HOW TO USE INFLATION TO RATCHET UP YOUR 2018 OPTION SELLING RESULTS


Jan

29

2018

HOW TO USE INFLATION TO RATCHET UP YOUR 2018 OPTION SELLING RESULTS

Click To Read Video Transcript

(Video Transcript)

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 1 st 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 1 st. 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.

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