Podcasts about option selling

Derek Moore and ZEGA Financial CEO Jay Pestrichelli ponder whether the Fed is truly done and if the street is too optimistic on rate cuts in 2024. Plus, they discuss new data showing option selling ETFs are having record assets between inflows and new entrants. Bad news is good news still as employment ticks up. They delve deeper into the numbers including labor participation rate, size of workforce, and more in the household survey data. Finally, they talk about options volatility and how it got sucked out of the market this week.   Option selling ETFs set new record high for assets Is the Fed really done raising rates? Is the street too optimistic about Fed rate cutting in 2024? Sahm Recession Rule indicator says recent employment data hints at recession 3-Month moving average of the unemployment rate in the Sahm recession rule indicator VIX hits lowest level in a while Earnings and Nvidia options Bad news is good news regime is still alive and well in markets US unemployment rate ticks up to 3.9% Understanding the household survey numbers What is the labor force participation rate? Size of the US workforce   Mentioned in this Episode:   BLS US Unemployment Rate report https://www.bls.gov/news.release/empsit.nr0.htm   Correction Territory | No Fear Yet in Markets? | When Does Capitulation Happen in Markets? https://podcasts.apple.com/us/podcast/correction-territory-no-fear-yet-in-markets-when-does/id1432836154?i=1000632979045   Fed Rate probability tracker https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html   0DTE Options Analysis| Inflation Coming Back? | Strong US Dollar Impact https://podcasts.apple.com/us/podcast/0dte-options-analysis-inflation-coming-back-strong/id1432836154?i=1000628157831   Jay Pestrichelli's book Buy and Hedge https://amzn.to/3jQYgMt   Derek's new book on public speaking Effortless Public Speaking https://amzn.to/3hL1Mag   Derek Moore's book Broken Pie Chart https://www.amazon.com/Broken-Pie-Chart-Investment-Portfolio/dp/1787435547/ref=sr_1_1?keywords=broken+pie+chart&qid=1558722226&s=books&sr=1-1-catcorr   Contact Derek derek.moore@zegafinancial.com   www.zegafinancial.com

"The trend is your friend." It's a popular saying amongst traders, and we hear it all the time. But is there validity in the statement?We backtested directional option selling strategies with a long-term trend filter to see if there is a significant impact on performance.We used Option Alpha's backtester to review the data for  SPY, GLD, and TLT short put spreads and short call spreads. Short put spread tests included a filter to only enter trades above the 200-day moving average. Short call spread variants included a filter to only enter trades below the 200-day moving average.Click here to see the full backtest results.Important Note: This podcast is for educational purposes only. Past performance does not guarantee future results. This data is presented objectively and is not financial advice or a suggestion to use these strategies. We encourage you to always do your due diligence and test your strategies.Let's take a closer look at the performance of these strategies using different trend filters. This is a great baseline when considering how to set up your trades, and we hope this inspires you to backtest your ideas for strategy optimization.

Our option-selling portfolios can be crafted to all market conditions. This podcast will address the structuring techniques we can use in challenging market conditions. These will include strike price selection, Beta decisions, implied volatility decisions, the use of ETFs, the incorporation of protective puts and the PCP (wheel) strategy. BECOME A BCI MEMBER TODAY: https://www.thebluecollarinvestor.com/membership/ SEE BCI COURSE & PRODUCTS : https://thebluecollarinvestor.com/store/ STOCKS,TRADING,STOCK MARKET,COVERED CALLS,covered call writing,Axsome,Therapeutics,Ellman Calculator,gap-up,cost-to-close,implied volatility,Alpha,Beta,seeking,alpha,cost-basis,time-value,intrinsic- value,put-selling,collar calculator,put calculator,stock option,facebook stock,amazon stock,investing,options,Option,option buyer,strike price,in the money,in the money coverd call,out of the money covered call,covered call writing exit strategies

Market volatility results in higher option premiums for option-sellers but also represents enhanced risk. This podcast analyzes ways to manage high and low VIX stats using a real-life example with Boyd gaming (BYD). Strike selection, stock selection and initial time-valure return goal range are topics discussed. BECOME A BCI MEMBER TODAY: https://www.thebluecollarinvestor.com/membership/ SEE BCI COURSE & PRODUCTS : https://thebluecollarinvestor.com/store/ STOCKS,TRADING,STOCK MARKET,COVERED CALLS,covered call writing,Axsome,Therapeutics,Ellman Calculator,gap-up,cost-to-close,implied volatility,Alpha,Beta,seeking,alpha,cost-basis,time-value,intrinsic- value,put-selling,collar calculator,put calculator,stock option,facebook stock,amazon stock,investing,options,Option,option buyer,strike price,in the money,in the money coverd call,out of the money covered call,covered call writing exit strategies

Ex-Financial Planner and 20+Year Trader, Kevin, talks about how to manage your trading and lessons he has learned along the way. Allen:  Today I'm going to be talking with Kevin, who is now a good friend. I've known him for a few months now. And me came into the option genius world a little while back. And he has been a trader for a while. He's done lots of different things worked in the public sector worked in the private sector, very smart man, very intelligent. He keeps me on my toes with the questions that he has. So it's always wonderful. It's always helpful to the, to the other students, because, you know, they get the high level thinking of the questions that he asked, they get the answers to, as well. So thank you for that, Kevin, and welcome to the show. Allen: It's been a pleasure to have you yeah, like I said, you know, you keep me all you kept me on my toes the whole time. So it's like, this is really good, you know, because.. Kevin: You're actually not the first person who has told me that. So that's part of what I do. Allen: Yeah, I think every class needs one person like that. Do you know, and then as a teacher, it kind of, it makes you feel like, hey, you know, somebody is listening. And, you know, you keep pushing the envelope. So it's like, okay, if I don't know something, I gotta go figure it out. Like, yeah, I know, I do that one thing. But why do I do that? I don't know. Let me go and see if you're gonna make it. Because sometimes we've been doing it for so long. It's like, you know, it's just second nature. I just do it and do and do it. And then you're, you know, you and a couple others are like, Hey, Allen go back, "why did you do that?" I'm like, I don't know. I just does the way I've always done it. Let me figure out why we did it that. Kevin: It becomes instinctive and second nature. And sometimes, we forget why we do some of the things that we do. So it's always good to have somebody you know, especially when you're teaching to ask those types of questions, so that you can help other people understand because you've been added, obviously, a very, a lot longer than I have, and other students. Allen: Mm hmm. But you've been trading for a while. So tell me, how did you get started in trading, investing all that stuff? Kevin: Well, I've owned businesses pretty much my whole entire life. And I started, I actually got into investing when I was very, very young. And so it all started with putting out a financial plan that I wanted to be financially independent. And this was right when I got out of college, I want to be financially independent within 20 years. And so I hired a financial advisor to help put together a financial plan and help put together a life plan for me. And so that's really where the journey of investing began. I've always been a saver, so I've always saved money. So that wasn't that difficult for me. And I've always lived within my means and, and so I was able to put away money the old fashioned way, invest it right and had a lot of great people along the way. And, and that's how I kind of got started. And when it came to options, I actually first got exposed through options at a Tony Robbins seminar that I went to event, I'm a big Tony Robbins fan and have gone to nearly all of his seminars and got introduced to options. And so that was back in 1998. And so I was on the buyer side and bought options and had some success. I also, that year lost millions of dollars as well to trading options. It wasn't through anything that I did in the trading process of it is what I, the decision that I made when I held that to call options. So I held 10 contracts for AOL and 10 contracts for Amazon at $15 each. But both were in the money. And both were getting ready to expire. And I wanted to invest in one of them. And I thought AOL had the best opportunity of being in the internet world and creating the internet. And I thought that's the direction we were going and I didn't think that a bookseller, an online bookseller was going to be as successful. Well, not having cashed in and acquired 1000 shares of Amazon, which would have been worth the millions of dollars today, I missed out on that opportunity. And so that was the only the only thing trade that I've ever made that I regret, but I did make some money on it. I think I ended up making like four grand on it. So it was trading near $20. And I had a $15 option, and overall ended up making like 20,000 Plus on AOL. But of course, that pales in comparison when I could have made it Amazon. So anyways, that was my first experience of buying options. So I had some minor success. And when I became a certified financial planner, which I've been for over the last 22 years has been my main business. Then we used options to help hedge my clients' portfolios when they had very large positions. So nearly all my time in the trading business I've always been on the buying side of it and not the selling side. Allen: Interesting, interesting. I have a couple of follow up questions. The first off is most of the financial planners I've talked to, they have no clue about options, they don't want to touch options. They're like, Oh, this is too risky, I don't get paid commissions, you know, for doing options, I don't want to get into it. My, my broker dealer doesn't want us to do it, what makes you get into them? Kevin: Again, when, when I first started, it was the speculation aspect of it. And so I, on a personal side have used it for speculating. And then when I learned and I and I understood options, and who because as you and I both know, options sometimes have a bad connotation, but a lot of people think, Oh, they're too risky. And they're not something that I would necessarily toy with. A lot of times, it's just because you don't understand how options work or their misuse. So options can be used in two ways they can be used as a speculative tool, or they can also be used to hedge a portfolio and use it as insurance. And so I learned both sides of that, and found how important it was, especially as people come out of their careers, and they have very large positions and perhaps, or company stock, maybe they don't want to totally divest of it. But they're concerned that if you know their company, they hold so many shares that if they were to go down in price, they lose a lot of money, and so on in those types of situations, we would buy, or buy puts in the event that the stock were to go down, then we would be able to hedge their portfolio and protect and then they would have protection on the downside. A lot of times I think Allen, people just they're afraid of things that they don't understand. And options- most people are not exposed to unless you really go out on your own. You do a lot of reading and research or get involved in the financial world. Most people don't have that type of exposure to options. Allen: Yep, that's true. That's one of the hurdles that we have to overcome to get people to Hey, can you you know, look up? This is really good. The second question was, so you said when you were younger, out of high school out of college, I don't remember which one, but you said you had somebody help you make a financial plan? And it seems like the plan probably did very well. Would you mind sharing what the plan was or the basics of it? Kevin: Yeah. So putting together a comprehensive plan, as I as a certified financial planner, what I tell people is, it's not just about the money, it's about life. It's about putting together your life dreams and understanding and having a concept of drawing a roadmap where you want to go and make it akin like if you were to take out a boat, a sailboat, and with a sails and with a compass, you can get to your destination and stay on course, understanding that some storms may come along the way. But if you don't have a compass, and if you don't have a sails on your sailboat, you could be drifting out there forever. And so a lot of people really what I found that differentiates people from success or not is, is do they have a plan in place that helps them get to where they want to go. And so as a certified financial planner, that's what I've done most of my career I help people understand and get into in develop and define what their life dreams are, and then put together a comprehensive plan that addresses not only financially what it's going to take to get there, but also how do you address the risks that are involved? For instance, if you were to lose your job, if you were to become disabled, and you couldn't work if you required some type of long term care if if you are the breadwinner, and all of a sudden, you die, Allen, how is it that your family is going to continue to carry on? How are you how will you fund those financial goals? send your kids to college that put bread and butter on the table for your family? So we help address comprehensively all those issues. And also as well as to make sure that we minimize the amount that Uncle Sam puts in his pocket. So we address taxes, how do you invest smartly, so that you don't, you're not overpaying taxes at a later stage in life. So we put all those things together, and then make sure that you have the paperwork and the different things that are in place where for instance, you were to suddenly pass away, what are the directives that you need to have in place? What do you want to have happen? If you lose your you become health challenged? What do you do? Who's going to make health care decisions and other financial decisions on your behalf? So it's taking six areas of life planning put it all together in one comprehensive plan? And, and that's what I've done in my life and that's what I've helped people to do over my career. Allen: Interesting. Okay. Yeah, there's a lot of good stuff. You just mentioned that people need to think about some of the stuff that we don't want to think about, you know, I mean, who wants to think about dying and, you know, getting life insurance to take care of college when I'm not there and all that stuff, but it's all part and parcel of life. So you have to you have to come to terms with it. Kevin: Well then one of the larger risk, especially with younger people, and they don't always think about because younger people think that they're Superman and Superwoman. And if you are all of a sudden get into an accident all of a sudden you had a medical issue that caused you where you couldn't you could no longer work well how are you again going to continue to supply for your family how will you reach your life dreams, and so, a lot of times people don't think about those different pitfalls that can happen in life. And, and so those are the things that you need to plan for. It's not just about making money, it's about also protecting you and your family. And you know, because we can't control always what happens in life, but we can control how we're going to respond. And we can plan for many of those pitfalls. Allen: Exactly. I mean, I remember, years ago, before I got into trading, I started I tried my hand at being a real estate investor. So you know, in those "We Buy Houses" type guys, so I'd run ads and, you know, try to go see people at their homes that were in trying to sell their homes. And most of the time, I realized that people who are in a in a mess, you know, where they're, they haven't made their house payments in a while. It's not something that people want to do, you know, they're not a lot of deadbeats are like, Yeah, I'm gonna try to stiff the insurance cover the mortgage company. No, they, they literally want to stay in their house, they literally can't not pay the mortgage. And I'd go to these people's houses and you know, they wouldn't have electricity, the bills would be piled up. And they're like, you know, I don't know what to do. And I'm like, How'd you get in this situation? It's like, well, everything was fine until I got hurt. And that was the same story I heard over and over and over again, it's like, yeah, everything was great. You know, we are we were living paycheck to paycheck or whatever. We had some everything was good until we got hurt. And then all of our savings were all depleted, because I couldn't work and we had all these medical bills and all this stuff. And now, now I can't go back to work. My family's trying to make ends meet. But the bills are just too much. And so they ended up in foreclosure. And I found that was the number one reason all foreclosures in this country is just, you know, people getting hurt and medical bills and all that it's not because they don't want to pay it again. Kevin: It's the the unexpected, and I think many people that have experienced the Coronavirus. This is a perfect real life time that we're that we've been going through where all of a sudden this pandemic strikes and businesses shut down. People can't go to work. So the question is, hey, you know, aside from getting some assistance from the federal government, which has been helpful, the people that have really been able to make it, they have cash on the side. And that's another thing as a certified financial planner, we talk about, we don't know, and we cannot predict everything that is going to happen in life. And we wouldn't be having this conversation two years ago, how I mean, what would be the probability that we would be able to predict that in a few months, we're going to be going through a pandemic, that's going to shut down nearly our whole entire economy, and where people are going to get sick, over 725,000 people are dying. I mean, you would think that we were writing, we would be writing a script for a Hollywood movie, but we've all lived through it now. So it's important, so much important, even before you start putting money in the types of things that we're going to be talking about in investing that you have an adequate cash reserve of six, I recommend six months to a year of your fixed income. But to aside for the events of an emergency, or maybe it's just for an opportunity that comes along, maybe maybe it's an investment in a property that you want to make or car or something else that comes along or a great trip, you want to take your your family on, you need to make sure that you have money in the bank that's liquid, that's not subject to market volatility that you can tap into, to help you get through those difficult times. And sometimes I think some of the people in I distinctly remember, especially back going into 2007 and 2008. Before though, you know, we have the housing bubble and everything that blew up financially, everybody, you know, real estate was so hot. And so everybody wanted to put a larger portion of their money in investments in real estate. And as I tell people, if something happens, you have an emergency or something, or you need money, so you are not going to be able to chisel out a brick from your house or your investment property, take it to the bank and pay the bills or pay whatever, you know, you need to have liquidity in your portfolio. And that's the first thing that people should start saving for is to make sure that they have adequate cash for, for again, for emergencies or opportunities. Allen: I agree with you. I agree with you. I mean, it's hard for some people to get six months to a year. But eventually I think you definitely have to get there. Now you mentioned the pandemic. And I don't know if it was because we were lucky or what it was. But as a options trader, the way we trade I mean, I've had amazing in the pandemic, it's like it was the most amazing time, because made so much easy money. I mean, it was like I couldn't I, if I wanted to draw it up, you know, like, how could I make it any better? I really couldn't. It was just for people who were already trading and who already knew what to do. It was the most perfect setup. And then there were other people that got involved a little bit later that really understood learned it and they were able to, you know, they'd have to be there from the beginning. They were able to to write it up as well. And so it was I've seen that I've seen people that have been devastated by the pandemic because of different reasons. They weren't ready. They weren't stable. And then there are other issues as well. But for the people that were able to take advantage of it. I mean, this was this was amazing opportunity. And who knows, if we're ever going to get another one like that, again, maybe we will. I mean, you know, eventually markets will come down, they'll crash. And then there's another opportunity and you get back up. But I do remember, there was one guy that I don't know, forgot who he was some billionaire on the TV, and he was like, This is the greatest buying opportunity of your lifetime. And I was like, really? I mean, you know, I lived through that financial crisis, that was a pretty good opportunity to I don't know, this one's gonna be better. It might be I haven't looked at the numbers. But yeah, it's been, it's been an incredibly amazing opportunity for us. So.. Kevin: Well you with your knowledge and other people that have a lot more experience, if you've dealt you, you've gone through the different cycles in this type of a trading market. So you have a greater for you even ever, I mean, I've been through different trading cycles, but not through the through options trading. So in the in the spreads, and how markets treat those and where your successes are. So that's the one thing that as we get into this is part of the learning process and experiencing is adapting to different to different markets that you that you get into. I mean, it was a perfect time for me when I started doing this. I mean, I got into this because I was in the middle of a career transition. I had, like I mentioned, I own businesses my whole entire life, and just got finished with a 10 years of doing the public service with inside my local government for our community. And, and that was an awesome experience. So the question was, what do I do now? Do I go back and open up another business? Or do I go back and perhaps get a job in the public or private sector, I really had an interest in getting a leadership role, and a nonprofit organization, because that's one realm that I hadn't worked in yet. So I was looking for a full time job and in fact, actually up until just about a month and a half ago. But then when I started looking at and discovering the potential as going back and utilizing some of my experience in the investment world, as well, as, you know, my prior option experience, this was a great timing for me to to enter into this type of field that gives you incredible flexibility and unbelievable earning potential. Allen: Mm hmm. Yep. So you've been in finance for 20-30 years? What got you started selling options, because you were buying options earlier? What happened to make you switch? Kevin: Well, I was going back to what I had known. And so this was in January, when I was deciding. So as I mentioned, as looking for a full time job, and then at the same point in time, was doing a lot of reading research on what type of business I could potentially do. And just started seeing a lot of ads about options. And I said, "Oh Yeah, I remember I used to trade those". And I did okay you know, had good times and things. So I started actually I said, I'm going to get a look and see if I can find the best Options Trading coach that I can find and get the best service potential so that I can get back into this. And I figured if I had a pro that I could trade with, or they could show me a system that could produce potential consistent income. And I said that that might be something to consider. So I found one and he had worked for out over 25 years in the CBOE and was really energetic. I read that a lot of research about him look like he was very successful. So I signed up for the service. And you know, he touted that they had over 74% success rate ratio, which I said, that's not too bad. And so he started getting back in where we would have every single day we would meet online, and he had scanners and things that were set up. And then he would call out which when a certain thing hit the scanner, he would call out what to go, who to invest on. So you're online, and you're investing with him. And I did that and for a little while you're having success, but then also, you were having one's trades it didn't work out. And so by the the bottom line is, is to make a long story short, within a couple of months, I started looking, I said, you know, I'm having some success, but it's not really enough success. By the time you look at the trades that were winners in the trades that were losers, you weren't cutting coming out that far ahead where you feel like you could make a really decent income doing this. Kevin: And so then I started researching more. And I started, I came across the concept of selling options and your service was one of the first things in Option Genius that I started reading about. I said, Well, this is interesting, because you're touting over 80% of the options, which is you know, what should I found to be true expire worthless. So I said perhaps I'm just on the wrong side of the equation. And so I subscribed to your service and there's a couple other services that I found that sent credit spread recommendations and started doing more research around this and I said this is really really interesting. So I did not start off with your service right away. I started getting your emails continue to read I got your books and and read what you had written. And I started entering the trades that have been recommendations I was getting from other services and again, you know, in the beginning, you obviously all you're seeing is the premium coming into your account. And so when you're looking at, hey, you know, instead of paying for stuff, I'm getting money inside my account. I said this is a pretty good deal. But that was true until you got into the expiration time frame, when some of the contracts that you were in, weren't going so well. And so those particular services while they told you what, when to enter, they didn't tell you when to exit. And so I'm thinking I said, you know, some of these positions aren't doing so well. And and so again, I did that for a couple of months. And I said, Well, you know, this is again, another mixed bag. And I said, let me try to before I give up on this, let me try one more time, let me reach out and let me get engaged with Option Genius and see what they can do. Because I wanted a way that I liked what this potential what the selling options could do. But I wanted to see if I could increase my probabilities of success, which you touted through your service. And so that's when I signed up for option genius and your services, and then eventually rolled into the Credit Mastery program, which I just, it's just been absolutely amazing the amount of difference that has made and the success of my trading. Allen: Awesome. Yeah, because I remember, when you joined, you had told me that, hey, you know, I'm part of this service and this service, and I'm getting this trade and that trade, what do you think about this trade? And I'm like, Man, I don't know if they're, if they're giving you a trade, I don't know what I don't know what they're thinking, I don't know what their plan is, or anything, I can't give you any advice on that. I can show you what I'm doing. And then if it works great. So I remember that I had to kind of, you know, like you were heading in different directions and had to kind of like grab, you kind of like by the shoulders and kind of pull you over and be like, can we focus please over here? It was very interesting. It was fun. Kevin: I would have services that you would get three to four trade recommendations a day. And I guess maybe where I got confused, where recommendations, the ideas and I say, Well, this is pretty awesome. I said they're given and I'm, I guess I had the expectation that these were actual recommendations that they're saying that you should do. And so I always did a little bit of homework around that. And I would look at the charts. And a lot of these were smaller companies. And I guess, really, I wasn't really looking at the technical aspects and the things that you teach in your course, I was looking at number one, that the amount of premium that I was generating that was going into my account, I'm just like, wow, I can make, you know, 16%, 17%, 20% on this deal, and there's been some will come across like 25%, I didn't think about the risk aspect of it. And so then I would pull it the company do a little bit of research and said, Oh, man, that stock has been hammered that, you know, that's really it's been trading down. I said, it's got to go back up. Well, some of these trades, you'll get into, they didn't go back up. In fact, they continued to go down, trades would get in trouble. And I'm thinking maybe this thing will just continue to go back up. And so I started living on hoping some of these trades, I said, this thing has to go up at some point in time. Well, some of these trades didn't. And so I lost, I max loss on some of these trades. Some of these other ones, I lost 50 and 60%. And that's when I started think I said, Man, either one, I'm doing really something wrong or two, I said, What I'm entering the trades I'm entering, then perhaps maybe I shouldn't be in. And now those are the types of things that I learned when I started going through your program. The other service, I had no rules, there were no rules, there's nothing that really taught you the art and what you should be doing when you're trading spreads, you're just giving you what those recommendations are, or ideas as I've learned to call them before. And now and and we didn't have the rule set up. So now with through your program, there are definitive rules. I know now when I can look at a chart if whether something is a good idea or not, if I wanted to sell puts on something, and they're not trading, above all the three moving averages that you talked about, I immediately discard it. So I'm able to really now take ideas, even where they're from other services, your services or my own research, and immediately at least be able to spot things that I need to look at further. And so your service has really provided an amazing education to me and again, is is really increased the probability of having a successful trade. Allen: That's awesome. That's great to hear. Because you also have to look at it from the business point of it of, you know, when you're running a service, you're just giving trades and you're trying to collect that monthly, you know, the monthly subscription fee, you know, or maybe yearly or whatever it is, but you have to keep people engaged enough to be able to keep getting them to pay you over and over again. It's a tough business and you're not going to share all the secrets and all the things if they even know any secrets, because a lot of these guys I know them, they run the you know, they're marketers and we run into each other we met you know, we talk at different marketing conventions, and they're more interested in you know, how can I get more subscribers or how can I make more money per subscriber, then how can I do better trades because they know that You know, they can use probabilities and they can talk a good game. And so for a while the trades will do good. But eventually they're gonna blow up, eventually, it's gonna go down. And so the only thing they have to do is shut down the service. And then a few months later, they come in, open up another one in a different name, different website, and they start all over again. So it's you know, they just go from one to another, like when we started years ago, I can probably I remember at that time, I made a list of all the other competitors, you know, everybody who had a service who was given trades, and out of like the 50 of them that were at there at that time, there's probably two of them left, you know, and now there's like, hundreds of them, because everybody figured out "Oh, yeah, if you just say, high probability people jump in, and all you have to do is sell a high a low delta option". And it might work out most of the time. It's like, yeah, it's a little bit more to it than that. And that's why I wanted to get into it, where if you're a person who wants a membership, and subscriber and trades, you know, that's one type of person. But if you want to go further and be like, Okay, I want to actually do this for myself, I want to be in control, then you need more of a coaching, you need more of like, these are the rules, this is how we follow it and step by step by step. So that's why that's the program that you are in, I'm glad that you were in, and I'm glad that you've, you know, it worked for you. Kevin: Well, and again, it's not even being able to recognize good trades, or one, it's one part of the advantage of the program. But equally important is the risk management aspect of it. And also knowing when you need to exit a trade. And that's what I also had found and had been frustrating before, some of the positions that I had, I thought, once you got into the credit spread, you know, you ran into the end of expiration. And so some of these positions in the beginning would go in, they would do extraordinarily well. And they would, the price would continue to go up in the stock, and then all of a sudden, something would happen. And I would lose, you know, the stock would come tumbling down, and then my game would end up turning into a loss. And so being able to manage the risk and knowing when to get in and when to get out is equally important. And I also was- the mindset when I started, I said why would I ever want to exit a position when I would have two or three weeks left? And the option is so far out of the money that you know, the probability it's going to fall is very minimum. And why would I want to spend extra money on commissions and give up a couple $100 When I could just stay in it and it would expire worthless, and I would collect the whole premium? Well, again, you'll learn from experience that markets can really whack you and your positions can go down. And it is a real gut punch that you talk about. When you are on a when you're in a winning trade. And you have made your 10% Target to all of a sudden have that reverse and have actually that winning trade turn into a losing trade. And so being able to get out when you make your 10% as you prescribe. And then also making sure that you are exiting in a position that's not working when you're hitting the 25 to 30% that is really what's made the larger difference, where I've been able to increase my success ratio when I started with you, which was roughly about 82%, I was now up over now with your service about 88%. But the larger differences is that my losing trades, the amount that I'm losing is much smaller than when I was trading before. So therefore my profits have increased, because I'm getting rid of the bad trades and securing my profit and the trades that are doing well. Allen: Yeah, I mean, it does take time to learn those and you know, it's great if we give give it to you and be here this and this but it's easier said and listened to then actually done. So you know, the the fact that we have to we have to drill it in over and over and over again. It takes time and like you said sometimes you're gonna it's gonna reverse on you and you're gonna feel it. And that will be a big lesson in itself. So now, okay, so when did you get started with I think it was March, April. I think you guys started with us? Kevin: I signed up in April, your class started mid, mid May. Allen: May. Okay. All right. So how have you been doing in terms of returns? Kevin: I'm averaging about last month was a really tough month. But on average, it's been about 7 to 8% with all my costs and my losses considered together. Allen: So that's really good seven - eight months consistently and about how much time do you spend on it? Kevin: I am actually doing this full time. So up to last month of about a month and a half or so ago. Like I said, I was part of my time was also looking forward, you know, still looking for work. And then I, at the end of your program, I concluded that I believe that I could do this full time. And so full time for me now is I'm a four to six hours a day. And part of it is because I'm just I really love doing this. And so I'm always looking for for different types of investment opportunities, and so I'm always reading and researching on the positions that I'm that I'm holding, my computer stays up throughout the day. So I'm always looking for that time frame of where I might be able to, to get into another position, or to do research and things that I need to know about market conditions. So it's become a love and passion for me. Allen: And you've also told me that you also have a lot of positions on at one time, right? Kevin: I do. And so my average amount positions that I'll have, I mean, the most I've ever had on one time are 40 positions. And that's actually before I came here, as well, that's because I was taking all of the ideas and implementing. And so now, now anywhere between 20 to 30 positions I might have on but one of the things that I found and that you had taught, and when I learned about the importance of of cashing out your winning positions, when you hit your 10% profit, is that that frees up your capital to be able to invest in another opportunity. And so that's sometimes I'm able to put on even additional positions, because I have more freed up capital, because I've taken money I've cashed in and taking money off the table. And so yeah, anywhere 20 to 30 positions a month, but I've never I've never maxed out as far as the amount of margin and, and the cash that I have on my account. I'm always very mindful that I because I don't know what's going to happen, especially with these with the way the markets are trading today. I don't know what's going to happen when all of a sudden we have a larger downturn. And so I'm very mindful about the amount of margin and positions that I hold considering the current market conditions. Allen: And how much are you trading this - in terms of.. Kevin: At first it started, it was 2500. And then I moved up with to 5000, and then at 10,000. And now this is one of the things that I'm really starting to evaluate where I wanted to be position-wise, my goal is monthly income of about $10,000 a month. So I have roughly about $425,000, of what we call buying power. And that includes cash and stock positions that total of about $650,000. So I'm conservatively and I feel like I am on the track. And I'm able to conservatively generate from that about $10,000 per month and what I found and if people are wondering, well, how much do I need to start with? What I have found by the time you include your your expenses, and by the time you include your your losing positions, you have to start out with a number that you want to generate per month. So if you were to take that number and divide that by 0.5, that's where I think, the amount of money you should have in capital to start. So say for instance, you want it to generate $1,000 per month, depending upon if you're talking about cash and stocks, or just cash only if it's cash only, divide the $1,000 by 0.5, and that'll give you where you need to start. Allen: So that's 20. Kevin: Yeah, that's about 20,000. If it's if you have a mixture of stock and cash divided by a 0.25 so somewhere between 20 to $40,000. And people ask, what's the difference? Well, if part of what you're trading on are securities, that's only in their marginable securities, that's you're only going to get 50% trading power and most of those positions, it does vary. So and that's another thing that you need to if you're going to be, if you don't have all cash to trade with and I'm using TD Ameritrade Thinkorswim and you're using securities and I transfer it in security. So my account, I started out of 50,000 and then ended up bringing in some of my other securities. So I could use that as leverage. Well, some of the securities I brought over, were not marginable in that account. And so it didn't give me any buying power. So one of the things you need to talk with with your broker is how the securities you're bringing over if you're going to be using stocks to to make sure that they're marginable. And so that's what I have found so far has been a pretty good conservative range as far as what to start with. I need to first start with you have to know what you want to generate income per month. Allen: Right I mean, that could be your end goal. It doesn't I don't know if you have to start off with that much because I you told me okay, you're trying to make 10 Gray a month. That means that you need 400 on your, you know, at 0.25, right? So, for somebody who was just getting started today, and they're like, Yeah, you know, eventually I want to get there. You know, they don't need to they don't need the whole amount right now. And then that's including so you're saying 0.25 because.. Kevin: 0.025 Allen: 0.025 because the return on the stocks is going to be a little bit lower than the return on the options, right? Kevin: You're well, if you put security stocks in your account, you don't get the full buying power. Okay, as I mentioned, my buying power is roughly about 425,000 and that's with a total combined mixture of cash in securities at about 650,000 into an account. So some of them are cash secured, and some of them are against marginable securities in your account. So that's why I say if you for instance, one of the generate that income, you don't have any cash, and it's all stocks and all securities that you're writing off of, you need to lose the 0.025, because by the time you look at your expensive your expenses and your reduced buying power, that's probably about where you're going to be at as far as the ability, the amount of money you're able to conservatively generate on a monthly basis. Allen: Okay, so how does the return calculate into that? Kevin: I look at, if we look at that, that you start with 10%, that that's the goal that you're making on each investment. But I have found by the time you end up calculating expenses for trading, and also countering your losses, conservatively, it's roughly about 0.5 so you cut.. Allen: So 5%? Okay. Kevin: 5%. That's again, being conservative. And so again, you reduce that further, if you don't have cash. Allen: Oh, because you're using margin so you have to, okay.. Kevin: Pay 50. So to look at margin is 50%. So cut that five and half and point point oh, two, five as a ballpark. Allen: Okay, so are you only doing spreads with that 400? Or are you doing other strategies as well? Kevin: I'm primarily 98% are credit spreads that I'm doing, and I still am with my other service, I still daily I am on those calls. And I will, I will look at some of them, I look at it. And yeah, you know, this is a good opportunity. And that provides a little bit more of excitement into the day to because you're you're dealing in markets that are very, very fast moving, and that you have to be able to get the recommended trades in immediately. Because when you're buying the call you what we're doing is we're following institutional money. So these are people that you know, huge institutions that are making big bets, and mostly on the call side on certain stocks. So we use the concept of follow the money. So if there's a lot of big money that's going into particular, they're buying calls on something, we are making a larger assumption that they know something that perhaps we don't, and you and I both know that there's insider information that's exchanged, and that there are institutional and very large investors that may hold information that you and I may not have access to. So when we see those types of trades come across the scanners, that's when we decide to take a position the same exact position that they're taking. So we have, we have an entry amount, and we have an amount to exit on. And if you don't get in that that entry amount, then you don't take the trade. Allen: Okay so that's what takes most of the time during the day? Kevin: No that's usually done for about an hour and a half Allen: hour and a half. Okay.. Kevin: Then I go back into my personal research in the longer term for the credit spreads. And so and then, so I'm doing that, and I have lists, I mean, the I mean, one of the great advantages of your program is that you gave us a list of about 180 stocks. So I have that list I built upon that list from my own research. And I keep a running list of stocks that I am watching, primarily, because one of the rules that we that you discuss, and that I subscribe to that you don't enter in a position where there are earnings coming. So I if there's a chart that I like, and a stock that I like, and there's earnings coming up, and I can't get something before that, that goes on the list. And then at that the the day after they report their earnings, and I'm looking at and see what's happening in the stock and starting to make a decision if I want to get into something now, or if I want to watch and monitor it a little bit further. So by the time if you do this for a while, if you're doing that, your list get can get quite extensive. So I have different dates when I'm visiting different parts of my lists. Allen: Interesting. So now Okay, so you. So you're okay, so I thought that your trading journey was gonna be a little bit longer. But you started really, in January of 2021. And in about four months time, you became consistently profitable four or five months? Kevin: Yeah, I think it was helpful that I obviously understood options coming into this. So I have that part of the learning curve. When I got into this, I gave myself six months up to a year to decide how things were going to go. And like I said, at the same point in time, I was still actively seeking employment, as you know.. Allen: But now you've given up on that? Kevin: Oh, well. I really have because I this is, you know, of all the years that I've owned businesses this you have provided probably the simplest and turnkey business that anybody could ever have. This business, all I need -- I have no employees to deal with. I have all the flexibility in the world. When I want to go on vacation, we schedule more vacations. I take my laptop computer with me spend maybe a couple hours in the morning, less than when I usually have just the monitor the things that I've got and look and see if there's anything that I need to, to get into or out of, and that's it. You take this business wherever you go, I can't think of anywhere else where you have control over your income, what you make the hours that you work, I'm not worried about the Coronavirus, I'm not worried about anything other than communicating with, you know, doing my research and then having fun communicating with the market makers and, and we give a little fun because I'm not like you I can be patient. And so I'll put in bids for things and see and see what happens. And we've had fun that way as well. So and I really love it. I mean, it really has created a world of freedom, both financially and also with my family. And so I just haven't found another business, if I can do it continue to maintain that and not having to worry about all the other employment hassles. And worry about a boss having to worry about employees having to worry about meeting payroll, all I'm worried about is is my trading and and making sure that my family is financially secure. That's a lot less stress that's on me. Kevin: And that's one of the things that that I've done. And then I'm developing now is the success for my trading that I'm doing. I'm creating my paycheck for next year. And so I'm not, I'm at a point now where I am not going into my trading account, to put bread and butter in a table to pay the bills, I am exceeding what I needed. And I'm creating my paycheck for next year. So at the end of this year, I will look at all the profits that I have. And that I've made and then create my paycheck for next year, I'll put that money and a an a very ultra short bond fund or a secured fund where I'm earning a a three to 5% in interest, and then pay myself into my checking account and my paycheck every single month. So then going into next year, I'm prepared. And I'm not worried I'm not making a trade because I have to make a living. And that's what I think the one of the important messages are is that if you're going to do this full time, it's helpful if you are already financially secured or you have a spouse, or you have savings that can help you transition into becoming a full time trader. If you are at the point where you feel like you need to make a trade to pay the bills, then that's when I think you could make trades that might not be so suitable, or that might go bad because you're entering into to a trade just to generate a premium. And just to generate generate that income. But if you're in a position where you know, every single month that the bills are going to be paid because that paychecks coming into your account, you're not as concerned about putting on the volume of trades, you're concerned about putting on the right trades, and then you're working towards building the paycheck for next year. Allen: Yeah, this was something this was like really big that you you share with me. And I was like, oh my god, yeah, you gotta you gotta share this, what do you call it, sorry? Kevin: I call it the pay forward plan. And that's what we need because you're you're setting yourself up and you're getting a paycheck every single month, and you just have that and at the same point in time, that money is also earning interest. And so you're getting dividend income off of that, but you don't have that pressure that how am I going to pay my bills that you have to do at the end of the year? Look at the profits, make sure that you but you've accounted for the taxes that have to be paid on on those profits, assuming that this is coming from a taxable account, and then take out those taxes and then that's paid on your upcoming tax bill. And then you're getting a paycheck every single month. Allen: Yep so I want to I want to recap this for people just to because one of the things one of the hardest things is when you go from you know, just regular trading and having another income to going okay, I want to do this full time. One of the biggest problems and the biggest mental headaches and and hurdles people have is, hey, you know, my expenses for the month are like, you know, six, seven grand, I need my trading this month to make six, seven grand so I can pay my bills, and like you said, it's the wrong way to think about it. So what you said was, you know, you have an income another source, but you take whatever your profits you're making now and then you put it into a interest bearing account for next year. So you know, how much money is in the account so you know that okay, all my bills are gonna be paid for so that you don't have that stress of having to perform and having your trades to have to work out next year going through it month by month by month, right? Kevin: Yeah, and what I'm doing right now is I'm keeping all and this was at first I was going to take in monthly the monthly profits and take put that in my checking account and as I went along, and knowing and looking at the uncertainty the markets, I decided to keep everything into in my trading account that I was making until the end end of the year. So that way, you know, when you're at the end of the year, you know, everything has been settled, your contracts are settled, you know how much money you have made, and what you can then allocate. That is also an advantage to keep it in your trading account for the year, because as you're building up money, that's obviously giving you more purchasing power as well, too. And so, as you have successful trades and losing trades, then they'll go ahead and wash out each other. But what you do is your record, I'm doing the reconciliation at the end of the year. And so at the end of this year, at the end of December, December 31st, I will look at what I have made, and then make a determination of how much I'm going to take out of my trading account, and put into this other investment and do create my monthly income for next year. Allen: That's awesome. Yeah, it just takes once you have once you know your bills are covered, or at least part of they're covered, you know, because I know a lot of people a lot of traders are like, you know, I have to make this trade work. And that's when you have to do something, that's when you lose control, you're not in control anymore, the market is gonna dominate and emotionally you're out of it, and you're gonna lose, it's just, it just, it could happen. Kevin: Not only that, you end up taking substantial risks. And, you know, if you feel like you have to make six or 7000. That's why it's important that you have a realistic understanding going into this, of what you can generate off of your account. Because if you're expecting to generate six or 7000, and you might have 50,000 in your account, well, I'm thinking that that you might be very disappointed, or you could take risks that you should not be taking risks as you're trying to generate premium to create that six or 7000. So that's what I said, the first thing you come into this with is having an idea of what you want to make. Now again, as you mentioned, it could not this, maybe it's not the amount that you're going to make today, you can build up to it, that's fine. But first, make sure that you have the amount that you need coming in in a month that can generate the bread and butter that you put on the table to support yourself and your family and so then you can build up from that. And that's why if you use that formula, that you know, $1,000 You know, if you want 1000 A month, divide that by 0.05 or 0.25, and that'll give you the amount that you can realistically, you realistically should have in your account to generate that type of income. Because realistic expectations, I think are important cuz I think people could look at this. And many times, I've received solicitations that look like you can bet the sky's the limit on what you can make selling options. Well, maybe that might be the case, but the risk that you're taking, could easily wipe you out. And if you don't follow the rules, and if you aren't conservative, and you don't do the things to make sure that you are having a highly probable success on your trade and you're breaking all the rules just to try to generate premium, you could end up broke really quick. Allen: Right. So you're saying basically another way to say it is that two and a half to 5% returns per month is a good target to aim for in a conservative manner doing options trading? Kevin: It should be used to determine about how much you need to have in your account and generate a certain amount of monthly income. Right. As people always I hear that question I know in the class, you know, people just start and say, well, Allen, how much do I need to get started? Well, again, it really has to start with us have some type of income goal to begin with. And so I have found it to be a pretty realistic tool as far as what you should have in your account to generate a certain amount of monthly income. Allen: Yeah, that's another way to look at it. You know, to me, if somebody asked me that question, I don't look at it in the fact that, okay, you need an income goal right away. I would say that, okay, so this is like a skill, like bike riding, where I want you just to get on the bike and be able to pedal and we can take off the training wheels. So I don't care if you're going 100 miles an hour or whatever. That's the goal, eventually you'll get there. But right now I just want you to be able to pedal. Kevin: I would agree with that. I just think some people think, Oh, if I've got 10 grand in my account, can I go ahead and make three to $4,000 a month? And I'm saying no. You know, you might be taking that 10 grand may disappear really quickly. And the type of risk you're gonna be taken if you want to generate that type of thing. Allen: Yeah, exactly. Exactly. Yeah, we've had people email me like, well, you know, you say you can make 10% But that's too little. I want to make more I wanna make 20%. Can you help me? I'm like, nope. Maybe I can help you do it once. Maybe. Kevin: That's what I think the answer is yes, you can help them generate 30 to 40%. But the question is, is will they be able to keep that in their bank account or their bank account quickly evaporate? Allen: Exactly. Yeah Kevin: I think the the question is, is can you help them make 30 or 40%? Yes. Can you help them keep 30 or 40% in your bank account? Probably not. Allen: No, no. Doing it over and over again, consistency is the thing right? You got to be consistent. So okay, so when you started with us with the Credit Spread Mastery program, what were some of the or what was the one major thing that was your biggest challenge in implementing, and actually getting it done? Kevin: I think implementing and pushing the button. And that continues to be the challenge, as I say, as I look at the scaling, getting comfortable making that first investment, because when you haven't done it, and, and I had a little bit of comfort, because I had successes with some of the other services that we talked about earlier. But again, having the comfort level of being in the confidence to be able to say, to enter into a trade. And that's what I tell people I said, I said, I think that the hardest thing to overcome is that confidence level and that's where you just have that's why it's important that either you start out paper trading so you can start seeing some of the success and then starting small to build up that into that. That was the hardest thing for me. And then also is is changing my philosophy. You know when you when you talk about the rules when we're selling puts it has to be above the all three moving averages I'm looking at I shouldn't be entering something when a stock is at its lowest price, not its highest price. So it took me a little bit of time to wrap my thinking around that. And to understand that we're looking at the momentum because I'm a bargains are when I'm when I have my long positions of stock, I'm looking for stocks to hit bottom, I'm looking for good stocks to greatly reduced in price not to invest in something that's at the top of the game, I call it I call it the American way of investing. Americans seem to like to invest at the top and then sell at the bottom. So I always tease clients that that was the American way of investing, we want to do the opposite, we want to get in at the lowest point and then sell at the highest point. Well, that's it's kind of like a contrarian theory here for me, but.. Allen: Yeah that works. But for different strategy. You know, if I were if I was like, Okay, I want to do naked put, then I do exactly what you said, you know, it's like, hey, when it's going down, it's a good strong company. And that's what we advise in our, in our other program, the passive trading formula, it's like, what we want to do is we want to find good, strong companies that we don't mind owning for, like 100 years. And when we sell puts, that means that you know, the stock has come down a little bit, we can get them cheap, we can get a discount on it, and we get paid for waiting. So for that strategy, yeah, it works great. Credit spreads? I want to know what the stock is going to do. Right? I want it to tell me very clearly that, hey, I'm going up going down going sideways, and then based on that news, then I will go ahead and play with it. If I don't know what it's gonna do, I don't want to take the risk. And sometimes, you know, people, you can get as complicated as you want with it with the technical analysis, Support-Resistance. And if you can add that stuff to it, then that's great. If it helps, but it doesn't always help. So take it for what you know, it's like it's like a grain of sand. Like, sometimes it works. Sometimes it doesn't. And then we add all the other elements to increase the probabilities. And like you said, you know, if it's working out for you. I think you said you're doing 7% a month, which is, which is phenomenal. You know, if you can keep doing that you keep compounding it. Like you said, the count is just growing and growing, you're gonna be at in so you're not but you said you wanted your goal was 10,000 a month? You're not there yet? Kevin: I'm actually, I'm averaging more. So my best month so far. was just a couple months ago, I did 14 on that month, and I don't know how November's I mean, November has been really awesome so far. But I'm not making any predictions, I might be able to top 20 maybe this month, possibly. But the last time I thought I was going to do that for October, I just like in the middle of the month, I was invested so heavily on the and that was another thing that I point to bring up later on, as you get into this is is trying really trying to diversify. And that's not always easy, because you're looking at trading opportunities. And sometimes at different points in the market. Like for instance, a lot of the when I experienced the downturn for for my October contracts is because I had about 60 65% of my positions were in technology companies that all of a sudden, they decided that they were concerned about the 10 year yield on the treasury bonds, and everybody wanted to start exiting tech companies, well, all my positions really started getting into trouble, because there's a mass exodus. So that diversification, I think is also important and to try to get to that, and that's what I'm still trying to also work on is having, like, I've always preached about not having all your eggs in one basket. And so my, my long stock portfolios are pretty well balanced and diversified. I'm trying to get that way. And it's not always easy to do that. Because you come across an opportunity to say, well, this is really good, you know, the charts looking good. You like the the the prospects for the company. It's a good company that you're trading with. And so you go in and before you know it, you're overloaded on one sector. Allen: Yeah. Remember, this is one of the things that we had, we talked about a few times, you know, when I was going through your spreadsheet, looking at your trades, I'm like, Oh, they're these overloaded, he's overloaded. There's too many of them. And then like, you know, you got the lesson. So hopefully it sticks. Kevin: Like I said, and it's just it's really sometimes it's very difficult to tell And that's why I again, I tried to look for different segments that I can go into. And it's not always easy. But part of the thing I was going to share is that the importance that if your goal is 1000, once you start, you get yourself going, the you shouldn't just stop at trying to get 1000, you should try to get, if you can get into decent trades to earn more money, that should be part of your goal. I mean, it should be part of your natural goal. But I bring that up, because sometimes you are going to have down months. And so at the end, what you want to make sure that you have is if your goal is 1000, that your average is 1000, maybe some months, you're going to end up you should have 1500 or 2000 other months, maybe it's going to be 500. Or maybe you're going to lose 1000. So the whole point I'm trying to make is when you get to the point of what your of your comfort level in implementing the strategies is that you try to overshoot a little bit to compensate when you're going to have down months. And so October, I had a down month, and you know, so but the the idea is at the end of the year is to have that as an average, Allen: Right yep, yep. I mean, that's why, you know, on in our program, every trade we go is we shoot for 10% don't always get it, you know, we're gonna have months or trades where we make less money trades when we lose, but if you average it out, it comes about to be like, you know, five or 6%. And you're doing even better than that. So you're doing better than what averages but yeah, even 5% a month is 60 a year, compounded monthly, not compounded yearly, but compounded monthly, if you want to, that can be extraordinary life changing very, very quickly so.. Kevin: And at the end of the year, you're going to make the decision what your paycheck is going to be next year, I mean, with the program that I've the system that I'm coming up with. And that's that's kind of the cool thing about it. And when you think about it, if you take out your basic expenses and what you need, but are able to build up extra cash, and then the other opportunities that you could use, whether it's getting to financial independence, being able to retire earlier, you know, using that, that's just an extraordinary thing. And so that's part of my goal is again to generate additional cash flow so that you can even build a larger nest egg. And it for a while it took me because I kept on thinking what am I going to as a financial advisor, I have X amount of dollars that I like in cash. But then when you have excess cash, I always say that, you know, you're losing money because of inflation. But when you're using the excess cash to build your strategies into and to do what you're doing here. And if you're making 5% a month or seven, or whatever it is, and it's 84% of the year, where else can you take your extra cash, and make it make 60-80% I mean it just so that's when the light bulb came on, I said, Well, if I generate an extra, I'm going to keep that extra in my trading account that I don't need, and use that in the year going forward. So I can continue to build and have and have more opportunities I can, I can put on more trades and invest. And I said that is the way that you can actually see this really, really take off and propel you to financial independence or financial success of some degree. When you're able to generate and then sitting in cash at any point in time. You you decide that you're going to do something else with it if that money's there. Allen: Yeah. So when you are going through the program, what was like the biggest surprise that you had something that you didn't even expect? Kevin: How easy and simple this would be? You know, like I said, I had an understanding of options going into it. So that complexity of options wasn't there. When I first started, it took me when I started in 98 It took me a little while I bet it was at least a good six to eight months to really wrap my brain around the calls and puts where and how they function, different types of markets. That was probably the larger learning curve. When I first started options. I didn't have that going into this. I understood how they work. So the basic foundation was there, but I didn't realize again how easy and turnkey your system would be and getting you know because let's face it, we all get solicited, you know when the all sorts of different opportunities. Everybody is proposing "Hey, get rich doing this get rich doing that". And you come to almost have a very high degree of skepticism with many of the offers that you get. So there's most of them end up just going into my delete box because you know, you look at in the face and they say hey, make a million bucks. I'm thinking yeah, right. Okay. But yours, you pretty much You said everything on the line that hey, you can lose money. I'm going to help you do it consistently. I'm going to help you do conservatively. And everything you know that you have said this has been true so far. And like I said, with all the businesses I've run in my lifetime, I've never had a business that I felt like that was so simple that would provide me so much flexibility didn't have any headaches to deal with employees that the boss or anything else. And then all I needed is my laptop, laptop and internet or some type of connection into the electronic trading floor and I'm in business and I can do it wherever whenever I want and I set the amount of money that If I want to make it's up to me to take the most degree, obviously, the markets are going to have some say about it. But you know, you, you are truly Your Own Boss in this type of scenario. Mm hmm. Allen: So what do you think the future holds for you now? Kevin: I'm going to do this as long as I can, as long as I have my mental faculties together, and the market doesn't fully blow up. I guess that's one of the things that it keeps me up. It doesn't really keep me up, but it's always in the back of your mind, will I be fully invested or I'll be heavily invested in this market doing these types of strategies, when another March 20th comes in the whole entire market falls out, you know, then that's the one. That's why I try to be very mindful of that. And every day that you wake up you wondering, is this the day when the markets decided that the party's over,

Discover everything you need to know about finding the best stock for option selling.In this podcast, you'll find the Beginner's Guide to Picking The Best Stock for Selling Options, especially selling Put Options.

After the crushing blow of game week 6 we try to find some positivity looking ahead to GW7 before our big team by team next week.  Also on this weeks pod.... Ant Goes Big on Maupay Mike Has a New Way of Predicting Results Phil finally introduces his new quiz 'Nigella or Cucurella?' Are Arsenal Here to Stay? Will Spurs Stay Up? Mike Recalls a Bizarre Childhood Memory If you enjoy the pod please do share with friends and family.  We are a family friendly show. Thanks for listening!

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Welcome to The Stock Market Podcast by Sharique Samsudheen. We meet here every day at 8.30 pm to discuss, analyze, and learn everything about the stock market. We start the day by analyzing the Nifty & Bank Nifty levels and go on to talk about top news for the day. We also discuss stocks to watch for tomorrow. Intro: 00:00 Watchlist Update: 01:33 Markets Today(Nifty Resistances!, Bank Nifty Analysis): 05:26 Buzzing Sector of the day Nifty IT(Infosys Rally): 08:15 Top Gainers/Losers(IndusInd Bank, Bajaj Twins): 10:08 NOFHCs and Small Banks: 10:59 Mothersumi Rally and Reason for Banks Fall: 13:58 Why did HDFC fall 3%?: 15:00 FIIs Pumping in Money: 15:45 Markets Tomorrow(Global Markets, Our Prediction for Nifty): 16:40 Athishaktham Watchlist: 18:30 Your Questions, My Answers(Options Class,FIIs vs DIIs): 21:20 How much capital for Option Selling? Snowman Logistics, Position Sizing and more: 24:05 Join Us on Telegram - Search @fundfolio on Telegram Do check out www.marketfeed.news for updates every day Sensibull Options Trading Platform Discount Link - https://rzp.io/l/fundfolio10 Open Demat & Trading Account with Zerodha - https://zerodha.com/open-account?c=ZMPKGJ Open Free Demat Trading Account With Upstox - https://upstox.com/open-account/?f=8U0X Do check out our video version - https://www.youtube.com/watch?v=Xs3WlBNC9xM Send in your valuable feedback to marketfeed@fundfolio.in

Covered call writers and put-selling must make timing decisions as to when to enter, manage and roll our option trades. This podcast will discuss these 3 determinations using Theta, or time-value erosion as a backdrop to framing these timing choices. BECOME A BCI MEMBER TODAY: https://www.thebluecollarinvestor.com/membership/ SEE BCI COURSE & PRODUCTS : https://thebluecollarinvestor.com/store/ STOCKS,TRADING,STOCK MARKET,COVERED CALLS,covered call writing,Axsome,Therapeutics,Ellman Calculator,gap-up,cost-to-close,implied volatility,Alpha,Beta,seeking,alpha,cost-basis,time-value,intrinsic- value,put-selling,collar calculator,put calculator,stock option,facebook stock,amazon stock,investing,options,Option,option buyer,strike price,in the money,in the money coverd call,out of the money covered call,covered call writing exit strategies

July 2018 Podcast James Cordier and Michael Gross Michael: Hello everybody. This is Michael Gross of OptionSellers.com. I am here for your July Podcast. This month’s podcast will be in audio format. I’m here with head trader James Cordier. James, welcome to the show. James: Thank you very much, Michael. Always happy. Michael: Great. The topic of this month’s podcast is Fast Cash from Selling Options in Over-Bought or Over-Sold Markets. James, as you and I know, we’re not really in the business of looking for fast cash, but we’re more in the business of long-term investments. Every once in a while, when you’re selling options, there comes certain opportunities where there might be a place to sell the option and you see that time decay in just the first 30-60 days. Often times that can be when markets get to an extreme, like some markets we’re seeing now. Wouldn’t you agree with that? James: Michael, it’s interesting, we are very long-term investors. When we’re looking at seasonal positions or headlines that create a slightly shorter-term opportunity, then we do look at things like timing and certainly all the headlines going on right now with trade are probably offering some really good opportunities of the slightly shorter variety and we’re looking forward to taking advantage of those over the next 10 days or so. Michael: Great. I know, as you and I have been discussing, as are most investors right now, the big topic is trade tensions with China. I don’t know if we call it a trade war yet, but certainly having got some investors attention and pushing the stock market around. Maybe talk a little bit about how that’s affecting commodities right now. James: Michael, if this doesn’t turn into a trade war, this is the most well played game that I’ve ever seen between the U.S. and China. I mean, we are right to the brink of what could be quite a significant trade policy coming down the pike. It is definitely worrying some investors that are looking at certain parts of the global economy. Uncertainty is always not welcome. Anyone who is looking at investing for their company or inventories or what have you, when they see uncertainty they usually hold back and that is probably going to be swelling some economic growth globally if this doesn’t come to a head here in the next week or two. Michael: Okay. As most of you listeners know, as far as being an option seller, it doesn’t really matter to you which way the market or prices are moving, especially when you’re trading different uncorrelated commodities. Often times, situations like this can create opportunities and that’s what we’re going to talk a little bit about today. James, would you like to go ahead and move into our feature markets? James: Michael, certainly. Natural gas is one of the markets that are very near and dear to our hearts. In the very heart of winter and the very heart of summer, which is coming up relatively soon, we did take positions in natural gas much earlier this year, trying to sell put premium. We were fairly successful doing that. Generally, the market bottoms in winter and rallies into spring and the natural gas market did that. Right now, we are looking at a seasonality for natural gas. It has had a very nice rally over the last 3 months or so and basically a lot of headlines talk about the need for natural gas in summer for cooling homes and cooling businesses, of course. We think that’s quite overplayed. Generally speaking, when it’s extremely cold in the U.S. or throughout Europe, demand for natural gas does spike and that is real. As far as buying natural gas for summer cooling, I don’t think the numbers dive exactly. It takes approximately 25% of the natural gas to cool a home in the summer as it does to heat a home in the winter so, generally speaking, when natural gas rallies because the warmer temperatures are ahead, that’s usually something you want to fade. Of course, at that time, inventories are usually being built in a very big way. So, we’re looking at selling natural gas calls over the next 2-4 weeks to take advantage of that seasonal position. Michael: Yeah, you make a good point there, James. The seasonal tendency for natural gas used to get a little bit of a spike in summer and, yeah, you can but it seems like the tendency over the last 5-10 years seems to be more of, as they build that inventory into spring and summer as those supplies rise, it tends to just kind of overlook the summer demand for just the reason you mentioned. Now we’re seeing a seasonal where the seasonal prices tend to start declining in June and keep going right through fall so it appears they’re following that pattern right now. Now, we’re not at a particularly high level of natural gas supplies right now. From what I’m seeing we’re a little bit under where we typically are this time of year. Is that what you’re seeing as well? James: We are. Natural gas supplies in the U.S. are under the 5-year average and they’re below levels from last year, not a great amount, but what a lot of market participants are looking at is all the drilling all around the U.S. Of course, the bi-product of that is natural gas. A lot of investors and a lot of the analysts in natural gas feel that $3 natural gas is probably a fairly decent price considering that drillers are getting it for free as a bi-product. So, it used to be that natural gas was produced in the Gulf of Mexico in Louisiana, and when you had demand shocks it really moved the market a great deal. The beauty of option selling is that some of that volatility is still in the market even though we’re now producing natural gas all over the country. We have just massive fines in Oklahoma, Arizona, and Kansas, the Dakotas, Pennsylvania, Ohio. The supply is always going to be there for natural gas right now and taking advantage of small swings, up and down, during the year should be fruitful for selling options and that’s why we think selling calls over the next few weeks is probably going to be a very good idea. Michael: You know, James, you made several good points there. In talking about the seasonal tendency, when we go back to where you were talking about selling puts in the spring when we recommended that in the newsletter, prices have rallied almost 10% since that point. Now, with supplies building, as you said, it can start putting a little bit more pressure on the price of natural gas, at least that is what you’re expecting. We’re going back to Fast Cash from Selling Options in Over-Bought Markets… I think two points, and maybe you can hit on both of them, one is natural gas, as of at least a couple days ago, hit a pretty good level where it was and looked pretty over-bought, especially for this time of year when you have a seasonal. Technically, the market is over-bought, that tends to push those option premiums up higher to where they get to an over-valued level at some point, especially with a little jolt like that. Also, natural gas is probably one of the markets that would be least affected by any type of Chinese trade tariff. Would you agree with that? James: Michael, the natural gas market that we trade here in the United States is purely a domestic market right now. It’s not coffee, it’s not steel, it’s not sugar. Those are all world traded markets and the natural gas market is probably 99% influenced by the supply and demand that happens within the 50 states. Of all the markets that we follow, several won’t be affected by the tariffs and natural gas is definitely the bull’s-eye of the one that will probably deem what goes on with tariffs probably be the least of all of them that we follow. Michael: Okay. So, we’re here at the beginning of a potential seasonal downturn here, at least that’s what we might be looking for. When you talk about this, and for those of you listening, natural gas is the feature market in our upcoming July newsletter, which you can keep an eye out for. It should be out on or before the 1st of July in your mailbox or e-mail box. James, in that, you’re recommending taking a look at selling call strikes at the $4 or above level. Right now natural gas is under $3, so we’re looking at strikes at least 25% above the current market. So, you’re not really calling a top right here, what you’re saying is, “Hey, it’s a 3, it’s not going to go to 4, especially at a time of year where supplies are building.” James: Michael, it certainly does look like an opportunity. The natural gas market has risen off the lows that we spoke of earlier this year and the ones you just mentioned recently. Natural gas was down to $2.50 and $2.55 earlier this year. Right now it’s approximately $3 so it has had a decent rally. We’re looking at strikes at $4, $4.50, and $5 and we think that the time to probably jump into those positions is really soon. We have had a nice rally in natural gas. A lot of it is based off of the hot temperatures that we’ve had in the Midwest and the Northeast recently. I’m looking at the 14-28 day forecast and it cools off quite a bit. While I don’t make that big of a deal over the temperatures exactly, a lot of traders do. That’s why I think we got this rally and we really like selling it here right about this level that we’re at right now. Michael: We go back to what we’re talking about here… The Fast Cash in Over-Bought Markets. Even if you’re going out deeper out-of-the-money contracts, which you recommend going out to December and maybe even March contracts, if we do get a typical seasonal move, which there’s no guarantee that happens, but if the price does and we get a pretty decent price drop over the next 30-45 days, I’m guessing what the market is still looking a little bit over-bought, you could see some pretty significant decay in those options. Is that what you’re looking at as well? James: It is. The decay on these options that we’re considering would probably, if in fact natural gas does have a slight decline going into the 3rd and 4th quarter, we would expect these options to lose a great deal of their value well before the winter timeframe. So, we are probably anticipating decent decay where these options might start out at $600, might have a value of maybe $100-$200 before we even reach the winter season. As far as our looking at the market, that’s a relatively short position for us and we think the decay in selling these options over the next 60-90 days could be very good. Michael: Okay, good. And again, those of you interested in taking a look at this market and what James is describing here, you will want to take a look at the July Newsletter. It is in the premium sniper column there. James, let’s move into our second market, which is the soybean market. If you want to talk about a market affected by or potentially affected by a Chinese trading tariff, this would certainly be it. You have soybeans just off the rumors since President Trump announced he wanted to have another potential tariff on some Chinese products up to the tune of, I believe, it’s 200 billion… is that correct? James: That’s the latest that I’ve heard on the wire today, yes. Michael: Okay. If that has stoked fears that China is going to retaliate and put tariffs on U.S. products. Soybeans, one of the main markets that a lot of investors fear may be in the cross hairs because we export a lot of soybeans to China. Soybeans have declined sharply on these fears just in the last few weeks. That and the fact that planting has gone nearly perfectly in the Midwest. Right now, the weather is ideal so we’re looking at fundamentals but we’re also going to be looking at this China pressure, but you’re thinking they might have pressed, over-pressed, on the downside right now. James: Michael, it’s so interesting the gamesmanship taking place out of China right now is just being played to perfection. We certainly have the ability to see China import soybeans from other locations, of course, Argentina and Brazil. I think we spoke of that earlier this year. What’s so interesting is the amount of livestock that has to be fed both corn and soybeans. That will not change, but the brinkmanship coming out of China right now is excellent. I can’t believe I’m going to mention this, but here I go. There are elections coming up in the United States and with China playing the tariff card on soybeans and watching those markets just absolutely fall out of bed, that is going to certainly be a bit of an irritant to the Midwest and the great plains in the United States right before elections. Don’t think that these farming states don’t know that. We just saw soybeans fall practically 20% in value with corn and soybeans over the last 30 days on these tariff scares. The fact that soybeans are a global market and there’s only so many to go around, while we were bearish soybeans earlier this year, it really looks like that might be overdone on the downside. If this is simply brinksmanship and this is simply bargaining going on, this fall in soybeans, the fall in price is probably just about run its course. We were just pushing $11 on soybeans. Now they’re in the high $8’s. We think that this might be a good place to look at selling puts in the next week or two. Michael: You know, James, just to point out in your feature article in the Spring, you suggested investors selling calls in soybeans based on, one, the seasonality and, two, what you mention and you hit it right on the head, there was no guarantee China was going to put tariffs on U.S. soybeans but if they did or if people believe they were going to that would just be an added bonus for the trade and really sink soybean prices. It looks like you hit it right on the head. That is exactly what happened right in the middle of seasonality where soybean prices tend to decline anyways because when they wrap up harvest, that anxiety goes out of the market, prices tend to decline. They don’t tend to decline as much as they did this year and that looks like it’s right off that China fear, just like you said. You’re talking about the elections, there’s a possible factor that could mitigate that, but we’re also looking at the core fundamentals where we have ending stocks this year 385 million bushels projected for 18-19, next year. It’s not high but it’s substantially lower than we’ve been for the last couple of years. So, when you look at the longer-term fundamentals, we’re not that bearish. I think you’re right. It looks like the market probably overreacted here. If they would slap tariffs on do you think that would bring another leg down or do you think we may have already priced that, at least for the most part? James: Michael, this is truly speculation on my part, but I think all the leaders around the world agree that major tariffs that are being discussed right now are going to simply be detrimental to a lot of the economies. When you look at the locations like Japan and Europe, which are starting to slow already, so many of these nations and their economies are certainly in need of a strong U.S. economy and a strong Chinese economy. Without those they slow down. I’m starting to think that this is simply negotiating to hopefully get a better deal, I think, is what the administration is thinking. We really like the idea that soybeans are going to be in very good demand later this year. As livestock feeding continues, that has certainly not changed at all. As far as I can tell, we’re going to have record demand for soybeans this year and the beginning of next and this very steep fall-off is probably going to be a good selling opportunity for puts. In other words, taking a bullish position from these very low levels coming up quite soon. Michael: Yeah, that’s a great point, as well. Record global demand for soybeans this year and the market tends to be discounting that because it’s been all wrapped up in this China story. When you have record demand you have very little room for any type of weather error or weather problem developing. Right now, this market is pricing in a perfect harvest, it’s pricing in perfect weather, and they are just sinking the price. In addition to what you’re saying as far as maybe this whole China thing is a little bit overblown, I think the core fundamentals here are enough to prop it up at least from the levels it has been to the last couple of days. Just looks like a market that, when we’re talking about over-sold markets, this looks like an extreme example of that. James: You know, what we started out saying is headlines can often create slightly shorter-term opportunities. The headline right now with the potential tariff is certainly one of those. Record demand, that’s not about to change. The demand for production of livestock throughout Asia, that’s not changing, that’s only growing. Many metals and other soft commodities, these can be transfixed into using something else. Coffee supplies, we can use coffee supplies from 20 years ago. It winds up at Starbucks and McDonald’s and such. Cocoa supplies can be used from 15 years ago. Sugar can be stored for a decade. That’s not the case with soybeans and feeding livestock and, thus, there really is no alternative for corn and soybeans. That’s why we think these headlines are probably going to be an opportunity to be selling puts here pretty soon. Michael: Okay. One final point I wanted to hit on the soybean market, and you made this in your article this week on the soybean market, which is on the blog. If you’re listening and you’d like to read the article and James’ suggested trade, you can see that at www.OptionSellers.com/Blog. It is our soybean feature market this week. The point you made, James, is even if China slaps a tariff on U.S. soybeans, they still need the beans so they’re just going to have to go to Brazil or somewhere else, Argentina, to buy their soybeans. So, they’re still getting the soybeans there, the U.S. beans get cheaper and they become more attractive to other importers and it’s really just a shift of who’s buying from who, but on the overall global stage it doesn’t really have that big of an impact on soybean supply and demand. I think that’s a great point you made. James: Michael, that’s exactly right. Whether the soybeans from Argentina and Brazil and soybeans from the United States go to Europe, it really doesn’t matter. We’re still talking about the same global supply and the same global demand. At the end of the day, it really doesn’t matter which soybeans are going to what part of the world. It’s a supply factor and it’s a global market. I think that’s an excellent point that you made, as well. Michael: So, as far as the trade goes now, we’re talking about again Fast Cash from Option in an Over-Sold Market. As we said, this market definitely fits the definition of over-sold and I’m not necessarily calling a low there but you’re willing to go $1-$1.50 below the current price and sell puts. As far as a trading strategy goes, what are you looking at there? James: Michael, as long as the market is still considering record demand and they certainly are, that part hasn’t changed, as long as the U.S. is now going to be the main grocery supporter for soybeans as Argentina and Brazil runs out, we’re looking at selling puts and soybeans at levels that the market hasn’t traded in years. We’re looking at selling soybean puts around $7.80-$8 a bushel. We think that the market’s going to probably be in the low $9 to mid $9 level later on this year. That would be putting these puts out-of-the-money by 20-25% and I think that’s a really safe basket, if you will, for us to be outside of the money. As far as soybeans falling down to $8 or $7.80, that would be a real eye opener. That would really set up a long-term position to sell puts then even lower. We don’t think that’s going to happen and we really like the opportunity that we think it coming up at selling puts around the $8 level. Michael: As far as fast time decay, maybe and maybe not, but I’m of the opinion, and you tell me if you agree, that this market has gone so far in ignoring the weather, which has been ideal, but if you get one little weather blip this summer in Indiana or Illinois, I think the market is so oversold that you could easily see a $0.50-$1 rally in soybeans over a period of just a couple weeks. You know what it can get like in the summer. If that’s the case, you could get a pretty fast decay on these, as well. James: Michael, you mentioned just a short time ago that we have near ideal conditions in the Midwest, the growing regions of the United States. We will have a week or two of hot weather coming to Indiana or Ohio or Iowa this July and August and that’s all it takes. They show this ring of fire on weather maps later this summer and up go soybeans, probably $0.50 a bushel. Shortly after that, if in fact that happens, I think you’d see really rapid decay on the puts that we’re looking at selling at this $8 level. Michael: Of course, if you’re an option seller and you are selling puts down at the $7.80-$8 level that James is talking about, all these things we’re talking about don’t need to happen. The only thing you need to happen is for the price to stay above your strike. So, any of these scenarios could play out and, as an option seller, you still take the premium. So, that’s really why we sell options in the first place. There’s many ways to make money with it, there’s only one thing that can happen for you to lose and I know that’s why we started selling options in the first place, James. James: Michael, we’ve often said the market can go up, down, or sideways, just as long as it doesn’t exceed your strike price and, of course, there are a lot of books talking about how often they do expire worthless. You do keep the premium, you’re the house, and from time to time someone leaves the casino with a smile on their face, but often it’s upside down from that price. Michael: Of course, those of you listening, if you’d like to read more about our strategies, the strategy we recommend for selling options in commodities as an overall investment approach, you’ll want to pick up a copy of our book, The Complete Guide to Option Selling. It’s now in its third edition through McGraw-Hill. You can get it on our website at www.OptionSellers.com/Book. You’ll get it at a discount there, a lower price than you’ll get it on Amazon or at the bookstore. James, I think that’s it for this month. I think we’ve covered quite a lot of ground. If you’re and investor and you’re looking at these markets, certainly follow up on our blog where you’ll see the written parts of these or the newsletter. Take them on your own merit. We will be incorporating these into our trading plan for our managed portfolios this month. Speaking of managed portfolios, our waiting list is now out to September; however, we are still booking consultations through July and August for those September openings. So, if you are interested or thinking about opening an account, now is the time you’ll want to book your consultation. We’ll have those interviews and we’ll see if you match the profile for a client. James, as far as one final parting comment here, as far as this volatility goes that’s coming from the Chinese trade tariff worries, does that make it a better or a worse time to be selling options? James: Michael, once or twice a year inevitably there are headlines that create volatility. A couple years ago it was the talk of the Brexit, there was Switzerland leaving the Euro currency, it was 2 years ago the surprise election results. These headlines seem to come around once or twice a year and a lot of investors feel that while that type of uncertainty is something I don’t want to invest in, but that plays into our hands perfectly. The fundamentals of the markets that we follow change very in small fashion, you know, 1%-2% moves in commodities, but to listen to headlines it’s like the markets are moving a great deal. That plays right into our hands. We sell options so far out in time and so far out in price. We love headlines like this and tariff talks with China is just the second one for this year and we really enjoy having headlines like this. It causes uncertainty, it causes high premiums, and that is something that has been feeding us for the last several years. One or two headlines like this every year or two is just fine with me. Michael: All right. I hope everybody got something out of this month’s podcast that you can use or help you decide if option selling is a good strategy for you and your overall portfolio. Again, if you would like to book one of our remaining consultations in July or August, you can call the office at the main number… 800-346-1949 and speak with Rosemary. If you are calling from overseas, that number is 813-472-5760. You can also e-mail an inquiry at office@optionsellers.com. You’ll be able to hear this podcast on our blog but you can also subscribe to our YouTube channel and/or iTunes and hear it there. James, thank you for all your insights this month. James: Michael, it’s my pleasure. Michael: For everybody listening, have a great month of option selling. We will talk to you in 30 days. Thank you.

Ben Lichtenstein: We’ve got a real treat here for you this morning, traders. We’ve got the founder and head trader of OptionSellers.com. Traders, we’ve got James Cordier with us this morning. James, welcome to Futures with Lichtenstein & Hincks. It’s a pleasure to have you on the show. I want to dive right into it. When we’re talking futures versus options I kind of think of it as futures for me are kind of easy versus options. It’s sort of like driving a VW versus flying a Cessna. Talk to us about some of the benefits of trading options and why they’re appealing to you, considering what we’re seeing here in the energy markets as of recent. James: You know, I think that’s a great question. So often, people talk about options and they kind of go like this. I understand they are puts and calls, but I think the gentleman you had on just a moment ago is just a great example as to why selling options can be a good idea for mainstream investors. The gentleman prior to me was talking about trading in currencies and he talked about close stops and you’ve got to watch your lows and watch your highs, and you need to have a close stop on all of your positions. Shorting options and selling premium is just the opposite of this. If you want to take a long-term fundamental view on gold, as you’d just been describing, or crude oil, this is the way to do it because perfect timing, I’ve been in this business for almost 30 years, I don’t know anyone who knows how to do that… not on a consistent basis; however, we’re looking at energy prices right now. The crude oil market is extremely frothy, especially with slowing global growth. Europe right now is probably what brings us to mind right now, as far as the oil price, might be at a reflection point. With PMIs going south, with consumer confidence in Germany, I was just in both Italy and Germany this past week and, while pizza sales were really good, and I can attest to that, the rest of the economies are not doing so well. $80 and $82 oil Brent is going to probably be very detrimental to European economies. We’re looking at a possible reflection point right now in crude oil. Instead of trying to pick the exact copy, because of course no one else is of course able to do that, we’re going to start looking at selling a call premium on crude oil. We’re going to go out 3 months, 6 months, 9 months, sell the $90 calls and the $95 calls and that way we don’t need perfect timing, but we simply need to be right the market eventually. A lot of the fundamentals we’re seeing in oil going forward into the 3rd and 4th quarter lead us to believe that we’re going to be right on this. Kevin Hincks: Good morning, James. Thanks for coming on the show. It’s always a pleasure for me to talk about options when I’m on this show. I spent most of my career doing that. So, you are talking about the 90 calls above the market, right? Selling something very safely above the market here, about $18-$19. You also talk about selling the 45 put so you’re creating a short option strangle, right? Where you basically want a range-bound trade in between your strikes. Now, the question that option traders have is, “Do you think, based on the risk that you’re assuming, now you’ve given yourself a nice wide in between the navigational beacons, I call it, of your short strikes. Are you getting paid enough for the risk that you’re putting on?” James: That is such a great question. So many of your investors, I’m sure, are familiar with selling options on stocks. I hear about this all the time. When we have a new investor they’ll say, “James, I was introduced to short options through my stock broker. We started writing covered calls and then I got a little creative and started selling options on stocks. I hear that you’re selling options 2%, 3%, 5% out-of-the-money.” In commodities, crude oil, gold, coffee, we’re selling options 50-60% out-of-the-money in some cases. When we’re identifying a strangle, the window is just absolutely enormous. The crude oil market, based on fundamentals right now, is not going to fall into the 40’s. We have, of course, Brent around 80 right now, WTI right around 70-71, but it’s not going to go above 90 and that is just a fantastic window for the market to stay in. Identifying fairly priced commodities is probably the most wonderful thing that we do for our clients. Often, an expert comes on and he talks about, “Well, the coal market’s about to go to the moon” or “Soybeans are going to go to zero.” As we all know, quite often that’s not the case. Finding a window that a market is going to stay inside is just a fabulous way to create a strong performance at the end of the year. We’re collecting $600-$700 for the $90 calls. We’re collecting $600-$700 for the 45 puts. Basically, selling a strangle, as you know, is one position babysits the other while you wait. So many investors want to get paid right now and when they’re talking about selling options on commodities they need to get in “right now”. We don’t do that. We want to sell options much further out in price and much further out in time than most people, but we get paid to do it. Ben Lichtenstein: Yeah, James, I know that you think that 85 is a bit of a tipping point, and possibly that tipping point that would bring Europe back into a recession. Talk to us and tell us a little bit more about why you think that. James: What’s interesting is all you have to do is look at the Euro, and you look at banking stocks in Italy and Germany right now. That tells us that the European Union cannot withstand $80 oil. OPEC right now has to have another discussion. 2 years ago, they discussed cutting production. That has worked tremendously. They need to not be too greedy right now. $80 oil, everyone is making a ton of money producing oil here in the United States and everywhere else. Pushing Europe into a possible recession could absolutely kill the golden goose, if you will. Other producing nations produce oil for $35-$40 a barrel. It’s trading at $80. The last thing they need is a recession in Europe because you know what’s going to happen after we start talking about Greek bonds and Italian bonds? Then the stock market starts to dive and $80 oil prices will be history if that happens. Kevin Hincks: Hey James, as you know, when it comes to the oil markets that there’s a mid-June OPEC meeting coming up where they’re going to re-look at or re-investigate the production cuts. Here’s my question for you: Is the most important person coming to the June OPEC meeting a non-OPEC member, being Russia? I think that they’re chomping at the bit to up their production and get back in this game, back to their old levels. Are they the most important player in this mid-June OPEC meeting? James: Yes, they are. Saudi Arabia and Russia have been just great partners recently. Saudi Arabia’s probably the smartest OPEC nation in the room and they are going to be siding along with Russia. We’re looking at the spigots opening up. They have to. They are very extremely great traders and they understand that throwing a slow-down in global economy is the last thing that they need right now. I think they would be very happy with a $72-$74 Brent price. I think producing more oil, especially in Russia, is going to help that happen. We do see, at least by the 3rd quarter, production cuts going away and oil prices probably settling down $5-$7 from where it is right now, at least. Ben Lichtenstein: All right. Lastly, James, I’m curious your thoughts on Shale production because everybody’s dialed in on the increased production up about 10 million barrels per day as we’re nearing 11 million barrels per day, but, you know, not everybody’s focused on the fact that without this added production levels that we probably see crude oil at a lot higher prices. A lot of people are saying, “Why hasn’t this increased production, keep the price of crude down?” Is it your thought or opinion that without all of this added supply that we’d be up and through this at $75 level right now in the WTI. Is that production what’s actually holding us down a bit? James: What’s holding us down right now is the production. If 11 million barrels a day were being produced in a country that is a third world nation and doesn’t have a huge population of drivers and such, that would make a big difference, but, you know, we are using basically all the oil we need. What really changed the market recently is the fact that the U.S. is now exporting oil and that has really made it more of a global market. The fact that we see such a discount to WTI versus Brent tells us that oil production in the United States is around 11, adding up to 12, and, at that point, $80 oil for Brent and $70 for WTI is not going to last very long. We really see Brent down, like I was saying, $5-$10 this year. What’s going on in the United States right now will keep oil prices from doing the super-spike and I think we’re at a reflection point pretty soon. Ben Lichtenstein: Yeah, we’re watching that spread closely, too, right around 7 ½ right now. Traders, that’s James Cordier joining us this morning and he’s the President and Founder of OptionSellers.com. He’s also the author of The Complete Guide to Option Selling. James, it’s always a pleasure to have you on the show. Really good insightful thoughts there in terms of options and the energy markets.

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 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.

People literally ask me this one question ALL THE TIME… “Allen, how did come up with such a lucrative, safe, and easy way to trade?” I explain it all in my new book Passive Trading, get your free book here  https://www.passivetrading.com/free-book!   Option Genius was built with you...the individual trader, the breadwinner, the dreamer, the rock your family depends on ...in mind. Because we know what it takes to become a successful and profitable trader. And that’s exactly what we help you do best. Get your $1 trial of Simon Says Options, our most conservative and profitable trading service here https://simonsaysoptions.com/stockslist-ss-trial-offer.  -- I realized that we have done many episodes already where we talk about why you should be selling options, but never gave an explanation. Option sellers trade in a market neutral way. So you don’t need to market to go up or down. You can trade it when it doesn’t even move. Also, option sellers have probability on their side. So we do trades that have for example a 70%, 80%, or even 90% probability of working out in our favor. These calculations are done using sophisticated statistics and mathematical formulas that won the Nobel Prize. In addition, to be even safer, we use other risk management techniques like stop losses, and spreads which limit our losses. And the example given was the insurance company. So just like the insurance company collects premiums so do option sellers. In fact, the insurance company analogy is a great one. Because as well talked about in 8, the real reason options were created were as a way to lose money. They were created as a hedge. As insurance. So the option seller acts as the insurance company be selling options to farmers, manufactures, and investors who are looking to protect their positions. That’s one way to describe the option seller. The second is as a casino or more accurately as the house. The house takes bets from gamblers and has the odds in its favor. Over the long run, the house always wins. For us, the gamblers are called speculators. These are the option buyers who are betting against the odds hoping for a big payday. Kinda like lottery ticket buyers. The option seller is the house, and takes the other side of the bet. Once in a while, the option seller loses, but over time, the house always wins. It’s just math. And with the odds in my favor, I don’t care which way the market goes. I don’t have to predict. If I want to do a bullish trade, I can, but I don’t have to be right to make money. This removes so much of the stress. When you have a 70, 80, even 90% chance of winning on a trade, you don’t have to be the best trader in the world to make money. You see, when you buy a stock it has to go up for you to make money. And if it does not, then your money is just sitting there not earning anything. Unless it’s a dividend stock and you get some measly return like 2%. And if it goes down then you lose. You have to be right about the direction. It is the same with buying options, except it is exponentially harder Not only do you have to be right about the direction, but you have to know by when the move will take place, and how much the stock will move. If you are wrong on any of those three elements, you lose. Here’s the magic: When selling options, you get to play a range. The stock does what it does and as long as it stays in the range you want, you win. Let’s use golf as an example. To make money with stocks you have to get the ball into the hole in 3 strokes. To make money by buying options you have to hit a hole in one. To make money by selling options you just have to hit the ball onto the course. One additional point I want to make is that emotionally, winning more often does wonders for your self-esteem and confidence. And as a trader, having confidence in your trades and yourself is a key factor to success. Because with selling options, what we are doing is hitting base hits. Over and over. Not trying to hit home runs. Because you know what happens to the guy who tries for home runs – he strikes out most of the time. And in investing, a strike out means losing money which is not a good thing. The episodes continues with examples of. Listen to the whole thing to get the complete picture. What to Learn How To Sell Options? Get Our Free Course at - www.optiongenius.com -- LOVE ALLEN SAMA - OPTION GENIUS AND WANT TO LEARN MORE TRADING TIPS  AND TRICKS? HERE ARE SOME NEXT STEPS... SUBSCRIBE TO OUR PODCAST FREE 9 LESSON COURSE: https://optiongenius.com/ WATCH THIS FREE TRAINING: https://passivetrading.com JOIN OUR PRIVATE FACEBOOK GROUP: https://optiongenius.com/alliance Like our show? Please leave us a review here - even one sentence helps.  

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, 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.

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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 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, 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.

Good afternoon. This is James Cordier of OptionSellers.com with a market update for December 22nd and a look into the upcoming New Year. Over the last ten years, I’ve probably spoken to hundreds of new clients and one of the questions I would always receive is, “How are we able to sell options in commodities fifty and sixty and seventy percent out of the money when I can only sell stock options only five percent out of the money. The answer to that question is, “historic volatility in commodities.” 2016 will probably go into the record books as one of those years that has injected more historic volatility into the commodities markets more than probably any year that I can recall. We start with interest rates, then the Brexit. Then, a very surprising election outcome here in the United States. And last but not least is OPEC and non-OPEC nations in the world cutting production of oil for the first time in practically a decade. I would not call all these events this past year black swans, but the great majority of them were at least grey swans. Trading in an environment like that make it quite challenging. However, this is an absolute key ingredient in having historic volatility pumped back into both puts and calls in commodities across the board – a challenging environment for sure while it is happening. However, in the coming years the absolute luxury of, once again, having historic volatility put into option premium on both sides of the market in probably seven or eight markets that we follow. The credit spread, something that we are going to be inviting into our accounts in 2017, is going to be our mainstay as far as positioning in the markets. If you read chapter ten in our latest version of The Complete Guide to Option Selling, it describes the credit ration spread in great detail. The volubility of selling options far out of the money with great premium allows us to have protection at the same time as selling extremely expensive options. This is something that we are going to notice taking advantage of in the coming six to twelve months. And, possibly because of the volatility going into commodity markets this past year, and possibly being able to do this for the next few years. Not only does the credit spread offer great ability to sell options far out of the money, but it also straightens out the equity curve on accounts – something that we’re very interested in doing. We look forward to doing this in 2017. We are hopefully going to be hopefully involved in seven or eight markets this coming year, and using the ration credit spread is going to allow us to have protection on practically every position we take. And at the same time, straighten out the equity curve – something we are interested in doing. We are still trying to get that formula of going from zero on January 1 and a very good return on December 31. This should do a very good job of it over the next three to four years. We shall wait and see. I personally want to wish everyone Happy Holidays and a Happy New Year. As always, it’s a pleasure speaking with you. Looking forward to doing so again in 2 weeks. Thank you.

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.

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.

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.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

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.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

If you are a high net worth investor, preserving and growing your wealth is likely a high priority for you. You worked hard for your money. Now you feel it should be working hard for you. But chasing maximum return and yield is hard, isn’t it? Stocks are great, until they aren’t. Getting responsibly diversified is more difficult than ever. Hedge funds can work, but you’re never really sure what they’re doing with your money. Options can be a great alternative, but most make the mistake of buying them. Stock option sellers may think they’ve found an answer, but premiums can be small, and margin requirements huge. Most will simply give up and settle for what they get. The market will decide their fate – it goes up, they will feel good. If it goes down, they will feel bad. However, if you always felt there was a better way to invest and all you had to do was find it, you may finally be home. It’s called selling options. Not in stocks, but in a completely separate asset class – commodities. This investment strategy can provide you with some flat out advantages as an investor. You won’t hear about it from your broker or financial advisor. But it exists and it’s real. There is only a small segment of the investment community that knows how to deploy it in a portfolio. The tough part is finding somebody that knows how to do it – right. Having found this website, you’ve already done that. Whether you are seeking diversification from equities, an attractive rate of return or are simply tired of trying to pick market direction, here you will discover an approach that can potentially deliver all three. Option selling, of course, does involve its own set of risks as well. Here you can not only gain a wealth of option selling insights from real portfolio managers, you have the ability to work directly with two of the country’s top option selling experts – the authors of McGraw-Hills classic book on selling options – in managing your portfolio. Your first step Request our Complimentary e-Report for high net worth investors – The 5 Crucial Keys to building a high yielding, low stress, option Selling Portfolio. Serious investors make serious investments. Smart investors don’t only want the highest odds of success when putting money to work, they seek out the best expertise they can find to help them manage it. OptionSellers.com is recognized as the global authority on selling commodity options. Our flagship book, The Complete Guide to Option Selling, now in its third (McGraw Hill 2015) edition, was authored by OptionSellers.com’s James Cordier and Michael Gross. You may know them from regular media appearances on CNBC, Bloomberg Television, Fox Business, or their regularly published articles or market comments in The Wall Street Journal, Barrons, Forbes, and MarketWatch. Founder James Cordier has been interviewed on his strategy and the markets by the likes of Larry Kudlow, Neil Cavuto, Robert Lenzner of Forbes and Dr. Donald Moine of Morningstar Advisors.. As a client of OptionSellers.com, you have the ability to work directly with the authors in the managing of your option selling portfolio. Since 1999 OptionSellers.com has helped investors across the globe employ funds in an option selling approach. If you are a high net worth investor who qualifies for our program, perhaps we can help you too. To learn more, first get your complimentary e-report at the top of this page.

Welcome to the Strategic Investor. Join us as we interview some of the world’s most productive asset managers and uncover sophisticated and unique investment strategies in the markets. Here is your host, Charley Wright: Charley: Hello and welcome to Strategic Investor Radio on OCTalkradio.net where we bring new investment strategies you are not hearing elsewhere. I’m Charley Wright and today is February 26th, 2016. We’re very pleased to welcome back to our show, as a guest, James Cordier of OptionSellers.com. James speaks to us from their headquarters in Tampa, Florida. James, welcome back to StrategicInvestorRadio.com. James: Charley, it’s certainly my pleasure to be here. I always enjoy doing your show, and the fact that we are speaking to investors that think outside the box, it makes us that much more inviting to do your show. Charley: Well, we’re very pleased to have you and you folks are certainly an out of the box thinking crowd here. James, first of all, let me recommend to all of our listeners, we last interviewed James about a year ago, and the date of the post on our website is February 11, 2015. We recommend to all of our listeners to go back to that and listen to it, as well. It provides a very strong foundation and much of information that we will not be covering today. So, James, give us 30 seconds on your background here. James: Charley, basically our background is commodities, it is spent futures trading in the far, far past. So often, people want to get diversified and they want to get involved with real markets, crude oil, gasoline, coffee, soybeans… things that they use and they enjoy every day. However, trading futures certainly, it is too much like trading, too much like gambling. We have discovered and tried to perfect, we’re not there yet, a strategy that allows the average investor to get involved with commodities, and it’s been a great way to diversity. We have certainly been very busy with new clients just because of that reason. Charley: So James, a little more focused on your background here, you were an employee for a couple of decades, right, working out of the pits of Chicago? James: Yes, my background is in the Midwest. I started in the Chicago-land area, basically understanding the fundamentals of the market. Chicago is certainly not northern California where everything is computerized, and everything is driven by databases. I learned a great deal of fundamental information, why the price of coffee goes up and down, why the price of crude oil goes up and down, and the such. Basically, we’ve been trading the exact same commodities for over two decades. It allows us to have a rationale and thesis as to why we should be in the market, as opposed to just charting and technical analysis. Certainly, those two forms of approaching the market have their day; however, we base everything we do on rationales of supply and demand, probably the best way to approach trading commodities. Charley: You know, we want to get into that later, because that certainly causes you to stand apart from most commodities traders, most futures market traders, and, certainly, most options traders, because they’re so technical analysis focused. Let’s start here, James, with a few questions. Question number one: why sell options? James: For you having the thinking audience, very easily to start out by saying selling options is going to put the odds in the client’s favor. It said that approximately 82% of options sold out of the money will expire worthless. So that would be assuming a darted aboard 82% of the time, selling options would become profitable. The fact that you’re able to sell options further out of the money, if in fact an investor does that, the odds of it expiring worthless increases even more so, so certainly putting the odds in your favor, I think the largest investors in the world, and I get to speak to some of them just every once in a while, I run into them and they’ll say “Wow, I saw you wrote the book on option selling. What did you do that for? You’re letting the cat out of the bag.”, because that’s what we’ve been doing. I think the largest investors look to write options and the public is looking to buy them, and that is the big difference between what we do and, probably, most retail houses. Charley: So, you don’t buy any options at all. You always sell options. James: That’s exactly right. Charley: Okay, why the futures market as opposed to the stock options market, the equities market? James: Well, that’s a very good question. The majority of our investors were introduced to selling options through their stockbrokerage account. Basically, their stockbroker mentioned this stock is sitting here at 20, it just continues to go sideways, and he finally introduces the client to writing covered calls. Lo and behold, every time they do that, their selling of the calls winds up making money and then the light bulb goes on. The fact that we sell options on futures in commodities is because of several reasons: One is because you have the ability to diversify away from the stock market. If the stock market were to go up every single month and every single year, an industry wouldn’t really need us. fundamentals in the economy, and such, are starting to change. The ability to sell options on futures in the commodities arena allows an investor to diversify, and it also gives them the ability to be right with their investment, whether the market is going up, down, or sideways, and that is certainly a great way to diversify, relative to simply being along the stock market. Margin on selling options in commodities, is approximately 20% of holding a short option on a stock. In addition to that, quite often stock options sellers are looking at calls or puts, sometimes 5% out of the money. When we’re selling options on commodities, believe it or not, the options strike prices are often 40, 50, 60 percent out of the money, which gives the investor a very large window for the market to stay inside while they’re waiting for the option to decay, which, of course, is what we do. What we’re doing is selling high and buying back low. That is the approach. Charley: You know, James, I have your book right in front of me. It’s a little booklet, actually, about 60 pages long, Options Selling on Steroids. I read it recently, and it’s a fairly new book, correct? James: Yes it is. We have three different editions of The Complete Guide to Option Selling, by McGraw Hill. This one, Option Selling on Steroids, really digs into the very most finite measures of options selling in the direction that we take it. It talks about smaller margins, versus selling options on stocks. It discusses real diversification, as opposed to simply being long equities. It really brings an investor through the ABC’s of selling options on commodities. I know those two things are quite a buzzword, commodities and selling options, but as investors who do work for themselves, investors who do study the market for their own portfolio, it’s an easy read and it’s a very easy learn, and I think a lot of your listeners would be surprised as to how many people could do this, and might find it an attractive investment. Charley: Well, you know, James, in reading this, I can’t tell you how many books I have read on options. I get offers all the time through the email, and all of these people have option approaches. In fact, the book that you recommended last time, during our last interview a year ago, Get Rich with Options by Lee Lowell, I had read many years ago. So, I’m reading this book, and the frustration that I have felt repeatedly that you guys address very affectively is that people get me excited about selling options, but then when I look at the real world and I look at an ETF or I look at a particular stock, and I see that I have to be so close to the price to sell that option in order to generate any kind of premium to make it worth my while, that any kind of movement of that stock, or that ETF, is going to put me out of the money. James: That’s exactly what we hear. Charley: Yeah, and so, I’ve been so unimpressed. Again, I can salivate looking at okay 82% of the time. The calls or the puts expire worthless. Okay, let’s get involved in that, but there was no premium in there to make it worth while to do the investing and make $25 or something, you know, and risk $1,000. I mean, it was ridiculous. So what you demonstrate is that through the futures market, somehow I don’t know enough about it, but through the futures market, the relationship and elements are such that you can be much further out of the money and still have a very strong return. That’s why you’re investing through the futures marketplace, as opposed to the equities stock options. James: That’s exactly right. Of course, our backgrounds are in commodities. We’re not trying to investigate 1,500 different companies, we’re simply watching the same ten commodities, and I’ve been doing that for a couple decades now. You almost get to learn the personality and what moves the price of soybeans, or the price of gold, or the price of silver. Quite often, here’s an interesting example, Charley. We have negative interest rates around the world, we have a lot of markets that are in flux, and a lot of investors, recently, are looking to possibly be in precious metals, with the idea that diversifying with negative interest rates around the world is probably going to be a pretty big candidate. Silver prices, for example, I think a lot of listeners and a lot of people have been watching any markets are probably familiar with the price of gold and silver. The silver market’s been trading around $15 an ounce; however, it’s just recently had a rally. So, how does an investor approach getting long silver for possibly an investment? What we would do, is, we would sell puts below the market, which is a bullish position on silver, and with silver trading around $15, we’re not selling the $14 puts. I’m going to sound like an infomercial. We’re not selling the $13 puts, we’re not selling the $12 puts. There’s a great deal of money to sell the $10 puts. You’re putting up approximately $1,500 to sell a $1,000 put at the $10 strike price. This is an example of option selling on steroids. You’re selling the market 25%-35% below the underlining futures contract. So, if silver goes up, the option expires worthless. If silver goes sideways, the option expires worthless. If silver actually falls 25%, the option still expires worthless and you keep the premium. That is option selling on steroids. Charley: And what kind of time frame would you guys be investing in a situation like that? James: It’s interesting, Charley, so often you read books about option selling, whether it be in stocks or commodities, and a lot of books talk about selling a 90 day option. We look at it as we are long-term investors, so we look at options, as far as building a portfolio, we look at it as 12 months at a time. So, right now, we’re in February. When we’re building a portfolio we’re talking about December 31st. What we’re going to do is stagger different months throughout the year, so that on December 31st, for example, we’ve had a round of options, hopefully, that we’ve sold, expire worthless or very close to it. We often sell options 6-9 months out. A lot of investors will say “Well, that gives the market a whole lot of time for you to be wrong”, but we don’t look at it that way. We look at it as “That gives the market a whole lot of time for us to be right”. With options selling 50% out of the money on the call side, sometimes 30% out of the money on the put side, you’re going to find, whether you’re doing this yourself or you have someone doing it for you, you will be right most of the time, and that’s what we usually look forward to. Charley: James, this is fascinating stuff. I could talk about this all day. We need to take a short break. When we come back, I want to talk about fundamentals versus technical analysis here, and a couple of other things. We’re talking with James Cordier of OptionSellers.com. You’re listening to Strategic Investor Radio on OCTalkRadio.net, and we’ll be right back. Charley: Again, we’re talking with James Cordier of OptionSellers.com out of their headquarters in Tampa, Florida. So, let me summarize just a little bit, James, make sure that we all understand here and our listeners understand. You take a particular commodity, and this particular example you used was silver, silver currently at about $15 an ounce, and you say you believe the silver is going to rise, so you’re bullish on silver. So, you take a deep out of the money position, which means you go down from it’s current price of $15, down to $10, and you sell, not buy, but sell an option for some time in the next 5-9 months. You sell that option, you get paid a premium for selling it, and when that option expires, as long as the price is over that strike price, in this case $10, you keep that premium. You have a margin, which basically is your risk, and you would have a profit. That premium, in this particular case is silver, would be approximately what percentage of the risk that you’re taking? James: The risk that you’re taking, Charley, in that scenario, is you’re long the market, the silver is put to you at $10. Just like selling an option, a put option in the stocks, you would be put to you long silver from $10, and then your risk would be for the market to fall below that. Just like a stock at $10, your market falling below that is your risk, as well. The margin to hold the position that I was referring to, in that example, was about $1,500 to hold about a $1,000 put. That is the premium that you’re looking to collect. What’s interesting is in stock option selling, the margin is enormous. Quite often, in commodities, when selling options, you’re looking at approximately 150% of what the possible potential profit would be is the only margin that you’re putting up. The risk is that the market goes below 10. Of course, if you’re bullish at 15, that gives you a lot of leeway for you to either exit the trade, or it gives you a lot of leeway for the market to not fall below $10. The scenario that we talked about would be if silver were to go up, if silver were to go sideways, if silver were to fall as much as $5, and eventually that option would still expire worthless. That’s just a really large window for most investors to feel comfortable inside. Trading gold, silver, and coffee with a futures contracts, I’d recommend no one to do that. Basically, we’re building portfolios based on a similar trade to what we were just referring to. We would also do it in 6 or 7 other commodities. That’s what a portfolio would look like. Charley: And the reason to do it on the futures market, versus the equities market, because there is a silver ETF, is the premiums collected for selling those puts in the futures market are substantially higher than the premiums to be collected in the regular equities market stock options. James: Exactly. If anyone were to visit our website or read one of our books, it describes it extremely well. This isn’t something that you have to have an expert do for you. Your listeners could do this on their own; however, finding someone with experience probably goes a long ways. The first time you hear selling options on commodities, it seems a bit foreign, but anyone, especially in the current environment of investing, a lot of investors are looking at ways to diversify and willing to do a little bit of reading. I think it’s going to be quite fruitful for them to do that. Charley: So James, let’s change the track a little bit here. In your book, you recommend that you like fundamental analysis as opposed to technical analysis. Now, any options traders I have ever looked at were focused totally on technical analysis, because they say an option expires at a particular time. So, you want the certain movement to occur prior to that expiration. Whatever the fundamental analysis is, it may be good for Warren Buffet and his buy and hold approach, but for options that have a particular expiration date, we need to know what it’s going to be doing prior to that. You don’t focus as much on the technical, you focus more on the fundamentals… tell us why. James: Well, we can use a couple examples, but the fact that we are putting on positions that are 6-12 months out, we’re going to see, Charley, technical analysis that shows probably 3 times the buy and 3 times the sell during that period. We find that when selling options at, say, 50% out of the money, that is a lot of noise. It’s for the short-term trader, and I understand that some people are able to do that. If you have the right technical analysis and you have the intestinal fortitude, getting these buy signals and sell signals using intraday stochastics or Bollinger Bands, which we’re big fans of all of these, I’m quite sure that, on a short term basis, that would work. The fact that we sell options based on fundaments, we’re looking at a much longer term than what the technical analysis might give the investor or the trader. Basically, we’re selling options where, fundamentally, the market can’t reach, and the fact that we’re going to be in 8 different commodities, some of them will be bullish, some of them will be bear, some of them will be neutral, we’re simply going to build a portfolio based on what the fundamentals can allow the market to do. We don’t want to be getting in and out of the market with short-term moves and short-term investments. Charley: So, you sell puts if you’re in a bullish position, a bullish direction, and you sell calls if you’re in a bearish direction. James: Exactly. Charley: Okay. So, tell us here, a good question is, our readers may be a bit confused here, what they should do here. So, what is it that OptionSellers.com does? We know about your book, okay, what service do you offer to those who would like some kind of service? James: The service we offer, and the reason why we have been so busy lately, is diversification, in my opinion. If the stock market were to go up 15% each year, people wouldn’t need us. They’d simply need to be in wholly and nice diversified stock portfolio. A lot of investors are thinking that, maybe, that time might be changing. What we do is we take nearly 3 decades of experience in trading commodities, we apply the percentages of options expiring worthless 82% of the time, and we take that fundamental analysis and build a portfolio for individual investors. So, if someone had a portfolio with us, say a quarter of a million dollars or a million dollars, we would margin and place in their account positions based on examples and ideas that we just mentioned. We would be slightly long silver, we’d be slightly short coffee, we would be long some of the grains. When the crude oil market rallies this spring and summer, and it does every year, we will look to then short the crude oil market based on fundamentals. As the crude oil market maybe rallies this spring and summer, and gasoline prices start edging up, a fundamental analysis for us would be will crude oils not going to get to $80. It’s all based on rationale and thesis of the market. The market often rallies in summer, I think we’re noticing that crude oil is, for example, starting to make low and starting to rally up. It usually goes up in April, May, and June, and then what we do is look at the weakest demand period, which would be, for example, December. As the market rallies up and the technicals look good, we’re going to sell the $80 or $85 crude oil calls for December based on fundamentals. So, we’re constantly rotating commodities based on seasonalities and fundamentals, and as some options, for example, in silver, start falling off and we’re still bullish silver, we’ll sell them to next silver puts 6 months out. It’s not a lot of trading, it’s a very small amount of trading. However, it’s based on layering, in other words, possibly having options expire every month or every other month once the portfolio is built. It seems to be quite slow at first because we’re not finding 8 opportunities all at once, but it’s something we build over time. Of course, accounts are completely transparent. The investor sees why and what they’re in. We write a weekly newsletter that describes why we think crude oil is going to be a good sell at $80, and why we think silver’s a good buy at $10. A lot of investors are going to say “well, it’s not at $80, it’s only at $40”. Well, there’s the magic of option selling. That’s how we build portfolios. We do the trading, we manage the account, and, of course, anyone’s account is perfectly transparent. By reading our weekly and bi-weekly newsletters, it gives the investor an idea and an approach as to what we’re looking at in the market, and, therefore, people who watch commodities but are not quite familiar with them, can make themselves familiar by reading our analysis on them. Quite often, it makes a great deal of sense, and then we’re going to sell options far out of the money. Those are the portfolios that we help people manage. Charley: So, OptionsSellers.com, besides having the book, you guys manage money and separately manage the accounts, I presume. James: That’s exactly right. Charley: Okay, and then you charge a fee to the investor for doing that. James: Yes. The fee that we charge is roughly 10% of the option premium that we take in. So, that would be something that the investor would be understanding and realizing. Charley: Okay. So, that’s what you guys do, but, in addition to that, tell us briefly again about your book, the title, and how people can get it. James: Okay. Approximately 9 years ago, we wrote The Complete Guide to Option Selling, published by McGraw Hill. We were so amazed by the perception and the interest that so many investors have purchased our book and just about so many countries and so many languages. The second edition was put out 5 years ago, the third edition was put out, now, just about 1 ½ years ago. It’s done extremely well. To fine tune and make the reading a little bit faster, we recently made a smaller book, Option Selling on Steroids, and instead of reading a several hundred page book, it’s in a much smaller form and it allows to get right to the nitty gritty for people who want to possibly get involved with selling options, maybe with us. It gives you all the best ideas and approaches in a much quicker read.. something you would read in one afternoon. It’s called Option Selling on Steroids. It’s available at our website, and anyone that would be interested in getting it could simply request it, and we would get something right out to them. Charley: You know, I could put in a plug for OptionSellers.com, the website here. James, a lot of helpful and valuable information there, and educational material on the options market, futures market, etc. It has several videos of you on there, and it’s an excellent site. I could recommend that anyone go to that site and access it and look at it. Again, I have Option Selling on Steroids sitting in front of me. I read it this week, and a very interesting, rather quick read, and an excellent approach to investing. Again, not of 100% of anybody’s money, I’m sure you tell them that all the time, correct? James: It’s just part of a portfolio, absolutely. Charley: Correct. So, James, we really appreciate you being with us today. How about some final words for our audience before we sign off here? James: I would say that the more books you read and the more of the best investors you ever listen to, or have a chance to read some of their material, the one thing that they never forget is to be diversified. I think a portfolio similar to ours allows the investor to do that. Our investors can participate in bull and bear markets. Does it mean we’re right all the time? By no means are we, but the fact that options expire 82% of the time worthless, it’s certainly putting the odds in your favor, and that’s not a bad place to start. Charley: James, thank you very much. We really appreciate you, again, sharing your information with us today. We very rarely, by the way, have guests on for a second time, but you have a very interesting approach, and I’m sure productive approach to investing, and we really appreciate your time today. Thank you very much for coming. James: Charley, it’s been my pleasure. Charley: So, we’ve been listening to James Cordier of OptionSellers.com, and you’re listening to Strategic Investor Radio on OCTalkRadio.net, where we bring you investment strategies you’re not hearing elsewhere. Again, we’d love to hear from you at info@strategicinvestorradio.com. This is Charley Wright, wishing you an enjoyable week and productive investing.

Good Afternoon, this is James Cordier of OptionSellers.com, with a market update for March 11th. For those of you who have read some of our books, The Complete Guide to Option Selling and the different editions, on the very front cover we talk about hopefully making stellar returns in bull and bear markets. The commodities markets over the last three years now have been certainly trending lower, and we feel that low has taken place. Over the last several weeks, we talked about looking for stabilization in commodities, so that they’re not constantly going down and pressuring option prices. As the market slowly declines, and as commodities have over the last several years, put increases, as far as premium, increases at a very slow rate. Of course, call premiums on the top side doesn’t increase at all, making for a very difficult or sometimes stagnant way of option selling. That has now changed. Volatility is now in the market. Many commodities, which have been in down trends over the last several years, are now in sideways to upward trends, and this is what we describe as low hanging fruit. Anyone watching the crude oil market the last few weeks have seen a trade from approximately $30. Now, we’re looking at some of the spring and summer contracts trading in the low 40’s. We expect that rally to continue going into April and May, making some of the puts that we sold in the $20 level, practically worthless. We also are looking at gasoline. It is probably going to rally until April or May, as well. We expect this rally to continue. Seasonal factors for energy prices, especially in the United States, is extremely strong. Simply put, January and February is the time to get long gasoline. It happened again in this year. We’ll be looking at doing it again in 2017. This rally is not based on fundamentals, it is based on technical and seasonal factors, which are fully in charge right now. We see the market probably plateauing at around May or June. At that point, if crude oil prices are high enough, in order to sell calls for some of the weaker contract months, like November and December, we’ll be looking at selling the $75 and $80 strike prices above the market, as we probably tip over in June and July and probably start heading lower into fall of this coming year. In the meantime, we’re going to enjoy this rally. We do have some puts sold below the market. Anyone who’s been following our videos for the last several weeks, we’ve been talking about selling puts around $20, $22, $24. Those will be worthless probably in the next 30 days, and certainly a trade that we certainly favor.

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, 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.

Listen to James Cordier, founder and CEO, discuss their strategies for selling options on the Futures Market.  Author of “The Complete Guide to Options Selling” and “Option Selling on Steroids” James offers a unique way to invest thru selling deep out of the money puts and calls on commodities, metals, etc.  This is indeed fascinating and anyone interested in options investing conservatively will enjoy this.

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.

Good afternoon, this is James Cordier of OptionSellers.com with a market update for January 15, 2016. Michael Gross and I have written a few books, actually three different editions of the same book, The Complete Guide to Option Selling. On the very front of the book it talks about possible stellar returns in both Bull and Bear Markets. Well, we’ve done, in my opinion, quite well over the last several years where the stock market has been trading higher. I believe we were up six or seven years in a row, with the exception of 2015, where I think, the stock market was basically flat, possibly down 1%. Going into 2016, we’re getting continuous calls from some of the largest investment banks in the world, saying that 2016 could be quite different from the previous several years. RBS, this past week, talked about a cataclysmic year in 2016, to actually say, “Get out of everything.” Have you ever noticed when investment banks and large stock brokerages are very slow to talk about the market possibly going into a down turn, they normally use a terminology like, “We’re going to have a great deal of movement, both up and down, lots of volatility.” But they never say the market’s going to fall. For the first time in several years, we’re getting large investment banks saying just that. On the front cover of our book, possible stellar returns on Bull and Bear markets, it looks like in 2016, we’re going to implanting strategy for a Bear market. We do have the ability to go both ways – we also can be neutral. But, I think 2016 does look like a possible lower market as far equities go. Quite often you talk about and hear people discuss, “As January goes, so does the rest of the year.” I believe with two weeks into 2016, the U.S. stock market is down 8% already. I know a lot of people listening to me right now, do have some stock holdings. I hope the market does rally. We’re going to possibly be positioning ourselves for a Bear market. However, what’s most interesting about selling options on commodities, it gives us the ability to diversify. The fact that we’ve got commodities trading at very low levels right now, does actually offer opportunity. Wrap your head around this: Commodities, some of the major commodities that have helped China grow over the last several years, and of course commodities that we use around the world, are sitting at twelve and thirteen year lows. What does that mean? A lot of these commodities are reaching levels that are required to pull them out of the ground or to produce them. That should hold many commodities from going too much lower. On the other hand, we have a slowing economy, both in the Unites States, as well as other parts of the world. That should keep this market intact. Over the years, we would have people and investors talk to us, you know, “James what’s the next big move?” “What’s the next Bull market?” Or, if a market has rallied dramatically, “What’s a good market to shore?” This is interesting. In all the years I’ve been doing this, the most prominent way to make money selling options and commodities is to find commodities that are fairly valued. If you have the ability to put short positions on a call, above a market, possible 50% to 60% north of where the commodity is trading, at the same time, selling options 40% below the current price, the ability to forecast and find fair value commodities is more valuable than finding the next commodity that is going to move 10% or 20% to the upside. The put is taking care of the call and the call is talking of the put while you wait several months for the market to stay inside that window. We feel that going forward, the landscape for commodities to stay almost in a neutral position for the next six to nine months is very high. That is the position we’re going to take on many commodities. I know a lot of our clients have witnessed that already and it looks as though 2016 will be ideal for that situation. There are a couple of commodities that we’re looking at right now. Crude oil, which has fallen very precipitously over the last several weeks, as we’ve been finding a slowdown in China, definitely crimping the analysis of crude oil prices. We do see a slight rally, starting possibly in February, rallying into May and June of this year. Crude oil could get into the 40’s and we are selling puts far below the current value of the market right now. The other commodity we’re looking at very closely is coffee. The rains did come into Brazil. We’re looking at a ginormous crop going into 2016. Coffee is trading around $1.15 to $1.25. We’re going to be selling calls and coffee at the $2.20/$2.30/$2.40 level, well over double the price. We think that’s going to be an excellent risk going forward. Anyone wanting more information from OptionSellers.com or someone who would like to have their own portfolio, feel free to contact our office and we can get something right out to you. As always, it’s great speaking with you and I’m look forward to doing so again in two weeks. Thank you.

Hi this is Michael Gross, Co-author of McGraw Hills “The Complete Guide to Option Selling” and Director of research here at optionsellers.com. I'm here with your bi-monthly option seller video lesson. The topic of this week's lesson is The Margin Cushion. You know I talked to a lot of prospective investors here at our firm and one of the top questions I get is: • How are you going to protect my money? • How are you going to protect me from downside risk? There is a lot of risk in option selling • How do I avoid that? • How do I stay away from losing money? And there's a couple answers to that question but one of the primary answers is option selling is no different than any other investment, in that you can lose money in it; look we're all adults here you're going to have losing traits. Option Selling is not perfect; we think it's a superior strategy but it's not perfect and if you're going to be an option seller you're going to have to accept the fact that sometimes trades are going to lose money, sometimes your account's going to lose money. The key is when you do lose money you lose it the right way, you lose it in a limited way, you lose it in a controlled way that enables you or puts you in a position to be able to bounce back next week, recoup the losses next month or even in some cases next year, but you want to keep that in a controlled capacity, keep you in the game and puts you in a position to make the money back in the future time and how we do that is with systems. Risk management systems all the way along, that's what separates an amateur from a professional or sophisticated investor is those systems. One of the systems we're going to talk about today is the margin cushion and this is a very crucial risk management system; if you want to be a successful option seller you need to understand the concept, that's why we're going to talk about it today. Before I go any further, if you'd like to learn more about concepts like this, about risk management systems or option selling in general - how to be successful, you'll learn a whole plan for how to be a successful option seller in the complete guide to option selling. It is on sale now at our website www.optionsellers.com/book you could get it...if you buy it through our website you get a 40% discount off the cover price where you get it at Amazon or anywhere else. So what is the margin cushion? Well before we talk about what a margin cushion we're going to talk about why you need it. As an option seller you have two types of risk; there are two types of primary risk that you're going to have to deal with in the market: The first one is that your option goes in the money. Now this is something that Stock Option sellers deal with a lot and in some cases it's what they want, if they sell or put underneath the market and price of the stock goes down and they get that stock put to them sometimes that's what they want because of trying to buy the stock at a cheaper level. Same thing if we are selling a call above the market, the market goes up, it takes them out of the profit so that it's not all bad thing if you're a stock option seller. For commodity option seller who are just selling for premium, you don't want the option going in the money because when an option goes in the money it's value starts increasing rapidly, we want to avoid that, fortunately if you're using the method we subscribe to and we prescribed in our book and our other materials, the FUDOM method that's not a concern. Why because your selling option so far out of the money that... the chances of them going in the money are remote at best, not only that but you can see them approaching that strike place so there's plenty of time to get out of the option in almost every case, long before it ever goes in the money. So that's not a big concern if you're selling commodity options using the FUDOM method. Your primary concern is the second form of risk we are going to talk about today. The second form of risk is that the market makes an adverse move against your position and your option value increases. What does that mean? Well one it means your option value increases so it's using a little more of your capital but can also mean your margin requirement increases; doesn't always mean that but it can, so what that means is that it puts you in a position where that positions pulling more cash and you want to be able to provide that cash to it if it's still a good position. That's what we are going to talk about today. So what is a Margin Cushion? Well a lot of stock investors or traders that aren't used to commodities aren't used to selling options they don't know about leverage, for instance stock investors often think well I need to have a 100% of my account working in the market otherwise it's not working for me but when you're dealing with option selling or with commodities that's not the case because as we just talked about your margin requirements can fluctuate so you need to have a backup reserve of cash in your portfolio to account for that; that backup reserve is what we call the margin cushion. Let me do an example, okay so let's suppose you're working commodity option selling portfolio you have a million dollar account and you take that money and you eventually get it invested; you get it at all invested all 1 million is working in the market and fully positioned. Right? So where you want to be you are using all your money you will if you're trading stocks or whatever because you want the money working for you. Now you have 100% of that cash in positions; if any one of those positions, any one of them makes a big move up or a big move down against your position what's going to happen? The value of the option is going to go up, your margin requirements likely going to go up. What does that mean? It means you're out of money, it means you need to come up with some more money or you can't hold all your positions, so you're either going to be forced out of a position that you may not want to get out of or you're going to have to put more money in your account. Well nobody wants that. So what's a counter measure of that? How do we prevent that? Let's take the same million-dollar account. What we're saying is you don't put 100% of your account in positions, you take 60% of your account; you put that in positions; 40% stays in cash that's your margin cushion. That is a crucial aspect of any commodities option selling portfolio. Now is 40% a set in stone figure? No, that is something I use for this example. In fact, for beginning investors new to option selling, I know most people watching this are not beginning investors but for option sellers that are just starting out in commodities, you don't have any experience with commodities this is your first allocation to this asset class; we recommend keeping 50% of your equity as a margin cushion, as backup cash that accomplishes a number of different things. First and foremost it gives you plenty of capital to write out any adverse moves in your positions that you don't want to get out of because this is the key. If you sell an option the only time you want to get out of that option is: 1. If it's decayed enough or if you want to take profits on it or 2. It hits your risk parameter You don't want to be forced out of that option simply because you don't have enough margin, so this allows you to do that, it allows you to stick to your system, it allows you to stick to your risk parameters and each individual position and trade in that a controlled manner rather than having the market force you out of a position. You want to be getting out of positions on your own terms and that's one of those positions triggers a risk parameter, hits your stop what have you. This allows you to do that. Now a lot of.... I don't get a lot of pushback on that but some people when they first start out they say well yeah that's great but that capital is just sitting there it's not working for me, it's dormant and that's not the case, that's not the way to think about this and the way I advise thinking about it is this. You think about our army - our great men and women serving in the Armed Forces right now. You have an active duty military and it consists of so many soldiers, support personnel and what have you, so you have your active duty Army over here, but over here you have your reserves; so if a national crisis comes and all these active duty personnel were called on here but over here you have your reserves so a national crisis comes and all these active duty personnel were deployed who do you call on? You turn to your reserves because you need them; you need them there to back up. Are these wasting assets? Are these people not being used? No, they are a crucial part of this, a crucial part of this effort, a crucial part of the whole organization; that's the same way you should think of your backup margin equity. So your backup margin in your account is working capital, it is serving you in a very valuable way it should not be thought of as just excess cash sitting there not doing anything for you, serving a very valuable function. Now the last point I want to make here is keeping a cash cushion is only one part of overall risk management in an option selling portfolio. Obviously there's diversification, there is individual risk management on positions etc. etc. and of course those are all discussed in our book and our website; however the margin cushion is probably the foundation, it's the first concept to internalize when you're talking about a responsibly managed option selling portfolio. It's what I’d recommend to you. I hope you gain something from this video we'll see you in two weeks. Thanks for coming I also wanted to mention for those of you that are interested in potentially working directly with us in a managed option selling portfolio, I do recommend getting our investor discovery kit. Tell you all about our accounts, our portfolio, how you get started, etc. You can request that our website at www.optionsellers.com/discovery. Thanks for coming – we'll see you in two weeks.

Hi, this is Michael Gross of OptionSellers.com and welcome to the first installment of Option Seller radio. I’m here with James Cordier, head trader here at OptionSellers.com and we’re going to talk a little bit about the markets today and a little bit about option selling and some things that you may be able to look at and study to learn more about this strategy. James. James Cordier: I’m doing great. As always, we’re watching the news and watching certain market conditions fluctuate. And Michael as you know, I think as the year wraps up as we are doing now, we’re just about going into December, lots in the news, lots in commodities, and certainly opportunities that we like positioning for, for the coming year. Michael Gross: Good, good. Yeah I think a lot of the people listening out there probably, maybe you’ve read our newsletter, you’ve read our book, you’ve looked at our website; the purpose that we want for this radio show is to really tie a lot of those things together for you and maybe give you some additional avenues if you are looking to learn more about this or just keep posted on what’s going on in the commodities markets and see some examples of how you could be selling options on some of these markets. James, I know one of the big markets we’ve been watching lately is the crude oil market and you were on CNBC last month talking about a potential major low in the market and I know we featured it in our newsletter in November as well; what are your views on crude oil right now? James Cordier: The crude oil market is absolutely over supplied as everyone hears about and everyone’s talking about here in the United States we have nearly 100 million barrels over the five year average. We have OPEC trying to fight for market share; it’s going to rebound as far as what OPEC is wanting to do and willing to do, I think, in the next several weeks. Right now, here in the United States, we have real decay in energy financing, practical a third of the companies are basically going out of business as a lot of the infrastructure spending that took place during the boom years in the United States when oil was pushing $90.00 and $95.00 a barrel. A lot of that infrastructure spending is now in place and unfortunately, it was financed. It looked great on paper and now with oil trading in the mid to upper 40’s, it just doesn’t work right now and a lot of the funding that took place right now is leaving that industry; the Bakken especially some of the states North Dakota and such that looked like just a great investment is looking like a terrible investment right now. We think that in the coming weeks or months, certainly Michael, we are going to see US production fall off dramatically and certainly that was OPEC’s idea. They didn’t like seeing the United States go from five million barrels a day to ten million barrels a day, that’s the golden goose that, especially the Saudi Arabia’s of the World have been enjoying for so long. We see that a monumental shift coming. I don’t know if it’s this go around where oil is, you know, near $40.00 recently. Maybe it takes place winter when oil sinks again, but we’re certainly in the process of getting some of the new producers out of the market and at which point you’ll see OPEC then finally cut production and we could see quite a rebound in the next six to twelve months, I think. Michael Gross: Yeah that was, you had some great points in the newsletter as well. Even though prices have been so low and production’s been so high, demand has been increasing. It’s kind of a function of low prices carrying low prices where the lower price is spurring demand, maybe not so noticeable because supply has been so high. But if they do start cutting back that production, they will be dealing with increased demand. We have a good seasonal in crude oil right now too, for those of you who follow some of the seasonal charts we talk about; what’s behind this seasonal, James, as far as the often see weakness into December and then often see a strength in crude oil for the spring months? James Cordier: Michael, that’s a great question. You and I have been working together and watching the markets for over a decade and you and I joke often about setting your watch to the seasonality’s and the energy market. Each fall, we go into what’s called ‘shoulder season’ when driving season is far over and yet it’s not cold in the Northeast yet. This is typically when energy prices are at their weakest point each year and of course, now we’re in November going into December, oil prices have sunk as low as $40.00 recently, they touched the $39.00 handle. Basically this is the least demand season and this is when crude oil supplies usually stack up. A lot of refiners shut down for maintenance so they don’t need the oil and at the same time, the demand is at the least. This is probably one of our favorite position; the fundamentals this year are lining up extremely well with the seasonality. Buying oil, in other words, how we approach the market selling place, 30%, 40% below the price in December and selling puts that come due or expire June, July or August has always been low hanging fruit for us. It’s setting up extremely well this year, obviously a seasonal doesn’t make it so, but this year we are really excited about it. We started, you know, going long crude oil in the last week or two on some extreme weakness. We expect to see some weakness as supplies continue to build slightly in the next week or two. We consider this extremely low hanging fruit over the next couple of weeks. Michael as you know, come April, May, June shockingly gas prices start to increase and I think they will again in 2016. Michael Gross: Yeah I know we talk a lot about seasonals and energy markets have some of well, nothing’s guaranteed. Energy markets have some of the best seasonals of any commodity. It’s funny I was talking to one of our clients yesterday, up in Pennsylvania and he told me the firm he works for, they do some type of hedging on oil, and if he’s listening he can probably call in and correct me later if I’m wrong. Michael Gross: What he was telling me is the firm that he works for hedges the oil markets and I’m sure if he’s listening he could call in and correct me, if I got part of this wrong, but the jest of it is that they more or less do their hedges twice a year. They buy crude oil in December and they sell it in July and they it every year and he said that’s just how we do it, it works great just about every year, we cover our fuel costs. I said you wouldn’t think it would be that simple, would you? And he said, no but it’s been working pretty well. So it may not be quite that simple if you are a trader, but seasonals could certainly be a big factor to consider especially when trading in the energy markets. James Cordier: Michael, what’s interesting is we always talking about trading like a commercial and that’s exactly what we’re doing, you know, selling puts in December for the June / July timeframe. It’s really interesting that that’s exactly what your client, you know, in Pennsylvanian is doing is exactly what we do each year. You mentioned just a moment ago, you know, trading as most people know it with a seasonal factor involved can get a little tricky, because the seasonal low might be in November, the seasonal low might be in December and that, once again, is the beauty of selling options. With oil trading in the mid to upper 40’s, we’re selling the $30.00 and $32.00 puts for the summer timeframe, gives us a lot of variance to let the market bottom in November, December, January, it doesn’t matter. Michael Gross: Yeah and not to go too far into our talk on seasonals here, but just a good point to make for listeners out there that are new to commodities and looking at seasonality, one of the biggest mistakes James you know this as well, that traders make as they look at these charts and they see it makes the bottom in the middle of December and they say well, I got to buy crude oil on December 15th. You have got to remember those are just averages. One there is no guarantee it will bottom at all, but two if it does it could bottom in November, it could bottom in January and one of the reasons combining option selling with that is so powerful is that you don’t have to be perfect on your timing, as we know. So, maybe if you are a little early you can sell puts in November, you can sell puts all the way through January and still, even if you are not hitting the bottom, those can still be successful trades. James Cordier: Absolutely, just like taking your favorite investment and dollar cost averaging, you know, we do the exact same thing. We don’t know where the low is or the high is and that what we jokingly often say is why we sell options, basically the average investor who wants to take a stab with their hard-earned money and trade gold or oil or soybeans, it’s so darn difficult because the timing needs to be so precise and as you know we’ve taken that need to be precise completely out of the picture. We plan on, you know, looking at an investment that we are really excited about and we’ll take a 30-minute period to position ourselves into that market. We will never go all in in one day, we’ll look to, you know, buy or sell the market over a 30-day window and sometimes you only get half your position on but certainly hitting a single or a double is certainly right up our alley. We are never swinging for a homerun anyway and over a twelve-month period, often can win the game. Michael Gross: Excellent. We’re going to shift gears here a little bit. Everybody listening, however if you do want to real up more on the crude oil market or the seasonality in crude oil, you can certainly go to our blog. We had a feature piece on oil in our November newsletter, which is posted on the blog right now, so you can certainly take a look at that. Also James will be updating crude oil market in his bi-monthly market updates, so you look for those on the ‘video update’ section of our website. James, I know you had the pleasure of joining our first Webinar last week and talk a little bit about that? How do you think that went? James Cordier: I thought it went really well. It was the first time you know, that sort of feature broadcast that we’ve ever done. It was interesting how many mainstream investors are not familiar with options, as we always talk to when a new client finally speaks to me before we start investing, they were all introduced to selling options from their stockbroker originally, through the use of covered call options and I was thinking that was still a small niche in the market, but I’m starting to find that a lot of investors are starting to educate themselves. They are thinkers they are readers with the flux of the market recently, it just really seems that a lot of investors are going to take a little bit more control of their investment and learning about options. Whether they become an option seller with us or not, learning about selling options has just really become more mainstream than I even thought of and I think with both you and I doing the Webinar last week, it really opened my eyes to that fact and it’s quite exciting that investors now are not simply handing over a million dollars to their stockbroker and checking their account at the end of the year. It really seems as though most investors are thinkers and readers and they are taking more control of, you know, their nest egg and that was a really pleasant surprise. Michael Gross: Yeah, I was surprised too at the big response we got. Not only the attendees, but the questions people were engaged, and I think it’s, especially I’ve noticed talking on the phone with perspective clients recently, the way the stock market’s behaved, you know, since really the last ten years. You know, 2008 is when it started, but even recent volatility, what’s going on in the world, a lot of people are frustrated with government, I think people are starting to question the buy and hold strategy for preserving wealth and they are looking to take matters into their own hands and I think that’s one of the reasons options trading, in general, is becoming more popular. But, the Webinar for those of you that missed the Webinar, the title of it was Option Selling on Steroids, and James covered really for stock option sellers it was an introduction to commodity options and some of the benefits and advantages of upgrading the portfolio into commodities. I know James you talked about the increased leverage, the lower margins, bigger premiums. Fundamentals is a big part of what you talk about. James Cordier: Right. I think that the majority of the mainstream investors whether they are small investors or they are working with millions of dollars in capital, the main theme right now is to be diversified and a lot of investors have probably a larger percentage of their assets in the stock market than they probably want, at least that’s what I heard from the Webinar that we did the other day. The other aspect that’s, I think, causing some angst to a lot of investors is you get good economic news here in the United States and the market falls, with the idea that now the Federal Reserve is going to raise interest rates a quarter a point. That can get frustrating when the economy is doing good and you see the stock market fall two weeks later, you know, the economy gets a bad report on jobs or retail sales, then the stock market rallies. A lot of investors have a tough time wrapping their arms around that and I get it. And I think that’s way some investors are looking at commodities, which don’t trade that way. They trade purely on supply and demand. Michael Gross: Good. For anybody that missed the Webinar and wants to listen to it, it is on our website now. It’s at optionsellers.com/webinar, it’s called Option Selling on Steroids and if you’re interested in learning differences between stock option selling and commodity option selling, it’s a great place to start. James obviously we are heading into December right now, everybody is anxiously awaiting the Fed decision. A lot of nervous investors out there right now, as far as what we have coming up, I know we did a big feature piece in the December newsletter if you are listening right now, if you received that we plunge into this in depth; how the Fed decision could affect equities and how it may or may not affect commodities. James, what’s your take on what’s coming up with the Fed here? How it’s going to affect the markets? And how it might affect commodities? James Cordier: Well Michael as you know, over the last 12 months, 18 months guessing what the Fed was going to do has been a fool’s game because just when you think they’re ready for lift off, you get three bad economic reports in a row and then there’s no way they are going to raise and then just when you think, well they are going to be at zero forever, then you got some great economic information coming out. Normalizing interest rates and I realize going from zero to a quarter, you know, I remember back in the day, interest rates at 6, 10 and 8% so it boggles my mind how it’s such a monumental move to go from zero to a quarter. Personal opinion first, I really hope that they do just get off of zero and just normalize rates so that asset flows can start normalizing themselves as well. Even if interest rates bump up a tiny bit, there will be some investor ability to go into interest-bearing returns, and at that point, when that finally happens investors who want to go into yet certainly a very small interest rate return, at least they are getting something. If they want to be in the stock market, they can go into that, they now have an alternative to go into commodities, they have an alternative. Over the last four or five years, you either held your nose and bought stocks or you got zero and that’s just wrong, that’s just wrong. So, you know, obviously cranking interest rates down to zero nearly a decade ago; do we need to do that? I guess we did, certainly economic conditions and what happened with the housing bubble burst. Probably it was a great idea but those were emergency moves and we don’t have that situation going on right now. Is the GDP running along at 4%? No it’s not. It’s 2 or 2 ½%, is that a robust economy? Not really, but you have low inflation, you have unemployment at 5%, you have GDP doing just fine, that’s no emergency. So let’s get off zero, let’s normalize rates, and then let the cards, you know, fall where they may. Interestingly enough over the last week or two, obviously we don’t trade the stock market, we don’t invest in stocks, but I do follow it like everyone else does and it seems as though the stock market is ready for it and I think that’s certainly what the Federal Reserve is watching so closely. I don’t want to get too political here, however to think that the Federal Reserve is not worried about what an interest rate rise would do to the stock market is kind of silly. They are interested and I think they kind of got the green light recently because the more they talk about raising rates, albeit just a quarter, the stock market has done just fine with that. So that tells me that if the Federal Reserve does want to do that, they can go in December, I hope they do. Michael Gross: Those are some great points James, and one of the things we talked about in the newsletter as well is a lot of investors are standing around waiting, thinking what to do with their equity positions right now, because if the Fed goes one way this could happen, if doesn’t this could happen and those roles actually might be reversed this time and we have a light-hearted look and says is the Fed’s show up as Santa Claus or does he show up as Crampus this Christmas. James Cordier: We’ve seen both. Michael Gross: Yeah, and a lot of the investors in commodities will wonder, how does this affect commodities prices and a good point you made is well, you know, it may not have a direct effect at all. Commodities are trading on their own fundamentals and yes, a lot of commodities are in a bare market right now, but that has everything to do with fundamentals, more importantly individual fundamentals; oil is low right now for a different reason than grain is low right now. You and I were talking earlier about an article in the Wall Street Journal today about copper fundamentals and there’s individual fundamentals that seem to be playing a much bigger role in low prices of a lot of commodities as opposed to anything going on in Washington. What do you think about that? James Cordier: I think that’s really interesting, certainly the abilities that we have to be in one portfolio slightly long in commodities and, somewhat short in other commodities. As you know, the ability for us to long in commodity and short in commodity in the same portfolio gives us the ability to diversify like that. Quite often when you’re simply in the stock market, either the long or short, actually it’s always long and the ability to diversify in different commodities based on fundamentals is truly key. Boy, the Wall Street Journal just recently, the production in copper is just growing in leaps and bounds. I know a lot of investors are thinking well some of these commodities are probably nearing their low cycle year. Copper certainly had the enormous influx of investment during the China boom when they were erecting 30 cities the size of New York and what did the largest copper mining companies do in the world? They said, well if China is going to be an insatiable demand for copper and nickel and zinc forever and ever, seven and eight years ago when all this demand from China was developing, that’s when all this infrastructure spending went into copper mining. The funny thing about it is, and if anyone does read this article that came out recently, for us today if you listen to this radio show in the coming days you can go back to it, but it takes seven years to build a copper mine. So the fundamentals have changed that dramatically in the last seven years, so we are going to have copper at extremely depressed prices and levels in the coming year or two, simply based on the fact that copper production used to cost $1.75 or $2.00 a pound and there’s a lot of instances where they are going to be producing copper next year for 60 cents a pound. Other commodities are below the cost of production now, so that give us the ability to, you know, create a portfolio that is long, a commodity that has strong fundamentals, and a shorter commodity that has various fundamentals, that is truly part of the diversification that having an option selling account gives you the luxury of doing that. Michael Gross: All right. We covered the Fed decision pretty heavily in the December newsletter, or its possible effects. We outlined some potential trades, our Podcast or radio show here really one of the purposes of it is to serve as kind of a companion to the newsletter and a lot of the things we talk about. One thing I did want to point out to readers of the newsletter is a new feature we began incorporating called, Our Guest Expert series, where James and I have opened up our newsletter and a lot of our content is some of our colleagues in the industry, we try and get people that are well known, well respected, can really give you some great insights into different aspects of option trading or even investing. A lot of you saw Jack Walker from I Volatility, December of course, we had Lawrence McMillion. A treat we have in January is Dr. Alexander Elder who is the author of a couple great books on trading. Anybody that has ever thought about being a serious trader whether you are trading stocks, commodities, or options, I would recommend both of his books, Trading for a Living and Come into my Trading Room. But James, I know, we had talked about this Dr. Elder is a big fan of selling options and when I interviewed him for the newsletter, he made some great points. This will be coming up in the January newsletter so you don't want to miss this interview. Dr. Elder, in interviewing him, I think he is one of the smartest people I’ve ever met, present company excluded. But also he had some great points on option selling and I just wanted to read a couple observations he made in one of his books, which is Come into my Trading Room, in it he says, this is in one of the initial chapters, he says, “The insider is almost exclusively right options, professionals use their heads, while amateurs are driven by greed and fear. Options take full advantage of those feelings.” And then he goes on to say, “I’ve never seen anyone build equity buying options. The odds in this game are so back that after a few trades they are sure to kick in and destroy a buyer. At the same time, options have a high entertainment value. They provide a cheap ticket to the game and an inexpressive dream just like a lottery ticket.” I don’t think there’s any better argument there for taking the opposite side of that. But if you are interested in hearing the differences of buying and selling options from somebody who has worked with traders around the world, there’s some great insights in this interview that you want to catch in the upcoming newsletter. James, I want to finish up our radio show today by talking about some of the upcoming markets we have to look at here; there’s a lot going on. We have tensions building in the Middle East a little bit as we speak today, obviously we have the Fed decision coming up. The great thing about commodities is that they continue marching to their own beat and we’ve got some great seasonals to look at. December is a great month for that. We already talked about crude oil, but natural gas also has a very impressive seasonal. What do you see with that or what are your views on natural gas right now? James Cordier: Natural gas certainly does have a great seasonal tenancy. Most investors will go into natural gas as we approach November and December waiting for cold air to inevitably reach Boston, New York, Philadelphia, you know the major hubs in the Northeast. What seems to happen and however is production of natural gas basically is used for winter heating. A lot of investors think it’s for air conditioning and cooling in the summer, that’s approximately 1/10th of its use. The majority of it is for heating in the Northeast, especially heating oil is one of the products used for warming homes and businesses in the winter, but natural gas is certainly a big play for most commodity watchers. Quite often what happens is that the cold air does reach the Northeast for the first time, whether it be in December or January, the market is so oversupplied with natural gas, the industry is just waiting for any type of blip in demand from that cold air. What we like doing is selling calls about the market when it finally does reach cold levels, investors rush in to buy natural gas, the supplies of natural gas between December and March are absolutely gigantic and anyone following the industry right now knows that natural gas is just at levels as far as supply is concerned that makes reaching levels of $3.00 or $4.00 or $5.00 practically impossible. Supplies are gigantic right now and that is one of our favorite plays when the market does rally in December, selling calls above the market. If it happens this year great, if it happens next year we’ll be waiting for it then. Michael Gross: Yeah and another great point, I know you made to me earlier, is that it’s going to get cold this winter and it’s going to get cold this winter regardless of what the Fed does, regardless of what happens in Turkey or Russia or Syria and people are still going to need natural gas and they are still going to eat their Corn Flakes and they’re still going to want to drink their coffee in the morning and speaking of coffee, that’s the last market I wanted to touch on today. I know that’s one of your favorite markets, a market you have a particular specialty in; what do you see happening in coffee right now as we head into December? James Cordier: Well the coffee market, which has been trading around $1.25 / $1.35 abound seemingly for the last several months, the coffee production around the world has certainly grown. Vietnam who used to not produce any coffee at all is now the second largest producer. Columbia was always considered the main supplier of coffee and now it’s approximately 1/5th of what Brazil produces each year. We were hoping for and still expecting some rally as most investors feel that the largest consumption time, especially in the Western Hemisphere is during the colder months, we are expecting a rally in coffee maybe up to $1.35 / $1.40. Brazil this coming year is expected to produce 60 million bags of coffee, which would be an all-time record. At the same time Vietnam is going to produce a record supply figure. A lot of investors and coffee companies will do some hedging, buy some coffee as we get into the high demand season. As coffee does rally 10 or 15 cents this winter, December, January, coffee calls at the $3.00 level and will probably be in play and with the supplies from producing nations probably hitting all-time records this coming year, we really like the idea that coffee is not going to go from $1.40 to $3.00 and that is certainly of our favorite positions that we like to take advantage of when the opportunity arises. Michael Gross: Excellent and I’m sure you’ll be updating coffee, natural gas markets in your video updates, which everybody can watch at their convenience on the website. A lot of people have asked as well, how do I get your newsletter? There is no place on our site you can actually request our newsletter directly, but if you buy the book or buy a book on our website, The Complete Guide to Option Selling, you actually get subscribed to the newsletter, so you are kind of opting into it. But you can also get it by requesting anything on our website; you can request one of our free reports or booklets, you automatically opt in to getting the newsletter. So you can certainly have access to that at any time. I would like to close by wishing everybody happy holidays, Merry Christmas, happy Hanukkah. One announcement we do want to make for this month, is our consultation dates for new account consultations, prospective clients, if you are interested in talking about an account, we only have limited dates in December. The last date for consultation call scheduling is December 16th. So if you have been thinking about an account or you want to ask questions about an account, thinking about opening in January, the consultation dates for that go up to December 16th. Just call in and speak with Rosemary about what we have left. The number, of course, is 800-346-1949, or if you are listening from outside the United States, you can call us at 813-472-5760. James, anything else you would like to add before we sign off here? James Cordier: Michael, I really like the topics we discussed today and some of the opportunities that might be coming up. I am certainly going to enjoy doing this on a timely basis, looking forward to it. Michael Gross: Great, likewise and this is our first one, so I hope everybody’s been patient with us, we’ll get better, I promise and we are going to start doing these monthly. Depending on how we go, we might do them more often, we’ll see what our listeners like and what they’d like to hear. But thanks for listening everybody. Happy Holidays and we’ll talk to you next month. This is Michael Gross and James Cordier for OptionSellers.com.