a smarter way of investing august 2016 theoptionseller ......mercy of mr. market. however, if you...

There is an old song by The Platters called The Great Pretender (later remade, I believe, by Rod Stewart.) The lyrics started out:

They call me the great pretenderPretending that I’m doing wellMy need is such I pretend too muchI'm lonely but no one can tell

Thus the state of many high net worth investors these days. If you rely on traditional investments to grow your wealth, these are ugly times. Interest rates near zero mean that you might be better off putting money under your mattress than buying corporate debt paper. The Fed is doing all it can to keep the equities train moving ever higher (stocks hitting an all time high in July) which seems good for now, but has a scary feel to it. Sophisticated investors are branching out to preferred stock, closed end funds, REITs and muni’s – all in a desperate search for yield. Fund managers keep pouring into

equities and hoping we keep climbing the wall of worry. After all, for them, it’s the only game in town. As a high net worth investor of the modern age, you may feel like the Great Pretender – pretending that all is well. But when the lights go down for the day, that little Gremlin in the back of your mind tells you it’s not. That is because the state of both the real and financial world has the feel of a house of cards, or a powder keg – depending on your perspective. (This could explain why speculative long positions in gold hit an all time record level last month.) There is now over $12 trillion in global debt securities with negative yields. Japan

is stuck in a deflationary cycle, China’s growth rate has been readjusted lower again to just 6.6%. Europe was standing on the brink before Brexit – the stunning vote potentially now tipping it towards recession. All the while the US muddles along, surprisingly and stubbornly,

THEBIGPICTURE

(Continued on Page 2)

OPTION WRITING NEWS & INSIGHTS FOR HIGH NET WORTH INVESTORS

1

Where 1%ers Find Real Yield 1Surprising Key to More Consistent Returns 4Coffee Market Special: Time to Sell Calls 6Q&A with Cordier 9News & Reviews 10Top 3 11

Announcements 11

INSIDE THIS ISSSUE:

Where the 1%ers Go to Find Real Yield in the Ugly New Normal

TheOptionSeller NewsletterAUGUST 2016A Smarter Way of Investing

©Copyright 2016 www.OptionSellers.com 401 East Jackson Street, Suite 2310, Tampa, FL 33602. US:800.346.1949, Intl:813.472.5760Past performance is not necessarily indicative of future results. Futures and options trading involves risk of loss. Only risk capital should be used.

By: James Cordier, Founder and Head Trader

Negative rates are likely here to stay for awhile

S&P 500

Fed Fueled Rocket: The S&P 500 may look expensive. But it’s the only game in town for some.

2

THEBIGPICTURE (CONTINUED FROM PAGE 1)


despite the accumulation of burdensome regulation and one of the highest corporate income taxes in the western world. View us as the last man standing or the last one to fall.

“In our view, asset allocation is now about choosing the least unattractive alternative….” -Barclays’ Global Outlook

Corporate capital goods orders shrank at a near 10% annual rate over the past six months. Earnings for S&P 500 companies are forecast to be down 5.1% from Q2 last year. These are numbers the media cheerleaders don’t always like to tout. Yes guys, it's an ugly new normal for investors of means. As Barclays’ Global Outlook so eloquently put it “In our view, asset allocation is now about choosing the least unattractive alternative….” That’s uplifting. We can pretend all is well. But trying to squeeze yield out of the far corners of the investment world can be a tiresome exercise. Buying stocks at these highs feels like buying that rental property did back in 2006 (real estate always goes up, right?). Add in a government and media assault on the “evil 1%ers” and 2016 can feel like a lonely time indeed. So if you seek yield and/or growth, real yield or growth, sustainable yield or growth, how to you get it in such an environment? Is there any way out of this dilemma?

Is this all there is? Really?In “The Smartest Investment Book You’ll Ever Read,” Daniel R. Solin presents a somewhat vitriolic rant against Wall Street – before presenting us with a simple pitch for index funds. Nonetheless, he manages to make some good points, many of which I agree with. (You can’t time the market, you can’t beat the indexes by being a stock picker, technical analysis is unreliable, et…)

The mistake he makes, however, is the same made by many investors – even sophisticated investors that should know better. Solin says there are three asset classes: Stocks, Bonds and cash. That’s it. That is all that is available to you. Choose your asset mix. Is it any wonder real investors are left screaming for growth and yield? Anything other than those mainstream asset classes apparently are either not worth mentioning, or so far outside the box that introducing them to his mainstream investor audience would be irresponsible and/or dangerous on his part. And for the general public not tuned in to financial and business markets, perhaps that indeed is the best course of action.

The biggest problem most businesses have is finding enough customers. The big advantage in your option selling business is – you always have willing customers.

On the other hand, outside the box is where sophisticated, high net worth investors live. This is where you are expected to prosper. This is the advantage that 1%ers supposedly have – you have the means to hire the experts to navigate through these sometimes tricky but potentially lucrative waters. Robert Kiyosaki, famed author of the Rich Dad/Poor Dad series prescribes as much in his recipe for wealth. Kiyosaki is a big proponent of hiring specialized expertise and favoring investments that pay cash right away. These include Real Estate, some Private Equity and in particular, owning a business, among other things.

Own a Business, Not an InvestmentAccess to alternatives is just one potential barrier to you if you’re seeking higher more consistent yields. A bigger barrier is understanding what it is that

you’re actually investing in, and being comfortable enough to wade into it. (This is where hiring expertise comes in.) Which brings us to selling options. Most people don’t sell options. Even many sophisticated investors don’t sell options. Why? Because they don’t understand options. Because they don’t have the time to learn how to sell options. Because you don’t read headlines like “17,000 September Soybean Calls expire worthless. Sellers net 67% profit.” in the Wall Street Journal. Soybean options are sold far away from Wall Street. And the Finance VP in the corner office is trained to analyze P/E ratios and future earnings – not crop condition reports. The same is true for the reporter that covers his work. But I believe that I have uncovered the source of all of this confusion. The problem that most people have in trying to understand option selling is this: They’re trying to understand it in terms of being an investment.

Most people don’t sell options….Why?....Because you don’t read headlines like “17,000 September Soybean Calls expire worthless. Sellers net 67% profit” in the Wall Street Journal.


Kiyosaki believes in assets that pay you cash right away.

And to traditional investors, this doesn’t make sense. Traditional investors assume there is one way to make money in markets – you buy something and hope the value goes up. They will often ask questions like “So what are we actually buying? And “How can you sell something you don’t own?” and “Why would I want it if it’s worthless?” We’ve all been there. It’s hard to wrap your arms around at first. Most throw up their hands and go back to looking at dividend curves for Exxon – because that is what Cramer said to do. This is fine if you’re willing to settle for mediocre returns and put yourself at the mercy of Mr. Market. However, if you are seeking real yield, consistent yield, durable yield, you’ll need to go off road from the mainstream map. Selling options may technically still be an investment. But the mechanics of it function more like a business. Stop thinking about selling options as another one of your investments. And start thinking of it as a business. Businesses, at least successful businesses, have rules, procedures, plans. You make money in a business by selling something and getting paid for it. The biggest problem most businesses have is finding enough customers. The big advantage in your option selling business is – you always have willing customers.

The Best BusinessWarren Buffet says that insurance is the world’s most profitable business. A company sells reams of insurance policies and collects payment for each. A few of those result in claims – which are paid out of premiums collected. The rest is kept as profit.

An option selling business (at least a commodity option selling business) runs remarkably similar to this model. You sell a variety of these “insurance policies” across a swath of different uncorrelated markets. A variety of uncorrelated markets like corn, coffee, gasoline and gold ensure that one “claim” is limited to a small portion of your overall “policies.” While you will pay out on a few, the majority should keep feeding you cash premiums every month. Big successful insurance companies like AllState and (Buffet owned) Geico know the value of diversifying your policies. Remember, you’re the underwriter. You don’t want 100% of your policies written on Florida coastal properties during hurricane season. Better to have a small amount in every state. The performance of your insurance (option selling) business will come down to two basic skills on your part:

1. Your ability to select “policies” with the highest premiums and least chance of a “claim” 2. Your ability to limit the size and scope of the “claims” you do pay

Higher risk policies mean higher premiums paid to you. Lower risk policies are safer, but offer lower premiums as well. But there is advantage to be exploited. Up to 50% of these “policies” can be overpriced at any given time. That means they will pay you more premium than the actual risk warrants. Identifying which “policies” these are can potentially offer you an even bigger edge – one that real insurance companies don’t have. You can lose too, of course. But selling options can be a more forgiving business for beginners than some others. And professional help is available (for more information on this, go to www.OptionSellers.com/Discovery) That’s option selling – in a nutshell. Less like an investment, more like a business. It will correlate with nothing. Not even commodities indexes. Markets move up, down, sideways, Presidents come and go.

Wars start and end. Civil disturbances, countries ending and reforming. And guess what? The insurance business moves steadily along.

Finding Yield in 2016Consider this a manifesto – a shot across the bow of the mainstream investment community. The day of alternatives is here. It can no longer be relegated to the back page, or worse yet – treated as if it does not exist. Don’t tell me my asset mix is limited to stocks, bonds and cash. Not with bonds yielding less than 1%. Not with stocks at all time highs with the world in shambles. What in the world do you do for yield in this environment? You write premium – that’s what you do. Then you don’t have to pretend anymore. This is the place where you can always find yield, regardless of the hardships faced by those that limit themselves to “inside the box” investing. This is the place where you never have to pretend again. You have an advantage over other investors who do not possess this knowledge. Why not start using it? This month’s letter will help you do just that. Have a great month. James

3


James Cordier is founder and head trader at OptionSellers.com where he manages option writing portfolios for high net worth investors. With over 30 years of option trading experience, James has co-authored McGraw-Hill’s The Complete Guide to Option Selling 1st , 2nd and 3rd Editions. He is a featured guest analyst on CNBC, Bloomberg TV and Fox Business. His market commentary has been featured by The Wall Street Journal, Forbes, MarketWatch and Barron’s Weekly.

Your option selling portfolio functions more like a business

than an investment.

(CONTINUED FROM PAGE 2)THEBIGPICTURE

The world’s most profitable business?

The Surprising Key to More Consistent Returns in Your Option Selling Portfolio

If you sell options on a regular basis, it's likely that the potential for higher returns is not the only reason you make this a core part of your portfolio. Many of the investors I consult with also list consistency of return as a key motivator for choosing an option selling approach. It is common for traders to cite the famous “80%” figure as proof of consistency of the strategy. While this certainly doesn’t hurt, my experience has shown that how risk is managed will be the single biggest determinant of consistent results in the option selling world.

The Most Crucial Aspect of Risk Yet, risk management is probably one of the least talked about aspects of option selling. It's not the “fun” part of selling options. Risk management is typically something we only have to address when something does not go as planned. Thus, the core focus of a risk management plan, even for experienced option writers is, “where do I get out?”

…time and experience have thoroughly convinced me that the biggest factor to consistency in a portfolio is nothing more than how you manage the cash (margin) in your account.

Exiting losing positions is, of course, a crucial part of managing risk. But focusing your risk management plan only on the exit of individual positions is like focusing the defensive plan of your baseball team on the arm of your catcher. It’s important, but it’s the overall scheme that carries the heavier weight. Novice option sellers often ignore this, or have never been exposed to it at all. But the key to effectively managing risk starts with the overall structure of your portfolio. In this particular regard, time and experience have thoroughly convinced me that

the biggest factor to consistency in a portfolio is nothing more than how you manage the cash (margin) in your account.

The Fluid Nature of Margin RequirementTo sell a futures option, you as the investor, must put up a deposit in order to hold that option until you either buy it back or it expires. This deposit, in essence, is your investment in that option. Thus, the meaning of “margin” in a commodities option portfolio has a decidedly different meaning than the same word in the stock world. In your commodities portfolio, the excess cash in your account is referred to as “excess margin” or “margin reserves.” The margin requirement to hold your short option can change, depending on movements in the underlying market and the value of your option. For instance, if the market moves against your position and the value of your option increases, your margin requirement for that option can increase. On the other hand, if the value of your option decays, your margin requirement can drop as well. While these margin changes are typically not substantial over the short term, they should still be kept in mind as you accumulate positions. A cash cushion allows you absorb these potential fluctuations in margin requirement, without having an outsized impact on your overall portfolio. One of the reasons you sell deep out of the money options (ie: FUDOM method – www.OptionSellers.com/FUDOM) is to give

4

CLASS IN SESSION


©Copyright 2016 www.OptionSellers.com 401 East Jackson Street, Suite 2310, Tampa, FL 33602. US:800.346.1949, Intl: 813.472.5760. Past performance is not necessarily indicative of future results. Futures and options trading involves risk of loss. Only risk capital should be used.

Adequate cash reserves can mean more money in your pocket later.

Managing your margin right can make a gigantic difference in the premium you get to keepBy: Michael Gross

the market plenty of room to move without forcing you out of your position. Keeping a large cash cushion insures that you have plenty of excess cash to cover any short term margin increases in your positions – a “bend but don’t break” defensive scheme – if you will.

Not “Idle” Money Amateur option sellers will sometimes argue that keeping a big cash reserve is “idle” money in their account that is doing them no good. Nothing could be further from the truth. An adequate cash cushion in your account not only gives your account more stability, it gives you more staying power to ride our adverse moves – thus resulting in more options ultimately expiring in your favor.

How Large of a Cash Cushion Should you Keep?In the portfolios that we manage, we typically recommend the following levels of cash reserves:

The Many Advantages of Cash ReservesNovice commodity investors will sometimes view this as equity which is not working for them. This is not true. Back up equity is playing a vital role in your overall portfolio.

Advantages to Holding Adequate Cash Reserves:

• Ensures you do not Over-Position

• Provides staying power to ride out short term adverse pricemoves (More winning trades)

• Virtually eliminates margin call concerns

• Smaller positions reduce impact of one bad trade on overallportfolio

A novice option seller mistake is to utilize 80-90 even 100% of the capital in their account to hold positions. This often results in being forced out of their positions on even the slightest hiccup in the market in order to account for small increases in margin requirements. It’s playing all offense, no defense. The leverage available to you with futures options can be a wonderful gift but it can cut both ways. Holding adequate cash reserves is a big step in managing that leverage responsibly. It can bring a surprising level of consistency to your option selling account. (To learn all about futures margin and how to maximize its advantages, read chapter 6, beginning on page 79 of The Complete Guide to Option Selling, 3rd Edition. If you still don’t have your copy, you can pick it up now at our special subscriber discount by visiting www.OptionSellers.com/Book.)

5


CLASS IN SESSION- (CONTINUED FROM PAGE 3)

Michael Gross is co-author of McGraw Hill's The Complete Guide to Option Selling 3rd Edition. He serves as Director of Research at OptionSellers.com with published works on options trading featured by Forbes, Businessweek and Yahoo Finance.

Conservative Portfolio

Moderate Portfolio

50% Cash 40% Cash 30% Cash

Aggressive Portfolio

Decaying Options

Decaying Options

Decaying Options

www.optionsellers.com/book

6


Coffee Market Special

Coffee Market approaching ideal set up for Call Writers this MonthIn the spring of this year, we outlined a case for selling call options in the coffee market based on the arrival of the Brazilian harvest. While the calls we suggested remained well out of the money, coffee prices experienced a counter-seasonal rally in June and July (this is, of course, the perfect case for selling options in that you don’t have to get market direction exactly right to profit from short options.) Financial and commodity news outlets attributed the price rally to “dryness” in Vietnam. But Vietnam exported over 45% more coffee in June than they did in June 2015. Any dryness would likely only have an impact on next year’s crop. Brazil lost up to 3 million bags of yield to their Robusta crop this year due to isolated dryness in Robusta growing regions. But that news was known as early as April. And 3 million bags was a literal “drop in the bucket” in overall Brazilian output. No, there was something else at work here. At that something else seems to have originated with the Brazilian coffee growers themselves.

Brazil will see record Arabica Production in 2016

While prices tend to fall as the Brazilian crop arrives (Brazil is the world’s largest producer of coffee), It seems that Brazilian coffee farmers had a different approach up their sleeves this year. As concern over Brazilian government stability faded, the value of the Brazilian Real began to surge – just at the time

Brazilian farmers are typically unloading their new crop onto the world markets. With the value of their own currency rising farmers yield less of a profit by selling on the global market. Thus, many saw a potential advantage in holding their crop off of global markets in expectation that the Real would eventually level off or recede – thus bringing in more dollars for their crop down the road.

An additional plus of such a position? It can add high octane yields to your portfolio regardless of what goes on in the streets of Mosul or Paris, (or Baton Rouge for that matter) or the election booth this fall.

This appears to have put a temporary crimp into global exports, thus driving coffee prices nearly 30 cents per pound higher from early June through mid-July. But with the Real appearing to approach equilibrium as of late, farmers reluctance to sell is likely to give way in the coming months – especially as the “frost premium” now built into prices (it’s winter in Brazil now) begins to fade in September. As an option seller, taking premiums at points such as this can be especially lucrative – even if you’re a few weeks early or late to the party. Fundamentally overpriced markets can open up far distant strikes at inflated premiums. As we will outline briefly below, in August of 2016, coffee appears to be such a market.

Ample Supplies of CoffeeDespite the early summer rally in coffee prices, overall fundamentals remain bearish. While the 2016 Brazilian coffee harvest will be just shy of a new record, the expected final harvest of 56 million bags is a monster. But that’s not the real story for prices. Brazilian coffee production is made up of both


THE PREMIUM SNIPERA MONTHLY MARKET TO PUT IN YOUR CROSS

HAIRS AND PICK OFF PREMIUM

By James Cordier

7

(CONTINUED FROM PAGE 5)


THE PREMIUM SNIPER

Arabica and Robusta coffee. Brazil’s Arabica production will swell to an all-time record of 43.9 million bags this year. This is important because higher quality Arabica beans are what makes up the majority of the ICE futures contract (This is what you sell options on.) In addition to record Brazilian Arabica production, current coffee supplies in the US hit a new 13 year high last month. US green coffee stocks reached 6.21 million bags in June – the highest level since 2003. This continues to suggest that the coffee supply picture is far from dire. In fact, it remains outright burdensome – at least for the New York traded Arabica variety.

Seasonal Patterns Continue to LoomWhile coffee prices defied seasonal norms in June and July, the seasonal factors that tend to pressure coffee prices do not alleviate as the year presses on. In fact, with pent up supply now more likely to be released over a shorter period of time and freeze fears dissipating as Spring approaches, seasonal pressures

could become pronounced in the second half of the year as prices “catch up.”

Conclusion and StrategyWhile Brazilian coffee producers have held onto their coffee with an appreciating Brazilian Real, one has to wonder if that ship has now sailed. With coffee prices up nearly 25% since June 1, and a decidedly bearish supply picture, it is rational to assume

that many will be ready to count their blessings and unload their product at today’s higher prices. This occurrence, should it take place, would almost certainly be bearish for prices. The latest COT report show speculators heavily long this market (with the net spec long position nearly hitting 50,000 contracts) and the commercial players getting short. Thus, an indication that prices are turning could lead to a “rush for the doors” especially if Brazilian growers are headed to those same doors. A downturn in the Real could accelerate such an outcome. The Premium Sniper does not (nor does it ever) predict a collapse in coffee prices – only pointing out that the environment for such is right. Rather, with bearish supply fundamentals, a heavy spec long

US Coffee Stocks hit a 13 year high last month

While coffee prices have not yet adhered to seasonal tendencies, price pressure has historically continued in the second half of the year.


Dec Coffee "C"(ICE) - 5 Year Seasonal(11-15)

8


position, a market that has already seen a substantial rally and producers that are likely getting anxious to resume forward sales, we – at the very least - see further price gains being hindered. Fortunately, the recent price strength has nicely inflated deep out of the money calls in this market. For managed accounts, we’re currently pricing calls that are to 80% out of the money for premiums over $600 each. Positioning in deep out of the money strikes such as these allows the market to continue higher in the near term (should it chose) but also puts you in position to profit from an eventual stall or reversal.

Positioning for Maximum Revenue Nonetheless, as high-probability as these trades appear, I would not recommend you take a position in coffee, or any market, in only one strike. If option selling is a core holding of your overall portfolio and you’re working with an account of $1 Million or up, I recommend building a multi-layer position. By that, I mean it’s made up

of various expiration months and strikes and established over a period of weeks or months. Positions like this not only help insulate you against adverse moves, they help smooth out your equity curve over the course of a year. In short, positioning this way, in my experience will help mitigate your risk and maximize revenue in your account. An additional plus of such a position? It can add high octane yields to your portfolio regardless of what goes on in the streets of Mosul or Paris, or the election booth this fall. People still drink coffee. And it will still be brought to market and sold. Building a portfolio around such normalcies is how you can still excel in an increasingly abnormal world.

For more information on managed commodity option selling accounts with James Cordier, visit www.OptionSellers.com/Discovery for a free information pack. To schedule a confidential new account qualification interview, call 800-346-1949 (813-472-5760 from outside the US).

(CONTINUED FROM PAGE 7)

THE PREMIUM SNIPER

March 2017 Coffee

March 2017 Coffee showing the suggested call strike level. While March is a long way off, lack of a substantial price rally could render these options nearly worthless by November/December.

www.optionsellers.com/Discovery

www.optionsellers.com/Discovery

The "Must Have" Book for Any Aspiring Option WriterThe New Complete Guide to Option Selling 3rd Edition Shows YOU How to:

• Excel in Bull or Bear Markets and Never Worryabout the DOW Again

• 3 Simple Strategies You can Use to Start Buildinga Portfolio NOW

• How to Get the Biggest Premiums with the LowestMargins and Manage Risk like a Wizard

McGraw-Hill’s The Complete Guide to Option Selling (New 3rd Edition)

ORDER YOUR COPY NOW at:www.OptionSellers.com/BOOK

Option SellingQ&AWITH JAMES CORDIER

YOU’VE GOT QUESTIONS. WE’VE GOT ANSWERS.


9

Q. Dear James,I was watching your recommendation on selling Natural Gas calls last month. I noticed the market spiked upwards after your recommendation. What do you do in a case like that?

Thanks,Mark BrennanNiagara Falls, NY

A. Dear Mark,Thank you for your question and for keeping us honest. First, I want to point out that the suggestions you read here in our newsletter and in our other forums are just that: Situations to look into on your own and trade if you feel as we do. We do not make “recommendations” per se, to investors outside of our client base. Our portfolios are managed with a variety of short options – some positions balancing and counter-balancing others. Employing one trade in a vacuum is not the way to sell options for a serious investor. The suggestions in our newsletters and other places are ways to give non-clients a look “through the window” so to speak, of what one position inside a portfolio might look like. These are more examples of the type of logic we base a trade on, and what kind of strikes we might look for. The positions inside an actual portfolio could be offset with other markets, long options or a variety of other vehicles. That being said, I realize some non-clients take these suggestions and trade on them, based on our research. So I won’t back away from the trade either - as this is a perfect opportunity to make a very key point about selling commodities options. The Natural Gas piece to which you are referring (www.OptionSellers.com/NatJune was published on June 10, 2016. On that day, Natural Gas prices closed near $2.55 per million btu. We suggested selling the deep out of the money December $4.50 Call. Why do we suggest selling that far out? Because we are not trying to pick a top in the market. In fact we have NO IDEA where the top will be (nor does anyone else, regardless of what they tell you.) We only pointed out that the fundamentals do not support a longer term rally. Now, does that mean that prices can’t still trek higher in the short term? No, it doesn’t. You sell the $4.50 call so you can benefit from an eventual stabilization or reversal in Natural Gas prices while being able to ride out short term swings against your position. This is the Whole Rational for selling options in the first place – trying to time the market’s daily moves is a fool's errand.

Natural Gas prices did rally about 45 cents more before pulling


MONEY IN$IGHTS“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”

― Dr. Adrian Rogers, 1931

www.OptionSellers.com/NatJune

www.OptionSellers.com/NatJune

10


HAVE A QUESTION FOR JAMES CORDIER? Send yours to [email protected]. Be sure to include your name, city and state. You’ll get an answer either way – and a lucky few will even appear in the Option Seller (with permission of course.)

back in July. But at the high (just over $3.00 per mbtu) the $4.50 strike was still $1.50 (50%) out of the money and in no danger of holding any intrinsic value. Markets will always eventually have to obey their fundamentals. Your job (or our job) is only to pick where it’s not going. That doesn’t mean every trade will always be a winner. But it does mean there can be a large margin for error.

Good luck in your trading.-James

Q. Dear James,I read your latest book with great interest and am now considering a commodities option portfolio….I do, however, have one question. You discuss in your book and radio show the fact that an option selling account can make money no matter what happens in stocks or commodities. If that is the case, how do people lose money with this strategy?

Edison BurkeLancaster, PA

A. Dear Edison,Thank you for a great question. As any stock or index option seller can attest, selling options, despite its potentially lucrative aspects, is not a “perfect” strategy. Such a thing does not exist. Even the best option writers lose money sometimes. In that regard, it is like any other investment. The difference is that an option seller’s profitability is not necessarily dependent on whether the underlying asset price is moving up or down. The biggest enemy of an option seller? Sudden volatility. Volatility is, of course, also the best friend of any option seller. Think of it like fire. It can sooth and warm you, cook your food, protect you from the elements and predators. But it can also burn you if you’re careless with it. Volatility is great before you enter a position. It’s what drives up premiums and puts more cash in your pocket. The primary threat to an option seller’s position is a sudden surge of volatility against his position after he is already in it. That is usually how an option seller loses on a trade. The best ways to manage the possibility of this happening? Sell premium only on options that already show inflated volatility. Sell only deep out of the money strikes. Average in to your option position. And have a pre-determined exit point based on premium before you sell any option.

I hope that helps.Regards, -James

Option SellingQ&A(CONTINUED FROM PAGE 7)

London Calling

Worth Magazine reports that London edged out New York as “the most important city to ultra high net worth individuals (UHNWIs)” in 2016. This according Knight Frank’s annual Wealth Report. While the Big Apple had more UHNWIs by number, London’s proximity to other European wealth centers gave it the #1 spot for the second year in a row. Another study ranked the cities who lost the most millionaires. The biggest losers? Paris, Rome, Athens and Chicago.

Scary Predictions for the S&PGoldman Sachs is predicting the S&P 500 will tumble up to 10% in 2016 before “rebounding later on.” Something to consider for those still “looking for value” in the equities market. (*Source: Barrons)

Maybe it Really Is the EconomyIn a potentially ominous sign for the economy, Morgan Stanley analysts just completed a study of 20 primary economic and market indicators. These included stock and commodity prices, US Industrial Production, Employment data, et… Their findings? 5 have improved, 3 have remained the same and 12 have worsened since October of 2015. (*Source: Barrons)

NEWS AND REVIEWS

MONEY IN$IGHTS

Make money your devoted servant; otherwise, it will be an overbearing master.

— Italian Proverb

NO NEW ACCOUNT AVAILABILITY THIS MONTHWe apologize but due to an influx of new investors, there are no remaining slots available for James Cordier’s private option selling account services in August. Please note that new accounts in 2016 are granted by invitation only and require an application and interview process. To be considered for a remaining September opening, you may call our offices to request an interview application. If your application is approved, you’ll be scheduled a new investor qualification interview. Note: You must possess at least a $2 Million net worth to be considered for James Cordier’s private client group. Recommended account size is US $1MM. To request an interview application, contact Rosemary Veasey at 800-346-1949 (813-472-5760 from outside the US).

CNBC Features OptionSellers.com’s James Cordier for Second Month in a Row

In June, OptionSellers.com’s James Cordier made the case for lower oil prices. Last month, with gold buyers in a frenzy, CNBC invited James back to debate George Gero of RBC Wealth Management on Gold Prices. Gero is a straightforward Gold bull but James made the case that markets might not be that simple. Watch Now and see both sides of the debate! www.OptionSellers.com/JULYCNBC

Gold and Silver Video Sees Record ViewershipOptionSellers.com’s July 7 Video on Gold and Silver prices (www.OptionSellers.com/July7) saw our highest viewership ever for a market video. Thanks to our friends at Seeking Alpha for helping to make it #1 !

11

©Copyright 2016 www.OptionSellers.com. 401 East Jackson Street, Suite 2310, Tampa, FL 33602. US:800.346.1949, Intl:813.472.5760Past performance is not necessarily indicative of future results. Futures and options trading involves risk of loss. Only risk capital should be used.

ANNOUNCEMENTS

August Top 3 Don’t miss these exciting new resources on OptionSellers.com this Month!

1.

3.

Election Season: How Will it Affect Commodities? Podcast: The Option Seller Radio Show, July 22nd Edition – Election season is heating up. Investors who harvest

premium from the commodities markets want to know – How could either outcome affect my portfolio? James and Michael give their views as well as providing some new insights on the Gold Market, Coffee Market and a special discussion on the right asset mix for high net worth investors. This is an insight packed edition not to be missed! Listen Now at www.OptionSellers.com/Radio

Tapping Robust Option Premium in the Gold Market. Article: The Smart Way to Play Gold – Investors from all walks of life are flocking to gold in 2016 as market anxiety

grows daily. Discover how to take advantage of the hype without discounting gold’s potential to rise. See it Now at www.OptionSellers.com/SmartGold

Cordier’s “Fireside Chat” Video. Sit down with Head Option Seller James Cordier in this bi-monthly video as he discusses recent market news, commodities he is watching and

gives strategy insights into his managed portfolios. New July 26th edition now available! Watch it NOW at www.OptionSellers.com/Cordier726

2.

TheOptionSeller NewsletterAUGUST ISSUE ENCLOSED

401 East Jackson Street, Suite 2310 Tampa, FL 33602

Where 1%ers Find Real Yield 1Surprising Key to More Consistent Returns 4Coffee Market Special: Time to Sell Calls 6Q&A with Cordier 9News & Reviews 10Top 3 11

Announcements 11

INSIDE THIS ISSSUE:

ABOUT THE PUBLISHERS James Cordier and Michael Gross of OptionSellers.com

OptionSellers.com is a private capital management firm specializing exclusively in selling options in the commodities markets. Serving the high net worth investor class since 1999, the company’s mission has been to give investors access to high-quality, uncorrelated, alternative investments that target both real diversification and outsized return.

With over 50 years of combined option trading experience, founder James Cordier and director of research Michael Gross have had their work featured by CNBC, Bloomberg Television, FOX Business, The Wall Street Journal, Forbes, Barrons, Businessweek.com, MarketWatch and Morningstar Advisors. Their latest book, The Complete Guide to Option Selling 3rd Edition, was released by McGraw-Hill in 2015.

For more information on OptionSellers.com, their books, videos or managed option selling accounts, visit www.OptionSellers.com or call 1-800-346-1949 to schedule a free consultation.

Learn and Invest with America's Option Selling Specialists

OptionSellers.com401 East Jackson Street, Suite 2310, Tampa, FL 33602813-472-5760, [email protected] us on Facebook

a smarter way of investing august 2016 theoptionseller ......mercy of mr. market. however, if you...

Documents