationale for getting yourself in the market when listening to the pundits on TV would make you fearful of doing so. Seasonality gives you guts that you need, seasonality gives you the idea that, in fact, the market is eventually going to come around to your thinking, it gives you the timing that’s needed. Trading commodities, even though we don’t need great timing selling options, it’s just one more piece to the puzzle to put the odds in our favor, in my opinion. Michael: Yeah, that’s a good point. It’s one piece in the puzzle, and, if you’re thinking about trading seasonally, these can be a powerful tool, but you can’t just look at them and use them in a vacuum. One of the things you have to understand about seasonals is there are fundamentals that tend to cause these seasonals every year. They don’t just happen on their own. So, if you can look at the seasonal that will reflect it, but to really get the most value out of it you have to understand the fundamentals behind that seasonal. James, I know one thing you do is you keep an eye on and monitor those fundamentals. Are they happening the same way they tend to happen each year? What’s different? You brought up a good point about coffee- there’s a bug in the crop. Could that have an impact that could override to seasonal? Right now we’re thinking no, but it’s still something that you have to keep an eye on, you have to understand what’s driving that seasonal to really get the most out of it. The seasonal is really reflecting what’s going on under the surface. Do you agree with that? James: Michael, we follow around 8 or 10 commodities. As seasonals start approaching, we do nothing but analyze fundamentals, we research what the fundamentals are. Quite often, going into a seasonal period, the fundamentals will be, once again, fairly valuing the particular commodity. Certainly, when oil made a low in January and February this year, there was every reason to be bearish on the market. The thing is, we go from the least demand period to the highest demand period in a very short period of time at the very beginning of each year in the United States. We go from the smallest amount of demand of energy to the largest amount of energy usage from January to April- very short period of time. The fact that we’re trading options on futures, the market doesn’t wait for that demand to increase. It expects it to. Low and behold, April, May, and June, people start driving their automobiles, and demand goes up from 20-30%. This is what spurs this seasonal to work. It is a fundamental factor that makes the market go. Knowing these seasonals in advance allows you to get in when everyone’s selling, get short when everyone’s buying, and that’s what makes this just a great piece to the puzzle… utilizing seasonality and adding it to your option selling. Michael: And as an option seller, if you are selling options, the reason we stress them so much is they’re almost a custom made tool for this type of strategy. It used to be, 10-20 years ago, there was a lot of talk about seasonals and commodities. The way people would try and trade them was “Well, let’s see. The chart here says the seasonal falls on April 20th, so we sell it on April 20th, and we buy it on June 1st, and that’s worth 12 of the last 15 years”. So, they go and do that. Low and behold, the thing goes up and they lose. So, the thought process is “Well, seasonals are no good. These things don’t work”. What people don’t understand is these are merely reflecting averages. It doesn’t mean it’s going to fall right on that day. It might not fall at all. The key thing as an option seller is you don’t have to be guessing what the market’s going to do on a daily basis. All you need is that general, typical price trend that you can look at, and then sell deep, out-of-the-money options, way above or way below it. So, even if it doesn’t happen at all or you missed it by a week or three weeks or a month, as an option seller you have so much room to be wrong that you can still end up profiting from it at the end of the day. I know that’s something we try and look for a lot of the time in our trading. James: Michael, whether our audience today is selling options for themselves or they’re considering selling options with us, or they already are, fundamental analysis on the grain market, the softs market, the energy market, it’s available to anyone. All you have to do is go online, you can find out what the supplies are, you can find out what the trends are in production. Make sure, going into a seasonality, that everything is neutral. Make sure that there’s not an underlining factor that’s going to cause the market to not trade seasonally. It’s something that we work on all the time. Our listeners who possibly are selling options on their own, you can do the same thing. Don’t simply look at a seasonal chart. Do the fundamental analysis prior to getting into the market. That’s going to put the odds in your favor, something we’re always stressing. It’s not that tough to do. Michael: For those of you who’d like to learn more about seasonals, we do cover them extensively in our book, The Complete Guide to Option Selling, 3rd Edition. They are a big component of selling options on commodities, if that’s an investment you’re looking at getting into on your own. Obviously, for our clients here, we monitor and do that for them. Speaking of, we do have some consultation dates still open for April for anybody interested in possibly talking about an account. Feel free to call Rosemary at the 800 number: 800-346-1949. She’ll let you know what we have left available in April. James, I know you have another video coming up this month. Is that correct? James: We’re going to be talking about one of our most near and dear commodities, KC, also known as coffee, probably one of the best seasonalities available in all of the market. I’d compared it to the seasonality in energy. Supplies in coffee going forward are going to be heavy to the market, and this rally that we’re getting right now in March and April, I think, is going to set up, ideally, for seasonal call selling. So, that’s something we should probably hit in this video and get everyone very well on board as this trade approaches in the next 2-4 weeks. Michael: Yeah, that will be a great video. I know we’ve gotten some e-mails and people are certainly interested in what we’re doing in metals. We’ve been mining a lot of premium there in the gold and silver markets, and I’m sure you’ll be talking about that, too, possibly in the upcoming video. That will be before the end of March. You can look for that in your e-mail box. You can also be looking for the Option Seller Newsletter. It should be to you sometime within the first couple days of April. I appreciate everybody listening today. I hope you found this podcast on seasonal tendencies interesting. As always, feel free to give us a call. If you’d like to learn more information, get a discovery pack, you can also find us online at OptionSellers.com. Thanks for listening, everybody, and have a great month of trading.

Michael: Hello everyone, this is Michael Gross of OptionSellers.com. I’m here with James Cordier in our home offices in Tampa, Florida. James, what a month of volatility this month. James: It certainly has been. The commodities markets for the last 18 months have been doing a slow drip to the downside. Mainly because of the slow down in China and the demand for raw goods: nickel, zinc, copper, lead, and iron ore have been slowly falling, and, finally, with the idea that interest rates are not going to go up four times this year, which everyone had plugged in to their calculations, meaning a strong US Dollar, which means lower commodity prices. That has completely reversed. Again, here in the United States, we don’t think that’s going to happen, but that has certainly shot some volatility into the commodities market, something as Option Sellers, we really wanted and waited to see. Michael: James, I know when we talk about commodities, some commodities are more volatile than others, what we saw a lot of this month was some volatility in the metals markets, particularly gold and silver. We had discussed last month a strangle in the gold market, where we sold puts and calls. I know we adjusted those positions a little bit, and I think our listeners would be eager to hear how that’s done or how you would adjust a strangle in a situation like that. James: The gold market, like anything else that we put a strangle around, has a very good chance of increasing on one side or the other. In other words, moving towards the put or the call. Often, when we sell a strangle, whether it be gold or any other market, Michael, as you know, normally we are trying to highlight around a $1,200-$1,400 strangle around the market. If one side starts moving up, in other words, the rally that we’ve had in gold, just about $100 an ounce basically overnight, did increase volatility especially on the call side, what we would certainly want to do is protect our clients at all times. Even though the gold market is still some $250-$300 away from those original strike prices, we were able to now roll up into positions that are now $500 and $600 above the current price. It’s a strategy, as far as strangling goes, of selling puts and calls simultaneously. It’s certainly one of our favorite trades, especially when you’re looking at fairly priced commodities. The fact that gold rallied $125 rapidly, certainly did make the call side much more interesting. We did roll up several of our positions to levels that we really don’t think gold can hit. We have no inflation, we have a much more stable stock market right now, the banks in the United States are much more well-capitalized, and the chances of gold going to $1,900 or $2,000 in the next several months, looks like a pretty good thing to bet against, and that’s what we’re doing. Michael: James, we’ve gotten a lot of mail in this month from people talking about trading metals and some of the moves there, and types of strategies we might recommend. One point you made, that was a great point when we were talking last week, was that now that the volatility is in the market, it’s a ….. A great point you made, James, is that a lot of people trading gold and silver look at it and say “Well, I don’t want to trade that market. It’s too volatile”, and, if you’re an options seller, it’s exactly the opposite. The more volatile it gets, the better it is for you as an option seller, and, the point you made was, now that the volatility is in the market, there’s actually less risk for an option seller. James: That’s true, Michael. As we both know, having volatility makes it seem actually more risky than it is, in my opinion. When you’re able to sell options 20%-30% out of the money in a quiet market, is that better than selling options 50-60% out of the money in a volatile market, and I would say that the latter is true. Certainly, the higher probability is in markets where you’re able to sell options further from the underlining futures contract, and that is definitely what we have in gold and silver right now. The silver market hasn’t moved nearly as much as some of our articles we’ve written recently about silver being the kind of a market between copper and gold. Gold has made the big move. The large premiums right now are in gold calls, as well as gold puts, simply because the volatility, and we think right now is an ideal time to get involved by selling options on those two markets as the volatility has finally really increased into something that’s really the life blood of option selling. Michael: It’s like the Warren Buffet mantra: “Be greedy when others are fearful, and be fearful when others are greedy.” James: I couldn’t paint that picture any better than he does. Right now, that’s really a good observation of where our market is right now. Michael: Let’s talk a little bit about what’s going on over in the oil markets. That’s had a big month there, too, and some big developments with OPEC. Can you talk a little bit about that and what’s going on with OPEC? James: You know, for the last several months, so much of the analysis that’s taken place right now regarding oil prices, and regarding OPEC as well, you know, Iran is coming on, so they’re not going to cut. Saudi Arabia finally has the new producers, the United States, they have them on the ropes, so they’re not going to cut. Russia’s not going to cut because they all need to have a certain amount of income on a weekly/monthly basis. The bottom line is, they do have to cut. They do have to balance the market. We saw the first beginning of that this past week, as both Russia and Saudi’s did agree to freeze production and, of course, the long awaited production cuts were not there yet. However, a huge step forward was taken place. The market did not hail it with a great bit of fanfare because everyone was hoping for production cuts. We didn’t get those. However, we did have a huge 180 degree turn in the idea that the largest two producers are aware and very conscious of balancing the market. I think that first step certainly was taken place in order to do that. They froze production at basically record levels, which doesn’t sound bullish, but, for the first time, in as long as we can remember, as far as this rampant move down in oil prices, the market realizes and the leaders of OPEC, certainly Saudi’s, realize that they have to balance the market. We finally have that in place right now, and we’re looking at probably production cuts being announced sometime between now and June. Iran kind of threw cold water on it by saying that production freeze is kind of silly. I think that they’ve been out of the market so long that they lost their mind a little bit, because that was certainly not welcome news to hear Iran say that. I’m sure someone’s slapping them up right now saying “Next time that we’re discussing production cuts, don’t say anything like that of the kind”. I think Iran probably learned their lesson shortly after making that little announcement. However, we do see production cuts. There were actually numbers being floated around, and I would bet a dollar right now that the next time where there are production discussions going on, Iran cheers and thinks that it’s a good idea. We’ll see if in fact it turns out that way. The oil market, which has been flirting, once again, with down near 30, is gaining Traction. We think still the chances of seeing a four-handle on crude oil this spring is very good, and we think that being short puts being in the $20-$23 range is going to be a very fruitful idea later on. Michael: The big development there wasn’t actually the deal itself, but, as you said, the big impact was psychological. It sets the stage for, finally, there’s going to be some cooperation, and, as you said, sets the stage for a possible cut later this spring or maybe early summer time. James: That would be our guess. The market has to be balanced. The Saudi’s realize that. They will be the ones to lead that charge. When you think about Venezuela and some of the other periphery countries that are in OPEC, they have to see crude oil prices rally $5, $10, $15 just to make ends meet. I think it’s going to happen. How long would a rally last if, in fact, we do have production cuts? Will there be cheating going on? Certainly there will, but when these announcements are made, and I really think they will be, we are going to see a decent rally in crude oil, and hitting $40, I think, is a real high probability going into spring. Michael: I would imagine that would probably jack up the volatility of call options as well going into summer. One strategy we talked about possibly for the summer time, not just yet, but a couple months down the road, maybe selling calls high above the crude market. James: That is going to be, in our opinion, one of the best seasonal trades along with the puts that we have on right now. Crude oil is not going to be trading at $20, no matter how many of the talking heads come on CNBC and say “It’s heading to 20”. Just before we started this discussion today, I just heard someone say it’s going to 15. That’s not happening. We love the idea of being short the puts at the $20 level. We should rally into April, May, and June. If, in fact, we do that, we’re going to see call premiums on December crude oil towards the $80 strike price. Michael, crude oil is not going to 80, either. What we really like is the idea that you get through driving season, you go into shoulder season, which is September, October, November. Prices will likely be back down in crude oil, certainly a long ways away from 80. We think that the selling puts now and selling calls this summer for the December contract, probably around $80 or $85 a barrel, is going to be a very nice low hanging free trade for us. Michael: Plus, if the market does rally $5 or $10, you’ll have all the talking heads coming on saying that it’s going to 100. That’ll help the call option premium, too. James: That’s exactly what’s going to happen. The talking heads on TV certainly help push the market in whatever direction it seems to be most easily traveling. I think May, June, and July there’s going to be discussion like that. Hopefully, people are listening and buy the $80 calls from us. I think that’s going to work out really well. Michael: For all you listeners out there that are listening to the discussion on the metals and OPEC, we address both of those markets in your upcoming Option Seller newsletter. It should be coming out on or around March 1st, so look for that in both your e-mail box and your physical mailbox. Speaking of the Option Seller newsletter, you’ve probably read we have a number of different guest analysts that now are volunteering to work with us, come on, and be interviewed in the newsletter. Some very great option talent there that’s wiling to share opinions and insights into selling premium. We’re also lining up a number of those people to participate in our future issues. James, you’ve recently had the opportunity to be interviewed by a stock option selling newsletter, Born to Sell, and you talked a little bit about differences between stocks and commodity options and how you go about managing a portfolio. I know one of the key points you were talking about there was structuring a portfolio, how we go about being in different markets, and the type of different markets you look for. Can you talk about that a little bit and what you talked about in that interview? James: Michael, that's probably the biggest transition from most investors to writing covered calls, or what have you, on their stock portfolio, and wanting to get diversified, certainly with all the volatility. Michael, you’ve seen a lot of people come over to Selling Options with us and building their own and having their own portfolio with us. Everything is about diversifying, as you know, and we want to be in the different sectors that have very little correlation to either the stock market or sometimes to the economy. I think what I enjoy most about building portfolios is that we are able to hopefully prosper in bull, bear, and neutral markets, and, also, by being able to diversify inside the commodities market itself. Sometimes the price of wheat will have very little to do with the price of silver, and coffee very little do that with the price of crude oil. It really gives us a lot of the balancing power in order to make sure that a portfolio is diversified. Certainly we have some interesting times ahead of us with a 0% interest rates and sometimes negative interest rates all around the world. We probably are going to have some interesting moves in the stock market and in commodities over the next 12 months, and I think being able to diversify is going to allow us to prosper from them, and, of course, now we finally have the volatility to sell high premiums. Michael: Yeah, it was a great point that came up in that interview, and I don't know if it made the final cut, but I know he asked you “How would a portfolio like this perform in a down market or a bad economy?”, because a lot of the stock option sellers are selling calls, they’re selling covered calls, or they’re selling puts and waiting for the market to go down so they can buy the stock. That works great, except when stocks go into a bear market. Then, those guys are sucking wind. He said “Well, how’s your portfolio doing in a down market?” and you said “Well, it doesn’t really matter. It doesn’t correlate to down markets, and it doesn’t really matter what the market is doing because you can be on either side of it.” James: Right, and the fact that we can be, you know, positioned for a weaker economy. We can be positioned for China, continuing to slow down, or there's even people talking now about a possible recession in the United States. I know that sounds really dramatic, but people like Carl Icahn are usually listened to. I know he's getting a little bit older now, but he’s a very, very intelligent man and people are following words that he says. The fact that we are able to, you know, be diversified to a point where we can prosper in a market that’s falling or an economy that’s weakening, I think, makes what we do, you know, kind of a sweet spot right now. We are able to sell calls in markets that might follow a trend down with the stock market. I think crude oil, the one that you mentioned here a little while ago, is going to be a prime example. After a small rally this spring and summer, I think a lot of the energies, and maybe the stock market, has a weakening period going into the last third and fourth quarter of this year. That’s going to be one of our, probably, favorite positions. Michael: All right, for anyone interested in learning about our managed accounts or how they work, you can request our investor discovery pack. That’s at OptionSellers.com/Discovery, or you can always give us a call at 800-346-1949, and we’ll get one of those right out to you. James, we are going to shift gears here a little bit and we’re going to talk a little bit about strategy. We spoke a little bit earlier about positioning portfolios and the type of systems we incorporate into that. One of the more popular items that people like to talk about is the concept we describe in The Complete Guide to Option Selling as “staggering”, where we’re staggering our expiration dates with the objective of having options expiring, if not every month, close to every month. Can you talk a little bit about how you do that or how you recommend other investors do that? James: Whether an option seller is doing that on his own portfolio, or, certainly we do that for portfolios ourselves, the idea is if you have a fundamental view on a particular market, say for example, the silver market has been trading around $14-$15 an ounce recently, we expect silver to probably stay in this trading range for quite some time. A position that would inquire staggering would be selling, say, the $9.00-$9.50 put in Silver. For example, say the December contract: if, in fact, time goes by and that December contract starts to decay, and if the fundamentals are the same, we would look then on to the most active contracts in silver and then start selling the same $9.50 put there. As, certainly, the front contract starts to loose some ground, and, as a matter of fact, eventually come off, we will be looking at selling the next contract and silver. Certainly, the fundamentals change from time to time and the range that silver, or any of the commodity would be trading in, is going to vary slightly and, of course, we just sell a slightly different option that way. The idea is that once a portfolio is built, and it does take several weeks to do that, as you know, you can have options expiring worthless or getting to a buy-back point every other month or every other two months. It certainly is fun once the pipeline is filled. Basically, you’re looking at options that are coming off every one to three months. If you are in six or seven different commodities, it is possible that that staggering does offer good liquidity every 30 days and, certainly, that is our objective with staggering. It takes a while to fill the pipeline, but, once it’s done, it can be very rewarding going forward as these options start coming off. Michael: An important point to make there that you brought up is that you don’t necessarily have to wait for those options to expire. For instance, if you sold silver puts and they’ve lost 50% of their value so far, you don’t have to wait for those silver puts to expire. You can go ahead and go the next month out and take in some more silver premium in the same strikes. That’s a prime example of staggering. What does that do for the investor? James: Well, like you mentioned, you don’t have to wait for the option to expire to sell another silver put or another coffee call. Basically, as you initiate a position, you have a certain amount of margin that’s earmarked from your account to hold the position. If in fact, like the example you said, Michael, an option is now trading at half of what you sold it for, what that does is it frees up the margin. If you were putting down $1,000 to hold the position, now there’s only $500 to hold that same position. Let’s utilize that additional margin money to write an option on the same commodity, possibly, and, that way, you have the staggering affect. Often, what we will do, is sell an option for a certain amount of money. As it starts approaching maybe 10% or 15% of its current trading value that you initially sold if for, that makes it a great buyback. At that point, the option that you sold after that might be looking at 50% decay and it’s a nice snowball effect, once it’s in place and working correctly. Michael: Efficiency of capital… James: Perfecto. Michael: That is really what staggering is all about. Making it work as hard as it can be working at any given time. If you're interested in those types of things and structuring a portfolio, we feel it’s probably one of the most important aspects of selling options that most option sellers overlook. They’re thinking about what market to get in, they’re thinking about what strike they want to sell, and they’re forgetting that probably the most important part is how your portfolio is structured to begin with. What market you’re going to be in, how your capital is going to be allocated, those are the type of things we really talk a lot about in The Complete Guide to Option Selling, and, of course, that book is available at book stores and online retailers. You can also get it on our website through a special offer at optionsellers.com/book. Before we close out here this month, a couple of announcements: one, we do have some consultation dates open in March for new investors. If you’re interested in a managed account, or discussing one, you can give us a call at 800-346-1949 or 813-472-5760. Again, that is to schedule a free, no obligation consultation for a managed option selling account. James, before we go, we are coming into a time of year where there’s a lot of a seasonals coming up, and are there any markets that you see, coming up in the month of March, that may have a big seasonal impact here? James: A lot of the grains, Michael, actually, in the past, had seasonalities that would take place in June, July, and August because of the crop growing season in the United States, but so many commodities now are grown in the southern of the hemisphere in Australia, and Brazil. Quite often, a lot of the grain markets right now have seasonalities that take place the opposite of what they did, certainly. February and March has been a very fruitful time for selling options in grains and soybeans, so those are something that we’re going to be looking at over the next 30 to 60 days, as well. Michael: It is a great time for seasonal tendencies. In the April and May newsletters, we are going to be talking a lot more about that. In fact, I think we’re going to see if we can get somebody from Moore Research to come on in and do an interview for a newsletter, so we’ll talk a little bit about that. Anyone who’s interested, again, we have consultation dates open in March. I believe the second part of March, we still have some dates. You can give us a call if you’d like to schedule them at 800-346-1949. Otherwise, we wish you all a great month of premium collection, and look for your newsletter next week. We will talk to you next month. Thank you.

Michael: Hello everybody. This is Michael Gross, of OptionSellers.com. I’m here with our monthly guest expert series. This month’s guest expert is Jerry Toepke, of Moore Research Center, that’s MRCI.com. For those of you who read our book and followed some of the seasonal charts, in the book, Jerry is the man behind those charts. He works heavily with Moore Research in their seasonal research. He does a lot of the price comparisons, coming up with the charts you see and I think he’s going to have some great information for you here today. Jerry, welcome to Option Sellers Radio. Jerry: Thank you, Michael, good to be here. Michael: Jerry, to get started, why don’t you start by telling us a little more about Moore Research and what you guys do over there. Jerry: Okay, at Moore Research Center, we’re a small research company situated on a 73 acre ranch, a hillside ranch, about 8 miles outside of Eugene, Oregon. We actually started out as a computer research facility for a major commodity firm back in the late 80’s and early 90’s. That kind of evolved into a separate independent research firm here where our stock in trade basically is seasonal analysis of futures markets in the publication era. Michael: Okay, great! Now as far as your position there what do you do at Moore Research? Jerry: Well, my official title is Editor, but I’m kind of an analyst, a researcher, and basically all around gopher is pretty much my position. Again, we’re a small firm. We can be light on our feet, we can move quickly. Everybody kind of pitches in and tries to help with everything else. So we’re a small team. Michael: Okay. Now as far as your background or how you got into this field of study, studying seasonals, what was your journey to get there? Jerry: Well, I grew up on a farm in central Illinois, so I was pretty familiar with corn and soybeans and wheat and cattle and hogs and those kind of markets. When I was little, I remember my father would load up our truck with cattle and we would haul them up to the Chicago stockyards. I even remember him taking me to the old Chicago Mercantile Exchange when they were still doing prices on chalkboards. That was one of my earlier memories there. So anyway, after going to school in Chicago, to college, why there was the calling for me to go west, young man, and so I actually moved out to Oregon for several years and then my father, who had dabbled in the commodity market for years and actually did quite well in the early 70’s, mid 70’s commodity boom, thought maybe this might be something I would like because I was good at math and I enjoyed numbers and he thought maybe this would be something that I could help him with. So I went back to Illinois, learned the business, did some trading, became a broker, but then I found out about Steve Moore and his research and I loved the idea of research and analyzing. So it gave me a chance also to come back out to Oregon, where I owned some property already, get involved in research. And again, we did some brokerage in the early 90’s and then turned into the independent computer research firm we are today. I’ve enjoyed it ever since. Michael: That’s a fascinating journey. So you have a pretty good foundation for what you’re doing, growing up around these types of products, working in the industry and I guess that probably helped in giving you a little bit of insight into the actual products you’re studying. Jerry: Yeah, it gives me some perspective, again some fundamental background we as a company don’t really deal in fundamental analysis, but our research depends on market responses to fundamentals, so it helps us to know the more fundamentals, underlying fundamentals that we know to a market, the better off we are in being able to analyze the seasonal tendencies, is maybe the best way I could put it. Michael: Yeah, I think that’s one of the most fascinating parts of your website. I think it’s in your subscription service, that you do provide in different months, little summaries of why these seasonals are taking place, why they tend to happen in this way at certain times of the year. One of the things we often talk about is the seasonal tendencies are often times reflecting underlying fundamentals going on in the market. Would you agree with that? Jerry: Yes, and, you know, in general I would say they always reflect some kind of underlying fundamental. The problem is, we may not always know it – what that fundamental might be. So like I say, the more you can know of underlying fundamentals of market, the better you understand it’s movement and it’s seasonal movements. Yes, fundamentals drive markets, there’s sentiment and there’s technical studies and there’s momentum trading and so on and so forth. The fundamentals overall are going to drive the market and if you can understand some basic fundamentals, I guess maybe would be my point. Then you can more readily understand it’s seasonal tendencies. Michael: Sure, that’s a great point. Jerry, I’m going to throw a little broad question to you here. You answer it as you see fit, but for our listeners who maybe don’t understand exactly what a seasonal is and how it’s calculated, can you talk a little bit about that? How you go about defining it and calculating it, how you come up with that chart that we look at? Jerry: Surely, or I can try certainly. Again, to me, fundamentals can tend to drive a market. A seasonal, to me, a seasonal movement, a seasonal trend, to me is nothing more than the markets own exhibited tendency, historical tendency to move in basically the same direction with a great degree of reliability and in a more or less timely manner. If it does it with a great degree of reliability it’s most likely a response to an annually recurring fundamental event or condition. An obvious example to me would be grains at harvest time. You plant corn, for instance, in the spring and it grows during the spring and early summer. It pollinates in July, so mid-July is a very critical time for corn and the market’s very anxious until it does pollinate, because pollination determines yield. Once it does pollinate, then the market, you know, that anxiety is eased, the market is more assured in the knowledge that “hey, we have a brand new crop coming”. Usually, there is very little in the way of fundamentals to stimulate much of a rally in between pollination and harvest, and harvest starts mid-September, but it’s primarily October-November for corn in the U.S. So, you tend to get from mid-July, no matter what the market has done before then, and assuming a normal year, from mid-July into harvest you tend to get a seasonal downtrend. The market starts to anticipate, anxieties relieved, the market starts to anticipate this enormous crop, which will come in September, October, or November. That’s something that’s very easy to understand. It happens over and over and over again, barring some extremely unusual fundamental overriding occurrence, be it a drought or whatever the case may be. That tends to drive a seasonal trend. Now, what Moore Research Center does is to go kind of beyond that generalized knowledge, which people in the industry have, you know, that happens year after year after year. People get all excited in July, and oh, we’re going to have not enough rain, and so forth. The industry knows that after mid-July barring something really extreme, prices probably are going to go lower. So, Moore Research Center goes a step further. So, we create a seasonal pattern for the year, which will tend to show when prices over that 15 year period, or whatever period we might be studying, but our basic is 15 years. During the year, let’s take December corn for example, during the year, when does that market tend to make a seasonal high. When do prices tend to be lowest? For something like December corn, prices tend to be lowest, say, early October when the new crop year begins. We generate a seasonal pattern. Nothing more than a graph, it’s a visual of what prices have tended to do over those 15 years. It’s not something we’re saying “this is what the market should do, this is what we think it will do this year”. This seasonal pattern, is a data based visualization of what market prices have done over the last 15 years. It’s a composite of how prices have tended to behave. Michael: Yeah, Jerry, one thing I do want our listeners to know is that the reason the seasonals are so powerful is that they bring an element of science and Jerry makes a great point, as people get caught up in the news and is it too dry, is it too wet, and here’s some actual science you bring into it that says, look here’s the stats, here’s what’s not necessarily going to happen but maybe have a very high likelihood of happening. Jerry: That’s a great point, Michael. We try to provide the science and we leave the art of trading to the individual trader. That’s a very good point. Michael: Yeah, and that’s another point I wanted to address. There’s a number of ways you can use these things, a number of ways you can use these seasonals. The way we use them, Jerry, and I don’t know if you know this or not, but all we do and all, well not all our listeners, but a lot of our listeners are selling options on the contracts. So the reason they’re such a powerful tool for us is we don’t necessarily need to know what the market’s going to do tomorrow or next week, we’re only concerned with the general direction and so if we have a seasonal that shows the price tends to go down this time of year, we can just go far above the market and sell calls and so it doesn’t necessarily have to go down, it can go sideways or even move counter-seasonally for awhile and we can still benefit from that. So, if you’re an option seller, seasonals are a powerful tool that you can use, in our opinion, to really give yourself an advantage. Jerry: I couldn’t agree more, yes. Michael: Jerry, speaking of individual markets, you just talked about the corn market, it’s been our experience, and you correct me if you disagree with this, but it’s been our experience that a lot of the physical commodities, like energies, grains, some of the softs, they have more consistent seasonal patterns than some of the financial futures. Would you agree with that, or if not, tell me why I’m wrong. Jerry: I would have to answer that with a definite yes and no. Again, for instance, the grains, corn, wheat, and soybeans, tend to be obvious candidates. You have harvest and you have planting season and those year after year after year after year, you may get, the timing of one or the other may move a little bit, depending on conditions but those recur every single year without question. But, you also, once every 5 years, once every 8 years, once every 10 years, you will get something like an overriding fundamental, like a drought condition. Or I remember back in the 80’s, the grain embargo – something like that. That will throw, when you get a truly unusual condition, and that’s usually what it takes to override a solid fundamental seasonal event or seasonal move, is to take something, because a seasonal really is nothing more than the norm. So, because once something like that becomes well established in the market, producers depend on it, consumers depend on it, middle men depend on it, it typically happens. You can also get, and I don’t know that it’s quite so much in the last few years has it been the case because of the zero interest rate policy, it used to be that the bonds and the notes and the Euro dollars were extremely seasonal during a particular part of the year. Interest rates tended to be seasonally highest in March, April, May. Why? Because the U.S. collects income taxes mid April. That massive transfer of financial assets from out of the private sector and in the public sector tends to tighten monetary liquidity into March, April, May. From there on out, once that’s done, interest rates have, with a great degree of reliability, have tended to ease, going down through the remainder of the U.S. fiscal year, which ends September 30th. You used to get a lot of 14 out of 15, 15 out of 15 years where bonds, for instance, would bottom by no later than mid-May and rally all the way into mid-September. The same thing with Euro dollars, the same thing with 10-year notes, and all with different paces. As that monetary liquidity went from tightened to loosened through the end of the year, those were extremely reliable. That hasn’t been quite the case recently and I suspect in part because of the zero interest rate policies. So, in currencies, probably are one of those that you might think in terms of being less reliable, and I think our statistical studies have shown that they do tend to be a little bit less reliable. Michael: Okay, yeah, those currencies are a different ballgame. There seems to be a lot of moving part there and I agree with you. I’m much more comfortable and I think it’s much more reliable trading, you know, physical products, here’s the harvest, here’s the planting, here’s the times of year and they happen every year. Jerry: Yes, yes, although still as with all of the commodities, you know, seasonals help you, they give you a little better understanding, maybe I should say, of that underlying market. You know, why does it tend to do something, even if you don’t trade that particular seasonal move or seasonal tendencies, it can help you understand a little bit better maybe why the market is behaving as it is. Michael: Sure. Let’s talk, right now we are moving into springtime. There are a lot of seasonal coming into some different commodity markets. I just wanted to touch on a couple of specific markets. For instance, springtime crude oil tends to have a pretty strong seasonal this time of the year. Can you talk a bit more about that and what you say happening here? Jerry: Sure, and again, how different this year may be I don’t know because you know we are in an extreme case with crude oil, but the underlying fundamentals during spring tend to be crude oil has two primary products, obviously gasoline and heating oil. The seasonal bulge and consumption for heating oil is during the winter, the seasonal bulge for gasoline is during the vacation-driving season of June, July and August. That is obvious to everybody. But what does that have to do with crude oil and seasonal patterns in crude oil? Well, as you come out of winter you have depleted heating oil stocks, normally. Well, maybe they are not as depleted this year because it has been probably warmer than usual; but, nonetheless, you have heating oil stocks that are normally at their annual low at the end of winter. On the other side of the coin, you have vacation-driving season coming up in, well, the traditional opening of the vacation driving-season is Memorial Day… end of May. So, in spring, once winter is over and heating oil consumption declines, refiners, you know, shut or slow down production, I should say, temporarily in March and April… April usually, so that they can make a switch over. You know, refiners have the luxury of being able to recalibrate their crack spread to maximize production of heating oil versus gasoline, or vice versa. So, during winter they are obviously maximizing production of heating oil, but in the spring in the shoulder months between the two, they will make the switch over to maximize production of gasoline to prepare for the upcoming season at the expense of heating oil, so they slow production, but during that period of time, they are busily accumulating stocks of crude oil so that when they come back online, in full production, they can operate at capacity because they are going to need, not only, to start replenishing those depleted supplies of heating oil, but they’re really going to be needing to build up stocks of gasoline, you know, because the industry is going to want them, distributors are going to want to start accumulating stocks of gasoline, because not only are our driving conditions improving during the spring, which means a little more driving, a little more consumption of gasoline, but then all of the sudden come Memorial Day, boom, the industry has got to be ready for the vacation and driving-season. School is out, you know, families get out on the road and, you know, they will drive from New York to Yellowstone or Los Angeles to Charleston or New Orleans or something like that, and they will just get out on the road you know people like to drive. There are more daylight hours, they like to get out and about. So, refiners are going to be needing to operate at capacity to replenish heating oil and meet bulging demands for accumulating stocks of gasoline. All of that drives up the price of crude oil in the spring. Michael: Those are some great points, Jerry, and I wanted to point out one of the reasons why these can be so valuable. My colleague here, James Cordier, he has been talking about crude oil for some time now the last couple of months. He was actually on CNBC at the beginning of the year, and when everybody said crude was going to $20, and he was saying we are either at or near the bottom the thing is going to start strengthening, it is going to start strengthening, and he talked about the fundamentals, but one of the things he was referring to was the seasonal. He was relying on the seasonal, and, sure enough, the thing is back to $40 now. Everybody is trying to explain it, but they underestimate the powerful force that seasonal tendency is and just you pointing out the reasons there, I think, is some great insight to anybody listening who wants to trade crude or energy futures. ________________________________________ CUT AND PASTE THIS SECTION Michael: Now, you guys put out some books and resources and some things over there. Is there anything, any books or resources that you have that you would recommend to traders wanting to learn more about seasonals? Jerry: Well, it kind of depends on what you’re looking for, I guess. Our primary service is the MRCI Online, of course. Michael: … and the website’s just MRCI.com. Jerry: Correct. It’s really a relatively inexpensive service. It starts with seasonal patterns for every individual delivery month for well over 40 markets for the major futures we follow, and stock indexes. It goes from those seasonal patterns to specific seasonal strategies. Each month it will show you 15 seasonal specific seasonal strategies of the nature. Michael: Jerry, this has been some fascinating information and for everybody listening or reading this in our newsletter, I can’t stress the importance of knowing and studying seasonal tendencies if you’re going to trade commodities, especially if you’re going to be an option seller, these are an invaluable tool.

Michael: Hello readers and listeners, this is Michael Gross of optionsellers.com, I have a very special guest for you today. Today we have with us John “Dr. J” Najarian, for any of you that watch CNBC you’ll see Jon on Closing Bell and also as a feature trader on Half Time Report. He’s also co-author with his brother Pete of the book “How We Trade Options”, he’s co-founder of optionmonster.com and trademonster.com. For those of you who don’t know John he was a floor trader at the CBOE for 23 years before founding these enterprises. For those of you that trade stock options, Jon has some deep insight into that form of trading he’s going to share with some of those with us today. John welcome to optionsellers.com, guest expert series. John: Well it’s my pleasure Michael, thank you very much for having me. Michael: Sure, John you’ve got a pretty rich background in the industry, one thing many of our listeners might not know is that your resume includes a job as a linebacker with the Chicago Bears. Can you tell us a little bit about that and how you got started with your career in trading? John: Sure, well I was lucky enough back in 1981 to come out of college and go right to the Chicago Bears, and unfortunately even though I picked a good team I think too, – because I was a free agent, I was not drafted – so it was my choice because several teams had contacted me Michael, and the Bears looked like they were probably my best chance. So I went there but unfortunately Michael Singletary ended up being a number two pick that year and obviously a future Hall-of-Famer, it was not long before they figured out that they’d rather have him at middle linebacker than me. So at least it got me to Chicago and that’s what I always thank Mike Singletary about. Michael: That’s some pretty tough competition. John: Yup it is, and he’s a really tough guy and a good guy, so my mother is the only one that resents him. I instead admire him, and I'm sure if my mom had met him she’d admire him too. Michael: Okay, so you were in Chicago and then you ended up on the floor of the CBOE, can you tell us how that got started and what you did there? John: Sure, basically my agent was a trader and a money manager, and he was on the floor of the Chicago Board Option Exchange, managing money for clients. And when he asked me what I was going to do, and I told him that I thought I’d go into the markets, from being around so many interesting people up at our training camp. Bears training camp at that time was up at Lake Forrest, a suburb on the northern edge of Chicago. So he said “well if you’re even interested in that, you’d much rather be on the floor John, trust me”, so he gave me a job and I did that with him for about six months and worked with another trader for about six months, and then went off and started trading my own money out on the floor. Michael: Wow that’s a great story, now when you first started trading Jon, were you trading options, were you trading or were you selling options, were you buying options, what type of trading were you doing? John: Basically as a market maker, so I would have to do both, buy and sell, but I was primarily I guess a premium buyer. Because most traders you will find that are on the floor end up having long premium positions I think, but the primary reason is that they’re scalping throughout the trading day. In other words that long gamut, the fact that you’re long on option contracts, and that it gets longer as it goes higher, and shorter as you go down, means that scalping can be a very lucrative way to make a living. So basically scalping gamma is what most traders do, and obviously the further you get from the trading floor, the more it favors the strategy like what you guys do where you’re and options seller rather than an options buyer. Because a combination of people just don’t have a full time access to the markets like a floor trader does, and the time decay can just eat you up as an off floor trader that trades a couple times a day or a couple times a week or a couple times a month. That’s different from a floor trader who probably trades hundreds of times per day. So again I think the closer you are to the pits and being in there and trading, the more likely you are to be a long gamma trader, and the further you are – more upstairs, which is what I am now like you Michael – the more you are an options seller I think. Michael: Well that’s a great observation. In your opinion John is there still as much activity on the floor or is most of this going online now? John: Of course the volumes show up attributed to a floor, but most of the volume really occurs down in the data centers of Mahwah New Jersey, Carteret New Jersey, Chicago or wherever, in other words at the CME or at the CBOE, at Arca, wherever it might be. The traders are still on the floor but most of the volume is really transacted by people on computer via remote, so long winded explanation I guess, most of the volumes coming in trading electronically rather than in open outcry in the pits. Michael: Okay I'm sure a lot of our listeners and readers are interested to hear that because we do get a lot of questions of “is floor trading what it used to be”, you read a lot now about things going online and a lot of people are curious about that. John, so you spent a lot of time with the CBOE, 23 years, you eventually went on to found trade monster and option monster, and trade monster recently rated best for option traders by Barons. Can you tell us a little bit about those two enterprises, who they’re for and what they offer to investors? John: Sure, well the trade monster was something that my brother Pete and I created to be an online trading platform similar to offering over at Pinker Slim or Charles Schwab with their option express purchase. So we basically sought out to create a venue for people to give them a lot of tools so that they could trade using various types of analysis of both options and stocks, and technical analysis for charts and all the rest on one platform, so that they wouldn’t have to download something. They could just use it as a web based service from wherever they were on mobile or sitting at a desktop. So we did that, and that became known as trade monster. Then we did a deal with a private equity firm a year ago, that private equity firm bought a majority of the firm from us. And we immediately rolled up another firm and now call it Options House. So options plural, house, that’s our technology on that much bigger and much more widely distributed trading platform. Michael: Okay so options house is based primarily on technology that you’ve developed or you and your team have developed? John: Yes exactly, we developed the technology and the tools to both analyze trades and for investors to be able to see where the heat was. We can’t really redistribute the heat seekers that we do because the bandwidth it requires is just too large, so instead we give a slimmed down version for free to many of the clients of Options House so that they can see where there are unusual calls or push. And many times those are signals that somebody is getting involved, somebody’s buying and is establishing {unintelligible 12:22-12:24} that particular equity. Michael: Okay, Jon now you’ve also authored a book with your brother Pete called “How We Trade Options”, and that’s based on your experience on trading stock options. I know one of your key concepts is looking for options with unusual activity. Can you explain what that means and talk a little about the approach you recommend taking in the book? John: Sure, well we start to give a basic primer if you will Michael for people understanding how options work and then how they could apply various strategies to either enhance yield for selling options for instance against stocks that they own, or to instead of investing in stocks at all, perhaps stimulating a long position through the use of options, either buying in deeper in the money call or a lead, or by putting in a call vertical spread, a one by one spread, they can simulate the long stock that have far less risk than the open ended down side of purchasing Chipotle or Apple or any of the other high fliers that people tend to want to trade. But could have a considerable downside if there is a negative event that impacts both stocks like of course this just happened over the last month or so in Chipotle. Michael: Okay so a lot of the strategies you’re looking at are what some people call synthetic positions? Is that – am I on the right track there, or am I off somewhere else? John: You sure are, no you guys know your options, so I'm not going to correct you Michael, you’re exactly right. Many of these synthetics are ways that people are getting long and expressing that bullish outlook – or short – for instance right now because of some of the things that I've seen in the market, I am long a lot on put spreads in the Spider, the SPY. And I expressed that bearish position not by shorting but by owning the put at for instance the 205 strike and being short of goods at the 195 strike in the SPY therefore putting on a position whereby I make money if the market drops and you know `that kind of spread, that vertical spread is the way that I probably trade 70% of the time either being bullish or bearish through calls Michael: Ok. Excellent I’m sure a lot of our listeners will certainly understand what you’re doing there. John many of our listeners here either trade or are interested in both stock and commodities options; however many of the option strategies are the same. Do you have any individual option strategies other than- I know you said your favorite here is the vertical type of long spreads, any other strategies that you favor that you like that you would recommend to investors? John: Well I think for investors that are just learning the course many of them will be better served since they probably own stocks learning about the writing of calls- covered calls against stocks that they own. And then perhaps as they're learning about options eventually they’ll want to understand insurance which is of course a good option collecting a premium for a call can help offset some of the pain that you feel if the market moves to the downside but it can only provide the perfection up to that premium that you've collected so I think the next step is that people tend to understand putting on a put versus their stock and then perhaps writing a call against it and that's something that traders refer to as Callers? And that's a very popular way for people to invest because it can really cut off at downside risk of owning upstart through that put option and then hopefully pay for it by selling them upside call the truncate are upside but it seems like a reasonable trade-off to most of us when you see some of the rapid decline that we’ve seen in 2015 I can’t remember a year where we've seen more of these Michael. Michael: Well that's an interesting observation. I'm going to ask you something, shift gears here a little bit John; many of our listeners, readers here, they've read our book: The Complete Guide to Option Selling some of them sell options on commodities, a lot of them sell stock options. One of the tenets that we always preach is hey look this isn’t the only way to trade options... there's hundreds of ways you can trade options this is one way that works for us it's what we recommend. Obviously you have some ways that work for you; what’s your opinion of selling options as a strategy and do you use the strategy at all in your trading? John: I use it all the time in my trading, I would say that for our clients over on the wealth management side in particular for foundations and endowments and thing, that’s why people come to us; they want somebody to prudently manage a covered write or an option overwrite and I think that’s the same sort of appeal that you guys in your department have Michael is that people seek that additional yield and one of the ways that you can do it most on efficiency- efficiently rather, is through those option strategies; listed options, prices every night there’s nothing over the counter that is in our portfolios for folks just basically writing listed options form or in some cases options that are created select options where you can basically call strike price for American or European exercise and all that sort of thing that's extremely popular for us with the larger accounts that we do because you're not necessarily impacting the market the same way as if you tried to go in and basically put a market in between the bid and the offer or something like that, you’re asking for a quote for specific strategy and most of those big trading desks are more than willing to accommodate that. Michael: Ok, now these strategies when you’re-- when you are doing these rights for clients, these are equity options these are stock options. Is that correct? John: That's correct, yeah. They are equity options that we're establishing for those clients. Michael: And these are primarily clients that are – are they just looking for high returns or they hedging other portfolios- or what’s their primary draw? John: On the wealth management side, they tend to be either like I say pensions, endowments... foundation and things like that when they have their own portfolio of stocks they haven’t asked us to pick those and instead we are putting on positions for them to enhance the yield and/or to cut the risk of owning what they own and that's probably 60/70% of our business. The rest is for us to {inaudible} put stock and/or ETF and then put on the protected strategies or enhance yield around a particular portfolio that we have selected. So we do it either way {inaudible} goes 'cause they have already put on their stocks or we will be happy to set what we think is a representative portfolio that hopefully outperforms the broader market. We have someone within capital this past year, created a unit investment trust that either people buy as an investment trust or UIT or you can either buy stocks without that unit investment trust {inaudible} depending on the portfolio they pick and then we'll do overwrites or call {inaudible} to come enhance that Michael: okay that does sound like some complex strategies that you’re obviously very good at and it’s very interesting to hear how you’re doing it because we were we just do the commodities on this side and hearing what the you’re doing with the equities is - sure be fascinating to a lot of our listeners. John: cool. Well Thank you. Michael: Sure... John I’m going to shift gears here just for a minute and ask you about some your views of the market and the world right now. There seems to be a lot of anxiety about the state of the world, the markets as of late; are you seeing that reflected in stock option values you follow, the Vicks, those types of things? John: We absolutely are seeing that risk or that fear and you can smell it. When you've been in this as long as I have you definitely can smell it. Here is something that is either fear or greed that are the 2 primary drivers and the greed you can tell by how euphoric voices sound when you're on a trading floor, you can probably even tell it when you're watching some of the talking heads on TV discussing various stocks and how the market reaction, for instance, after the jobs report we saw just a dramatic jump to November jobs report- reported on I believe December 4th or 5th. You saw Mario Grogey come on and explain that the market's up a hundred, 200 points, 300 points, nearly 400 points on the day; that kind of euphoric buying is that greed that I’m speaking up and also sent it downside; and you have a 200 point sell off and you are definitely hearing more of the fear in that trade and with the commodity meltdown that is going on and most of 2015 you can certainly see why at the end of the year we've seen a lot of tax lost harvesting at the end of the year. Michael: OK, that’s fascinating you- I'm probably kind of guessing that your answer to this based on your- when you were talking about writing put spreads earlier but as far as your thoughts on the market for 2016 I know no one can predict the future but do you have an Outlook right now? John: Well overall I think that again, we're sort of lucky on one side that the prices had come down and since crude oil which almost everybody - in one way or another - a Tesla driver probably impacted a little in a positive way by lower energy prices; whether it's the energy to basically power that Tesla by plugging it in or the natural gas in their homes or whatever it might be. Crude oil as a form of eating oil on the East Coast, any of these are imports that are less in 2015 than they were in 2016 and that number has basically still dropped throughout the year... and I believe we're at almost half the United States 24 stock- of 24 States where gasoline is less than 2 dollars a gallon. I think that's a positive I think some of the negative impacts to stocks and stock market will be mitigated by the fact that less participation as I said think we said earlier in the broadcast that these energy stocks are now only about six and a half percent of the SEP 500 previously they were closer to 15% so they've been cut in half their impact on the SEP. So some of the downward pulls that those {inaudible} prices have on the economy or at least on the stock market I think will be lessened just because of that percentage of the SEP 500 that is in load stock and represented by those stocks; on the other hand, everybody from Amazon, people from UPS or whomever is delivering packages I keep seeing a positive from these energy prices being cheaper. I think that one of the dangers in the early part of next year, 2015 is that if Grogey and the ECB move too quickly to increase the equity and basically increase their buying European gas that we can see a dramatic drop in the value of the Euro, it would correspond to of course the big rise in the dollar. I think they're going to be very measured about the way they do that, 'cause as I said everything's going to be measured in the way that the moved rate goes on our side of the globe. So if I’m right about then I think these 2 factors could be much less of a negative impact on US stocks and on our market and the outlier which is if either go up faster on our side than anticipated Again I think that a 20% chance not an 80% chance and I think that Grogey is 80% chance to move slowly and measured with the increases to quantitative using overseas. So in other words my overall outlook is that the market grade is higher although probably only 5 or 6% higher in 26 weeks and I think given that he has said there'll be a fire of European debt through March of 2017 means it should not really be much of a paper roll for their overseas until the end of next year; so again I think all that we will likely see equity prices higher without too much of a drag from either [[28:00]] {inaudible} quantitative using here which too fast of or the acceleration which key fast of quantitative using over there Michael: OK. Now you mentioned earlier that you had some long put spreads on, are you more bearish in the short term and bullish in a longer-term or what- okay John: that’s exactly it. I am not necessarily off bearish but I wanted to vote-- most time Michael when I get here the same if I’m talking about what people quote unquote should do I’m probably doing that. I’m not one of those guys that says 'Oh you guys should do this' but I'm doing the opposite. Michael: sure John: but for my account and for my clients we are protecting portfolios and we're only put and/or volatility and there's a way to do both with the Spider I think. I literally preyed the volatility EPS because I think they’re very inefficient in how they express my view. I would rather say if I think volatility is going to move up that means 99 times out of 100 the market is going to go down. Given that I’d rather have a put spread like the one I described earlier - the 205 195 that $10 put spread I'd much rather have that on than I would buy a bunch of VXX or VXY or any of the EPS that allegedly cracks the volatility because I found that those are inefficient ways to prey because the other just sprayed out access to the short side of the market through a Spider or an SPY put spread is a much more efficient way for them to express that same opinion that I have so that’s why I’m more likely to do that. Michael: Ok. John it's refreshing to hear your Outlook as compared to-- not a lot of analysts in people that discuss the market seldom have extreme views right now. You seem to have a very measured reasonable view of the markets and going forward 2016. Do you have any favorite stocks or sectors that you think might be better than others in the upcoming year? John: Well I’ve got to think that many of the sectors that people can get exposed to either stocks or commodities playing right into your strength. I think these guys -- I think commodities can't and I mean cannot be as big a problem for the market in 2016 as they have been in 2015. I can’t imagine that we're going to see copper for instances that basically are down to $2 and change have a similar fall in 2016. Nor can I see crude oil down from the 60s into the 50s into the 40s and now in the $37 range; I can't see a similar percentage drop there. I just really can't. I think there's just too many other factor that would be to have a man slack dramatically to have either of those have as big an impact as a negative impact on the media in those sectors or on the support mechanisms for them. Support meaning like Caterpillar, for instance, for like Acres News or Slumber Jays depending on if we're talking about mining or going global. We're talking about crude oil and extraction or exploration of natural gas and crude oil. I can't imagine the same sort of negative pull there so those two sectors mining oil and gas, those two sectors would be what I would have in focus. I think that the early part of next year, technology will probably be a significant driver; something that will unfortunately commodities probably don't give you as much access to but I think the rest of the year could be pretty significantly impacted by a turnaround in commodity prices even if it's not a dramatic move to the upside, even if it’s just stabilization I think that's going to be something that happens in 2016. Michael: Yeah that's a great point and maybe one that not a lot of traditional investors get is when you're over on the option side you don’t necessarily need to be outright bullish marketer, guns blazing bullish or even guns blazing bearish just maybe you’re not so bearish on something. There’s an option strategy that you can take advantage of that viewpoint. It doesn’t have to be outright black or white and I’m sure you’re very familiar with that, in fact some of the strategies you just discussed target exactly that. John: Yup. That’s right. I think doing what you and I do Michael gives an investor some confidence that they can own a particular asset, commodity asset or stock exchange created asset and there are ways that you can protect it from the downside, because the world really is about risk versus reward; how much risk am I willing to take for that additional reward? And if the reward is too small for the risk, then I think that's not really an asset that I want to own. On the other hand if I could either do a bearish expression or bullish, have exposure to the market that's exactly what these products are so good at and why I want to be in them. Michael: Excellent and just to quick summarize John and correct me if I’m wrong but just to summarize some of the things you've said, your bullish tech early on 2016 as far as sectors you're leaning towards 2016. You think the mining and energy sectors may not be all out bullish but you think the downside could be somewhat limited in 2016? Did I get that right, was it mining and energies? John: Yup. You're spot on. I think just to summarize technology I believe leads out of the gate in 2016 but by the end of the year the commodities will have their day again and that many of the prices that we'll see as tax loss selling carries us into the end of 2015 people will see gains from those levels by the second half or maybe even before that of 2016 and some of these will be silly how cheap they will have looked in hind sight. Michael: That’s a great point. John I know you’re not a commodities guy per se but you do follow obviously have to follow world asset prices oil certainly something I know you’re familiar with, do you know of-- I know you talked a little bit about this earlier as far as oil goes we just had OPEC come out and they are not going to cut production in the near term, do you have an opinion on that right now? Do you see us heading to a major bottom here over the next 1 to 2 months early 2016 here or do you see things leveling out? Or what's kind of your gut feeling right now? John: Yeah I do, I think that the-- I think overall we will but I don’t know that it's a V-shaped bottom so that’s why I said that I don’t think the first half of 2016 is necessarily off to the races for those sectors {inaudible} I think it’ll take a little while to that mindset and to that pain to be-- fall out of people's minds; but then at some point greed will kick in when they realize that enough production has come off-line in the way that we've seen rig-counts coming down every week now. Early in 2015 Michael they were coming down 23 straight weeks then as commodity prices and energy states rebounded, we saw them build back up. It never got to where they were in 2014 but they nonetheless build back up and now they've been leading off to the last 2 almost 3 months every single week. I think that continues and that cutback of that swing delivery of energies will be one of the reasons that we actually see prices move up. Michael: Ok, case of low prices curing low prices. John: Yup Michael: John this has been some great information and everybody listening out there I'm sure you probably want to go back through and listen to this again or read it John has really given you some great strategies here, some great insight into the markets. John if investors want to learn more about you, your strategies, your firm, where do you recommend that they go? John: Well if they could go to optionmonster.com or howwetradeoptions.com either of those two sites they could learn a lot more about it and have some pretty good free tools available to them as well... Michael: Perfect. That’s optionmonster.com and howwetradeoptions.com. John- John: Well thank you Michael it's been a pleasure. Michael: thank you John it’s been some great information we're glad to have you hopefully you'd like to come back again sometime and- John: I’m sure I would. Michael: It's been a pleasure to have you, I'm going to stop the recording here at this point John: Ok.

Today on the elllo podcast, Win from Vietnam, Michael from Norway and Goron from Italy talk about Hollywood movies and films made in 3D. This is lesson 1351 on elllo.org. Go to the website for the complete lessons with downloadable audio and printable worksheets. Below is the transcript to the interview. Michael: Hello, my name is Michael. Next to me I have Goron from Italy and Win from Vietnam, and today we are going to discuss movies and specifically we are going to discuss about Hollywood movies. Do we like Hollywood movies? What is typical in our own countries, and so on. So, were going to start with you Goron, please? Goron: Oh, I would say that generally, I like Hollywood movies. If I want to be, without thinking anything, I just like to lie down on my couch and just eat something and drink and watch a movie, I would choose a Hollywood movie. They are pretty fun. They are well done. They have a huge budget for those kind of movies, like the last superhero movies about Ironman, Spiderman, Avengers. all those kind of movies. The plot is really weak, but you know, you have this like visual effects which the impact on your is strong, and you just think that, at least I think, "Well, how did they do that?" Michael: Yeah, I would give a good example there. You have Avatar. You know the story, it's a huge cliche.  Goron: Yeah, we heard about this story before.  Michael: I knew how the movie would end, but you know, just going there to see the good 3D effect that movie had, I think it had good 3D. It really immersed you in this whole world. You know, you saw those flying things in the forest. Goron: But if you think it was recorded by a 3d camera because the camera was a million dollars, but the other 3D movies are really crap, because everything was post-production, so you can tell, oh this is 3D, and it's dark and you have to wear glasses, and if you already have glasses, it's uncomfortable so it seems like a technology that is trying to steal your money. Michael: It was a huge hype. They were charging more for it, and everyone tried to get on the 3D bandwagon. All of the movies went into 3D and it became more normal for there to be 3D movies in the cinema than the normal movies, but I agree totally with you. They went to far. Avatar was made from ground up. The idea was to make in 3D and they really worked hard to provide a great experience, while the other movies. It's just not the same. Goron: The technology is not ready yet. Michael: And I also agree with you, you know, that there is movies that you watch for the story, which are really good, and you love them. You don't have to have then in 3D. They don't have to be. You just focus on the story, but then you have like, you know, even Transformers, with lots of explosions, lots of effects. It's entertaining in the other way. Win: I mean, it depends on how we look at entertainment. Some day, you could, I mean you want to watch something emotional, romantic, and some days you just want some really easy stuff. But I'm just saying Hollywood isn't all about blockbusters and effect-heavy movies. I think Hollywood has made some really good thinking, some really good food-for-thought and it's not that all bad.