Option Selling On Steroids – The Webinar




Option Selling On Steroids – The Webinar

Learn how Stock Option Sellers can graduate to the higher premium, lower margin world of Commodities Option Selling in this informative Webinar. OptionSellers.com head option trader James Cordier outlines the strategy of selling options and reveals hidden advantages of writing puts or writing calls in commodities as opposed to stocks. Any type of option trader from beginning to advanced can benefit.


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(Webinar Transcript)

The Margin Cushion How To Protect Money In Option Selling

Darla: James Cordier is the Founder, President and Trader of OptionSellers.com in Tampa, Florida. With over 30 years of option-trading experience, he is a featured expert on the Futures and Options Market, regularly appearing on CNBC, Fox Business News, The Wall Street Journal, Market Watch, Forbes, CNN Money, Dow-Jones Newswires, and Barron’s.

James’ published articles on Options Writing have appeared in Futures magazine, Energy Risk, Your Trading Edge, and MoneyWorks magazine. He is author to the book, Option Selling, first, second and third edition, McGraw-Hill, 2015.

James’ study of commodities markets began at age fourteen when a silver coin collection sparked his interest in silver futures. He began his career at Heinold Commodities in Milwaukee, as a broker, in 1984. Several years of working with physical producers of certain commodities built a solid knowledge base of market fundamentals. It was during these years that James learned the value of knowing market fundamentals and commodities trading.

After nearly a decade in the industry, James began to notice that many of his investors who bought options tended to see them expire worthless. Seeking better results for his clients, he began a study of institutional trading strategies, which led him to the concept of selling options. By the late 1990s, Cordier had begun working with clients in implementing this strategy. It was during this time that James began to evolve as a go-to source for the national financial media in need of informed insight into the fundamentals of the commodities market, such as gold, oil and coffee.

In 1999, having established a solid reputation and a certain level of notoriety within the industry, James founded the firm that would become OptionSellers.com, an investment firm specializing exclusively in selling options. In 2003 he was approached by McGraw-Hill Publishing to write a book about his investment method. This eventually became The Complete Guide to Option Selling, first edition. Now a classic in investment books, The Complete Guide is now going stronger than ever in its twelfth year, currently, in its fully-updated, third edition.

James has been a member in good standing at a national futures’ association since 1984 and boasts an impeccable record of ethical conduct. Now, despite a heavy media schedule, James continues to head the day-to-day management of client portfolios. He works directly with most client equity and never underestimates the importance of staying in close contact with his clientele on an individual basis.

James resides in Tampa, Florida where he is an avid boater, physical fitness enthusiast and active in several charities. It’s now my pleasure to introduce Mr. James Cordier, Founder, President and Head Trader of OptionSellers.com.

James: Darla, thank you so much for inviting us today. We’re very excited to be on TraderPlanet.com today. My name is James Cordier; I’m head trader at OptionSellers.com. OptionSellers.com, easy name to remember – what we do and easy name to remember, in general.

What we’re going to talk about today, obviously, is options. Most strategies that a lot of investors have compiled with options are normally buying calls, buying puts, if you’re bullish or bearish. As far as option selling is concerned, the majority of the public who is familiar with option selling, were introduced to this method by a broker, who is, basically, writing what we call covered calls. If you’re on a particular stock at $20 and it continues to go sideways, the broker eventually advises the client, “Why don’t we sell some $22 calls to take advantage of the time decay? If the Market goes to 22, that caps our rally, however, at least we’re adding an extra two dollars to our portfolio when we do this.”

For years, I would be introduced to investors or individuals, whether out to dinner or just at a meeting someplace and quite often, people would glaze over as I’d start talking about options. That no longer is the case. It’s very interesting to see that investors have been educating themselves, doing some studying and, the fact that we have so many people visiting with us today, talking about selling options means that the majority of the audience is willing to work and they’re thinkers and they’re interested in, not only increasing the ability to protect your portfolio, but, also, to increase it, the hard-earned money that you’ve been accumulating for years.

For the listeners today that inherited their financial fortune, well, welcome to you, as well. I think one of the most important things about option selling is understanding it. The fact that we’ve written three books on the subject allows us to have the investor actually understand what they’re getting involved with and, possibly, something he might be interested in knowing about and, maybe, actually learning enough to become an investor in such a format.

Most people are familiar with option selling in reference to their stock portfolios. What we’re going to be doing today is we are going to discuss option selling on steroids and, basically, what that’s doing is it’s using a method that is basically selling on commodities. We feel that option selling in the stock market is a very good idea. We don’t think that there is any right or wrong to sell options.

Over my years of selling options of probably millions of contracts, mainly in commodities, we have found that there are particular ways that we have found that do work. I’m sure there are several option selling methods that are successful for many investors and brokers for their clients. We found one and we like the idea that we can sell options in commodities. The fact that they are raw commodities, they’re something that you don’t want to own, necessarily. We don’t want to own the commodities; we’re simply selling premiums on the certain commodities that we follow. If, in fact, option selling is for a particular investor, he should study and learn before he does it. Or, of course, find an expert to do this for him.

I think what we like the most about selling options on commodities is commodities will never go away. Wheat will be with us forever, silver will be with us forever and, of course, there are other commodities like coffee and things like this, one of the markets that we like following very closely.

Generally speaking, option selling on stocks, basically, is selling a call, that we talked about a little while ago. You can sell puts beneath the market and that allows you to have the contract put to you at a lower price which, of course, will increase your ability to get into the market at a decent level. For example, Exxon Mobile, I think, is trading around $80 recently and if the ability to sell calls above the market gives you that ability to price in an extra two or three dollars above the market if you sell calls. If you sell puts below the market, of course, the market can fall and the stock can get put to you at a lower level.

Some of the advantages in selling options, of course, is the income that you receive by selling your covered option. An entire portfolio could have option calls sold previously on a portfolio and it will continue to feed the account. Of course, you’re also capping any possible rally if the market really does take off in your favor. The odds are extremely high when you are option selling. It allows you to either enter the market below the current level if you sell a put and the stock is put to you. Or, of course, the odds of adding to your portfolio if you’re selling calls, of course, is very great because you already own the contract.

Obviously, the whole idea about option selling is to offer attractive returns in addition to what the stock market may do. Of course, this year, the U. S. Stock Market is up or down 1%. I think many portfolios options selling on stocks probably could increase someone’s return this year, anywhere from 6% to 10%, if done correctly. It is a good opportunity to do option selling on stocks and their portfolios, as well, and, certainly, we’re trying to take that one step further.

Why sell options in the first place? Well, 82% of the time options on commodities is thought to expire worthless. As I spoke of just a little while ago during my introduction, we would have clients buy calls that they thought would go up, low and behold the market would increase in value and yet the option would still expire worthless. I was thinking to myself, “Who is selling these things? They seem to expire worthless nearly every time.” And, of course, that is why we started the process of option selling.

Basically, what you are doing when you’re selling options on stocks, for example, we’re looking at Exxon Mobile right now. It’s trading around $80. A couple ways of utilizing option sales on stocks is by selling a covered call. To get any type of value on stocks, normally, you’d need to sell an option relatively close to the money. A two-dollar, rather, an $82 call on Exxon might increase someone’s portfolio. Of course, by selling a naked 78-foot, if the market were to fall, you would either get the stock put to you at 78 or, of course, if the market rallies, you’d keep the premium. Very high odds of profiting by selling options against your stocks.

Basically, we’re going to talk about selling commodity options. How does it work? One of our favorite markets that we follow are the “softs”, they’re markets that we eat and drink all the time. The coffee market, I think, is a great example. It has just extensive fundamentals. I’ve been following coffee for over 20 years. It’s interesting to understand fundamentals because it’s pure supply and demand. We can probably bring any individual investor to the place where they can talk about coffee, the fundamentals of coffee: where it’s grown, where it’s consumed, what are the most important times of the year when they need rain in Brazil, where they need rain in Vietnam. We understand the supply and demand aspects of different markets, coffee being one of them.

Anyone who was to spend just a few months could understand fundamentals in commodities and he’d, basically, want to pick one at a time; get to know it extremely well. Does that tell you what the price of coffee’s going to do? Or what the price of gold’s going to do tomorrow? No, it wouldn’t. But what it does do is, we’re basically building a portfolio on options where the market’s not going to go.

I think anyone who winds up selling options, possibly on commodities, will find it’s a much simpler task. He’s basically taking fundamentals and he’s utilizing those to understand that coffee probably won’t reach this level or that gold probably won’t reach that level, and, basically, we’re building a portfolio like this.

Approximately one month ago, we were looking at selling the May Coffee to 50 calls. As you can tell, coffee was recently trading around $1.30 a pound. The $2.50 level on coffee is listed at the very top of the chart and, as you can see, the coffee market moves up and down one, two, three cents on a daily basis. It seems to be fully caffeinated and, I think, a lot of investors who trade coffee probably are, as well.

We’re simply taking the most extreme levels that the market has touched, maybe years ago. Those options are still offering great deals of premium and what we’re going to do is sell those. Basically, an idea of trading coffee and selling options, would be selling the May contract at the two dollar, $50-dollar strike price, right now, with coffee trading around $1.25 to $1.30, that certainly seems like a very profitable idea. The premiums that were collected a month ago were $600 for every option traded. The margin required to hold that coffee option was approximately $1,400 and of course, the expiration days, those are the natural times where these usually are trading at zero. That, of course, is listed, as you can tell. The ROI on this trade if, in fact, coffee stays below $2.50 over the next six months, the return on investment would be 42%.

Looking at this chart that we see right now, you can tell that the ability to make small calls and where the market’s going on a short-term basis can be very difficult. However, if you looked at where strike prices lay in commodities and strike prices on the majority of the markets that we trade, it’s extremely far out of the money. I think that’s what a lot of sellers and stock options find so intriguing about selling options on commodities. When you’re able to sell 40%, 50% to 60% out of the money, that’s what we call selling options on steroids.

Some of the key advantages to you for selling options is its real diversification from the stock market. A lot of investors right now do not want to be 100% invested in stocks. The stock market may be going higher; it may be going lower. We’re not quite sure, but I think a lot of investors, right now, are looking at diversifying away from the stock market. Basically, there’s probably not many investments right now that are much more different from Apple than wheat or than gold and cocoa or something like this.

I think, probably, some of the challenges of properly diversifying a market is what CNBC calls “a lot of the biggest mistakes that investors can make is not being diversified.” When a stock market is going up, everyone’s rubbing his hands together, of course, however, when it falls, everyone’s running for the panic stick at the same time. The first diversified stock portfolio is still in all stocks and that’s what we certainly want to do. Many investors need the ability to have a suitable alternative to investing and taking some of their assets and putting it in other investments.

Real diversification from the stock market is what we’re trying to accomplish. Some of the markets that we follow are completely uncorrelated from the stock market whether it’s going up, down or sideways. Quite often, commodities might be going in a different direction. I think the biggest potential is that in investors selling options on commodities can excel whether we have a bullish or bearish stock market or whether we have a strong or weak economy.

Some of the ideas about option selling that we hear from a lot of stock option sellers is that the margin required to sell options in the stock market, the margin’s just extremely high. The span in short options and commodities equals leverage and we don’t ever want to be over leveraged, however, it does give you the ability to put your money to good use.

Quite often option selling in commodities will have a six to $100 to $1,000 premium and quite often, the margin is simply one to two times more than the premium you’re taking in, which certainly allows your money to be working hard for you and, needless to say, higher-profit potentials are certainly a possible return.

Deep out-of-the-money strikes are probably one of the most attractive things about selling options on commodities. We try and build portfolios across a wide range of different commodities. Often, puts that we sell are 40% to 50% out of the money; calls, as this idea that I talked about in coffee recently, is nearly 100% out of the money. So, when you see stocks or commodities moving 1% percent or 2% on a daily basis, going through watching the fast-money shows on TV, our strikes are often 50% to 60% out of the money and obviously it gives us a very large variance for the market to move.

Liquidity certainly is one of the most important things about commodities. It gives you the ability to get in strategies that allows you to enter or exit the market, whether it’s going up or down. And, I think a lot of investors that sell options in the stock market have talked about poor liquidity and don’t have someone on the other side of the market when they are trading. We certainly are looking for markets that have the most amount of open interest and volume any time we select an option. All these are listed and any investor can find these on his own, of course.

I think probably the most important thing that we bring to the table and I think one of the most important things that investors can do is study. Learn fundamentals on whether the stock it is that you’re selling an option on or whether it’s a commodity that you’re selling an option on, the fundamentals are available to you. Whether it be wheat, gold or Apple, we find that the commodity options, purely the supply and demand, the market can rarely go past that. Every once in a while you’ll have a technical indicator that moves a market slightly higher or slightly lower, however, it always returns back to its supply and demand. I think that’s why we like trading commodities, certainly more than other people might be doing stocks.

The Complete Guide to Option Selling, of course, is something that we take a lot of pride in. Michael Gross and I are the authors to The Complete Guide to Option Selling. We have written this over the several years and McGraw-Hill told us that we were doing an excellent job with very good returns, as far as to the amount of books that were sold and it’s now, we’re in approximately five different continents and six different languages and it’s been extremely popular.

All of the attendees can visit our website and purchase a book, The Complete Guide to Option Selling for a 40% discount. All attendees today can get, if they choose to, The Option Selling Solution which lays out all the ideas that we’ve painstakingly put together over the last several years. Basically, it shows you how to become an option seller on your own, if, in fact, that’s what you’d like to do.

Right now, I would be more than happy to turn this over to anyone having questions on selling options on commodities or any knowledge that we’ve gathered over the last several years. I’m all yours.

Darla: Thank you, James. Our first question is: Are you able to use a premium you receive when you sell the option to cover part of the margin requirement?

James: That’s a very good question. Basically, if you have, for example, for ease of numbers, you have a $100,000 account and you sell $25,000 worth of premium in gold calls, your account the next day will say $125,000. The liquidating value will show just $100,000 but that money is asserted into your account immediately. However, the margin required is not applied towards the ability to have the premium help pay the margin. That is margin that you have to have on your account before entering the trade.

Darla: Thank you. Our next question is: Given the high leverage, how do you properly size your position so you don’t blow up?

James: Probably the most important thing about option selling is putting together a portfolio that is in several different markets. We normally want to be in six or seven markets at the very least, as uncorrelated as possible.

Basically, when a client opens an account, we ask them if they want to be slightly conservative, aggressive, or somewhere moderate. There’s something called margin that is required in the account and it’s listed in your account at the end of each day. We normally margin approximately 50% margin and 50% cash. If someone is in five to six different markets, their account is only positioned 10% in any given market and we feel that that certainly gives you the ability for the market to move up and down while you’re waiting for an option to decay in price.

Darla: And our next question is: Do you have a relationship with a floor broker when you place trades and, if so, does this help with fills?

James: It certainly does. We have found that a lot of option sellers in stocks or commodities will look for a far out put or call and they simply don’t have the ability to find volume if you’re selling five or ten contracts on your own. By having floor operations, we have the ability to talk to people that are trading hundreds of thousands of contracts in crude oil or in gold, or what have you, and we do have access to them. Doing these on your own online can be slightly challenging. By getting with a broker who has a large group of investors, you get to, in many cases, deal with some of the largest traders on the floor. We do have those available to us and we suggest someone definitely try and get involved in that situation for themselves.

Darla: Thank you for that thorough answer. Our next question is: Do you offer a study course on selling futures options? Also, what is the minimum I need to have for option sellers to do managed investment for me?

James: Okay. The current slide certainly talks about an Option Selling Guide that any of our listeners can request, simply by going to our Web site. We will send that out to them. The minimum account that we request is $250,000, that’s where most investors begin. And, of course, we would invest approximately $100,000 to $125,000 into the market with the remainder balance being an escrow to hold positions.

Darla: Would you have any tips about the execution of option spread you could provide to self-directed investors who use only a discount futures option broker with no access to a PIP broker?

James: The screen is getting more and more liquid and someone who is making this transaction through his broker can certainly do that. Spreads on commodity options are available and your broker can walk you through that or can place the order for you on the screen. We find that it is still to your advantage to have representation on the floor in the majority of the markets; however, the screen is becoming more and more liquid each day.

Darla: Our next guest is saying, “I sell index options and my own account. What is a reasonable annual portfolio ROI that you would expect aggressive to get conservative?”

James: We target for a moderate-traded account, we target for a 20% to 25% annual return. For a slightly aggressive account, slightly more. Darla: What is the best way or source to learn more about the fundamentals on various commodities?

James: There is something called The Commodity Research Bureau Index, that is a great place to learn commodity fundamentals. The Wall Street Journal is a great place to learn about copper and zinc and silver fundamentals. The fundamentals are listed quite often. The pure option selling in commodities is almost magical once you know what the fundamentals are and any investor who wants to do this for himself, and I certainly advise him to do that, would be to spend six to twelve months learning fundamentals. You don’t have to learn fundamentals on 1,500 different companies, you just have to learn fundamentals on about eight different commodities, and I think you could do your portfolio wonders.

Darla: They sure are keeping us busy here, James. Here’s the next question: How do you manage position when your short positions are down a few hundred dollars?

James: We have, as many investors should have, an exit strategy. The coffee example that I talked about a while ago was nearly 100% out of the money. We have coffee currently trading at $1.25 lb. We have hundreds of options for our clients sold at $2.50, $2.60, $2.70.

There are several ways to take care of risk and manage an exit strategy: One is if an option doubles, you exit that contract. Quite often, if the fundamentals are not changing, an option will rarely double that is that far out of the money. If fundamentals do change, the option might double in value and, at that point, that would be an excellent exit strategy. What an investor might also do is roll up the position, as fundamentals to double on two different contracts back to back is extremely small. The odds of option selling worthless are approximately 82%. The odds of options doubling twice in the same direction without a fundamental change are very minute.

Darla: Now, James, I believe you answered this previously, but I’m going to ask you to review it again, as I am getting a lot of questions about this. How much trading capital should one possess to consider option selling on commodities?

James: We’ve chosen a $250,000 minimum starting account. Basically, it gives us a ruler in reference to how much capital that someone actually has. I would suggest somewhere between 5% and 15% of someone’s net worth for someone to be option selling in commodities. We find that option selling commodities for me, I sleep extremely well at night because this is what I’ve done, if I have one stock of Apple in my portfolio, which I don’t, but if I did, I’d be losing sleep over that. It’s all about educating yourself and giving yourself as much ability to predict where the market’s not going to go. I think a lot of your listeners might find that an interesting change from what they’re doing right now.

Darla: Do you roll your ratio spreads to other spreads halfway through, like a vertical spread, assuming your ratio is 1:3?

James: Could you repeat the question?

Darla: Certainly. The question is: Do you roll your ratio spreads to other spreads halfway through, like a vertical spread, assuming your ratio is 1:3?

James: One of the most diversified option sales is a one by three. Could be a one by three on both sides. The ability to manage that position is absolutely incredible. Michael Gross and I, in our most-recent edition to The Complete Guide to Option Selling, described the one by three strangle as the Maserati of option selling. It is absolutely fantastic. It gives you the ability to take off one of the different three contracts that are sold on either side of the market. We don’t roll up or roll down a one by three, we would simply take off one of the wings or one of the feathers, as you might describe. The ability to do that is just fantastic. It allows the market to vary up and down. You can adjust the risk on your portfolio or take profit on your portfolio in an exceptional way. I think in the most recent Complete Guide to Option Selling it describes that and it just goes on and on about one by threes, I think I would purchase the book just for that chapter.

Darla: Our next question is: What is a recommended link to the contract: 30, 60 or 90 days?

James: That is probably one of my favorite questions. The majority of option selling enthusiasts who are just getting started, they’re told and preached to, to sell options 30 to 60 days out. The longer I do this and after selling commodity options, millions of contracts, literally, the further out you go in time and the further out you go in price is where the real magic is. We have options that we have sold nine months out with the idea of covering that option far before it expires. We have thousands of contracts right now of options that we sold nine months out and they probably have a hundred days remaining on them and we probably have a 90% profit. In other words, 90% of the decay has already taken place. And, of course, that would become an early buy back.

I think the listeners today, should start looking further out in time and further out in price. I think their eyes are just going to really open up to the idea of selling further out. A lot of investors will talk to me and say that seems like it gives the trade a long time for it to go wrong. But my easy answer is, it gives it a long time for it to be right.

Darla: What level of volatility is preferred or recommended?

James: There really simply isn’t a volatility figure. I like looking at volatility in excess of 20. Often, you’ll find a market that’s relatively quiet, that might be 25 to 30. I think premiums, when you reach levels like that, are truly low-hanging fruit and that’s something that you’d want to get very aggressive if, in fact, you see the market at that level.

Darla: Can your strategy be done with an IRA?

James: On a daily basis, yes. We’re managing hundreds of accounts doing exactly this. It’s a sleep-at-night strategy, believe it or not. I think what a lot of your listeners might also be interested in is the fact that many times when approaching commodities, whether you’re thinking about it or you’re doing it already, quite often, everyone’s looking for the next big move in gold or the next big move in soybeans because it’s dry in Brazil. More times than not, commodity prices are exactly where they belong. More times than not, the market of silver or copper or soybeans is fairly priced. And what we want to do is identify what “fairly priced” is and, any of your listeners today that does start option selling, if you learn to sell puts and calls on a market that is fairly priced, you’re going to find something that you’ve never dreamt could happen.

Can you imagine selling a fairly priced commodity of puts 35% below the given price and calls 50% above the given price? That is a gigantic window for that market to stay in and, I think what I’d really expand on to your listeners to start doing, is to stop looking for the next big winner. And what I would suggest they do is understanding fundamentals and learning what fair values is and selling strangles around it. It’s one of our favorite formats for approaching the market.

Darla: Okay, James. Our next question is: Can you achieve comparable results using your methodology on stock index futures and do you do this?

James: In regards to potential return on selling options on stock indexes, that ability is there. Selling stock index options are extremely far out of the money, similar to commodities. We don’t do that. The majority of our clients want to be diversified from the stock market and that’s why they sell options on commodities. However, selling options far out of the money on stock indexes is available. We have the ability to do it, the majority of our clients don’t come to us for that, but I would look to someone who is interested in doing that. You do have the ability to do that some 20% to 30% out of the money on stock index as well.

Darla: Okay we’ve got a comment and a question here. How do the money options usually have a wide price spread? Do you pick higher prices on the spread and wait for the buyer to come to you? Do you choose a mid-point or just sell at the bid?

James: We normally sell at the mid-point and they usually come up and we usually wind up being somewhere in the middle. Depending on how bad I need to have that trade on I will hit the bid. When we’re selling coffee options 100% out of the money, we’re extremely excited that that bid is there and we usually want to take advantage of it. I think a lot of your listeners might find that to be true if they start doing this.

Darla: I’ve got a few listeners here that are indicating that they don’t have the minimum account requirements for you to manage their accounts for them. If they’re more in the neighborhood of $100,000 and $150,000 would you have recommendations on getting them started?

James: There are option selling opportunities on different sites. If someone were to contact our office, we’d be happy to direct someone to where the ability to find those are. I don’t know of them off hand. Certainly investments can work in selling options that’s less than $250,000 and I think if someone wanted to contact our office, we’d be happy to share them with you. I don’t have them off hand, but I’m sure someone does.

Darla: Do you recommend hedging short options by buying cheap, out-of-the-money options?

James: That is a spread strategy that we do from time to time. It’s similar to a vertical bull call spread or a bear put spread. We do that. Generally, we do that during markets of extreme volatility. Often, when the volatility does blow up, and it does from time to time, especially when the stock market is raging up and down, it certainly does quite a bit for both stock options and commodity options. We will recommend strategies that protect your more expensive short options. We’d normally do that during very high volatility times. It allows you to sell the option and buy the insurance, basically, for a very inexpensive price and we do that from time to time. We think that’s a great idea.

Darla: At what percent of max profit should you exit?

James: Once an investor selling options as a portfolio starts selling options six to nine months out, which is what we recommend, you will notice on option trades that are successful, you’ll notice that decay has taken place a lot faster than you previously would think. Once an option has lost 85% to 90% of its value, for us, that becomes a buy-back candidate. Often there will be several weeks, sometimes months left on a contract and if we’ve collected 85% to 90% of the option value, originally, we would start looking at buying it back. Eighty-five to 90% is a great rule to exit the trade and move onto the next investment.

Darla: Okay, and we’re going to make this the last question, James. If you are selling thousands of out-of-the-money options, who is buying them from you?

James: That’s a good question. Quite often, we’re getting fills from the floor in crude oil or gold, or what have you, an I’ll say, “By the way who just bought those?” And they’ll say, “Let me check.” And, quite often, it could be Asian banks. Quite often, it may be Exxon Mobile. Generally, banks are taking the other side of short options. Quite often, it might be a hedge. It also might be someone in China who can’t sleep at night and he’s trading while we are, you never know. But the volume and the liquidity is very surprising. We just enjoy the fact that it is there, even on options 50% to 60% out of the money. We might not even move the market more than a tick or two on a thousand-lot trade. Twenty seconds later, the market doesn’t even know if you bought or sold. It can be very liquid. Often, it’s banks that are taking the other side.

Darla: Okay, we’re going to make a last call for questions. Okay, James, I have one more coming in: What is a tax burden on a gain from selling options?

James: They’re excellent. I believe 60% of any gains on short options is taxed at long-term capital gains, which is probably one of the best in the industry. Yet, again, another reason to option sell on commodities.

Darla: Do you ever use technical indicators, oscillators for timing your entries?

James: Always. We base all of our trading on fundamentals and we use Bollinger Bands, Stochastics, other relative strength indexes as to when to enter or exit the market. If we are strangling a market, we’ll watch for it to be in the neutral position and, of course, if we’re going to go long in the market, we wait for an oversold condition. Of course, if selling calls, we wait for an over-bought condition, like we had in coffee, here, just a month ago.

Darla: Oh, this is a good one, I couldn’t resist: Would you exit a market immediately if the fundamentals change significantly?

James: Yes. Quite often the fundamentals on the markets that we follow change rarely. Can you imagine how many countries sugar is produced in? Or, how many countries wheat is produced in? For year, people would say the market’s up or down because it’s dry in the state of Illinois. But, in fact, these commodities are grown or produced or consumed all over the world. When fundamentals do change and we witness that, we exit the trade immediately.

Darla: Okay, so I think we’ve gotten through our questions, James.

James: Okay. Well, we certainly appreciate the time that we had to share with you today. And, anyone interested in learning more about option selling can certainly visit our Web site. We think it’s very extensive and The Option Selling Solution is something that we would be happy to send out to all of your attendees, today, free of charge. Just simply ask for it and we will put it in the mail to you the next day.

Darla: Thank you, so much, for your time today, James, we certainly appreciate it. Hope to have you back again real soon.

James: Our pleasure. We were very happy to be here. Thank you.

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