Get Uncorrelated to Equities! Softs Markets Offer Option Selling Opportunities Ahead of Election




Get Uncorrelated to Equities! Softs Markets Offer Option Selling Opportunities Ahead of Election

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(Video Transcript)

October 18, 2016 Update

Michael: Hello, this is Michael Gross here with James Cordier of We’re here with your October edition of the Option Seller Radio Show. This will probably be or will be the final Podcast you’ll here from us prior to the election. The next time we speak we will have a new President-elect. We have a lot of things going on this month. Some investors worried about the stock market looking like it might be getting a little bit toppy, a lot of interest in diversification and uncorrelated assets. Right now, we’d like to talk to James a little bit. James, maybe just give your overview on the state of the markets right now leading up to the election. What’s your feel on just the general vibe right now?

James: Well, Michael, quite often people try and front run the candidate who looks the best and some people actually, investors alike, want to try and take advantage of who they think is going to win the election. Quite often, what does best is when we have status quo. Quite often, everyone’s expecting “Well, if a democrat is elected President, then the market is going to do this. If it’s a republican, it’s going to do that.” Looking back on the history and looking at the 12 months post election, there really doesn’t seem to be a strong correlation. It appears to me that what the Federal Reserve is doing is more important. Chances are, going into 2017, I think that’s the same way it’s going to play out if we continue to have interest rates at a quarter and a half, if Janet Yellen and the Federal Reserve continues to keep hands-off of interest rates going higher more than a quarter percent. I think we’re going to have basically the same market that we have right now, probably for the next 12 months. I don’t see a big change no matter who gets elected; however, there will be some extreme movements in the market prior to the election and probably right after. I also then see the market just kind of steadying out and then going back to the fundamentals and they’ll quite possibly be the fundamentals that we have right now.

Michael: James, that’s a great point. A lot of investment shows right now and magazines are talking about which stock you want to buy if Hillary wins and which stock you want to buy if Trump wins. Do you go short the market or do you go long the market ahead of the election. Like you said, I’m guessing a lot of that’s going to be knee-jerk type reaction stuff and serious investors are looking 1-5 years down the road, they’re not looking 2 or 3 weeks into the future. On that note, we’re going to talk a little bit here about getting diversified and, of course, what we do is in the commodities markets. A very interesting sector we’re going to cover this month is the softs markets. We have some great fundamentals and seasonals but also some complete non-correlation of what’s going on there. I know you wanted to talk a little bit about that. Let’s talk about coffee and sugar, first. Some strong bull markets there. What’s going on in coffee? What’s your take right now?

James: The coffee market is almost similar to the oil market, where Brent crude oil and WTI crude oil, in some cases, have different fundamentals. Clearly, if Brent is rallying $5 a barrel then WTI’s going to rally 3 or 4… they usually go in the same direction. Robusta coffee is completely in the news right now in stealing the headlines as Robusta coffee, which is produced in several different countries, namely Brazil and Vietnam. We definitely have a shortfall in the more acidic coffee bean known as Robusta. It’s normally grown in lowlands, it’s not as sweet as Arabica coffee; however, it does make up a large portion of world supply and demand. Production in Brazil right now is going to be down about 10-15% because of dry conditions for the Robusta beans. At the exact same time, production in Vietnam because of weather problems and concerns is down some 20-25%. Robusta coffee beans are absolutely on fire right now. They continue to make new 12-month highs, and that’s what has been dragging up the Arabica coffee. It has been trading between $1.40 and $1.60 for the last several months. We’re pushing up along $1.60 and we think that the fundamentals will start separating themselves and we’re probably going to have a two-tier market going into the end of 2016 and the beginning of 2017. The reason why is while Robusta coffee beans are extremely tight, Arabica beans are just the opposite. We’re looking at a record production this year in Brazil. We’re looking at Arabica coffee production for the year 2016-2017, looking at a 6-7 million bag surplus, and that will definitely be putting a cap over prices as we go into the end of this year and the beginning of next. Seasonally, it is flowering season in Brazil. Traders watch that extremely close. As long as we continue to have extremely favorable conditions for flowering season in Brazil, like we have right now, we see a very large crop production next year and the Robusta beans that we lost because of dry conditions this past year will probably be fixed going forward. We see both Arabica areas and Robusta areas of Brazil getting ample rains and we should have a pretty nice rebound in Robusta production next year, as well as Arabica. We’re probably looking at the mid to upper 50’s again for production. At the same time, we have Columbia producing a great deal of coffee going forward. They’re going to be setting new records and we think that this rally in coffee, especially the Arabica bean, is probably going to be short-lived.

Michael: James, that’s a good point you’re talking about that’s the two-tiered market because you have both Robusta and Arabica prices. Arabica makes up the majority of the ICE contract that we trade. Is that correct?

James: It is. It is a blend; however, the majority of it is Arabica beans. As long as that’s the case, we could have a two-tiered market. I’ve been trading coffee for decades and usually they go in lock-step with each other. We’re going to see that correlation dissipate some later this year and we think that coffee around $1.60 right now really holds a great opportunity to go short. We would be selling coffee calls for 2017 strike prices nearly double the value that they are right now. We see coffee probably settling down to around $1.45-$1.50 later this year as flowering season continues to go well and fears of a small crop again this year, especially for Robusta beans, that seems to go away and then we’re looking at large supplies again next year.

Michael: It seems like the market really ran away. Looking at the fundamentals, I can see what’s going on with the Robusta and that’s driving price up, but you look at Brazil’s total coffee production estimate… I’m looking at 49.4 million bags, that would be the estimate right now, although estimates vary depending on what source you get it from. It’s lower than the last couple of years, but it’s not that low. That’s still a pretty solid figure. When you’re talking about the seasonal for Arabica coffee prices, or at least the ICE contract, looking at a 5 year seasonal right now, the thing that seems to come to a pretty good top right in the middle of October and then just falls off a cliff. You’re talking about flowering, maybe some of our listeners might not know exactly what that is. What is flowering? Why is that so important? Why does price tend to come down afterwards?

James: Well, flowering, of course, is the period in the year when the tree develops a flower, the flower turns into a cherry, the cherry turns into a coffee bean. It then gets picked and it gets roasted. It is called green coffee bean after it gets picked from the tree. It then is either roasted on site in Brazil or it is shipped to different areas like New York, New Orleans, and Atlanta where they do roasting there, depending on what type of brew they want. If we have ample rains during flowering season, trees can flower 2, 3, and 4 times. If in fact the flowering season does take place like it is right now, we’re looking at a tree that has the ability to produce anywhere from 15-20% more coffee beans than it had if it was a dry season. That is why this period of October and November is so crucial to understanding the size of next years’ crop. Precipitation in the majority of the Brazilian coffee areas started off early this year. That can be a two-edged sword. If it starts early and then it cuts off, that can be detrimental to the coffee production. If it starts early, like in August and September, and rains continue through October and November, a tree can flower 3 or 4 times versus just 1 or 2. Simple math tells you that the production next year could be greatly increased by ample rains. That’s why we have a critical time period in October. That’s why the prices usually rally during fears of possible dryness, like we had last year. Once inspection of these trees takes place and the flowering went either well or very well, like it appears to be this year, you can start putting the numbers for coffee beans and bags of production next year already into a spreadsheet and you can tell exactly what type of surplus we’re going to have the next year. It’s almost like science right now as far as coffee production in Brazil. We do have the ability to do that and right now it’s looking like a very healthy crop next year.

Michael: So in the flowering season, that anxiety builds prices up. After we get past flowering, that anxiety tends to come out of the market and that tends to drive prices down into the fall. The seasonal chart seems to reflect that pretty good. Let’s talk just a minute about sugar. I don’t want to get too far into that, but sugar prices kind of mimicking coffee prices – really on a tear. Are we looking at the same type of fundamentals there or is there something else driving sugar?

James: Sugar has rallied for completely different reasons. On sugar we actually have a production deficit this year. It’s the first deficit we’ve had in approximately 6 years. We’ve had sugar deficits in the past. The market does rally certainly when that happens. This year, there is anxiety as to whether it’s a large deficit or small. A lot of the most recent indications is we’re going to have a smaller deficit than previously anticipated, but, nevertheless, world production is going to be less than consumption, thus a deficit. That is why sugar’s probably rallied from around 16 to 17 cents up into the low 20’s. We think that we’re going to be seeing more production in the coming year or two as producing sugar at 22 and 23 cents is a windfall for producers, especially in Asia. Of course, China is the big consumer right now. That’s what has created the deficit. Often, we’ll see China purchase sugar and it’s though they’re never going to be eating anything other than sugar and all of the sudden they just turn off the buys and all of the sudden the production deficit that you’re looking at turns into more of an even balanced. We think that’s what’s going on right now in China. We think that they bought a lot more than a lot of people were anticipating; however, they’re very great traders. Chinese buy soybeans and cocoa and sugar based on trends. You’ll notice that they seem to buying every day and all of the sudden, once they have enough, they stop buying, the price falls back, and then they wait for another opportunity to get in. That’s what we think is going on in sugar. Sugar does have a similar seasonal. As harvest in Brazil and other areas concludes a lot of sugar gets dumped onto the market. We think that’s what’s going to happen later this year. We see sugar probably falling back down to 20 cents, maybe 19, so we are looking at call opportunities in sugar much above the market. We are still doing more work on what type of production figures we have, so we’re holding off on selling right now, but we see ourselves probably doing that in either November or December.

Michael: So, in sugar you have a somewhat bullish fundamental of stocks to usage ration right now just under 19%, which would be the third lowest in over 20 years. That’s what’s driving prices up, but what you’re saying is that eventually, at some point, high prices cure high prices and you see that happening right now in coffee and possibly sugar, as well. Is that correct?

James: Coffee for sure. We haven’t seen coffee at the $1.60 level for quite some time. The big situation that has caused coffee prices to rally is weather. As soon as we have weather changes, of course El Niño has now changed to La Niña, so we went from a dry pattern to a wet pattern. That’s already showing up in Brazil. We expect it to show up in Vietnam, as well. So, as they have better weather for 2017, this 20% reduction in their production this year should probably snap back to a smaller sell-off as far as the value of their coffee. As long as we have decent weather in the western hemisphere, we expect Arabica beans to probably go under pressure possibly $1.40-$1.45 at the beginning of next year.

Michael: Now, if you’re an investor and you’re listening to this at home and you’re hearing James talk about different factors affecting coffee and sugar prices, on the surface some of it might not make sense to you. One thing to understand here is in commodities; we’re talking about the fundamentals right now. These are the underlying supply/demand factors that really drive prices. If you really want to invest in commodities, knowing these fundamentals can give you a tremendous advantage over the other investor who’s just sitting looking at a chart, looking at technical indicators, having no idea what’s actually moving prices. That’s why these things are so important if you’re going to trade these type of markets. Knowing this information and what’s really driving price can give you an advantage in the market that frankly most investors don’t take the time to learn or they don’t know even while they’re trading. One thing we also want to point out here is diversification aspects. When you’re talking about coffee and sugar prices, those are what’s known as softs markets. There’s other softs markets, too, such as cocoa, cotton, orange juice. Cocoa has moved the exact opposite direction of coffee and sugar. So unlike stocks that tend to move in tandem, commodities can move completely on their own. Cocoa is almost in a bear market right now, James. It looks like we maybe making a low, but very low prices right now in cocoa.

James: The cocoa market certainly has just fallen off the table here recently. It was in the low 3,000’s per ton and now we’re trading around $2,600 per ton… a very large move to the downside. I think a lot of anticipation was similar to what we just discussed in sugar. We had very strong buying out of Asia, and then they just stopped the buys. That’s what’s taking place right now. Production in the Ivory Coast is about what was anticipated. Production in Brazil is about as anticipated, but the buying just stopped. We feel that a lot of manufacturers, that’s what you call the people that turn cocoa beans into chocolate bars that taste so good, they’re the ones that dictate the price right now. When production is steady, what’s the difference? That is whether manufacturer companies are buying or they’re not, and they just basically stopped buying completely. A lot of traders inside the cocoa market thought that there was going to be a large shortfall and it just turned out that there wasn’t, and that’s why cocoa has fallen off so much. Michael, just to point out a couple things that you were just referring to, the data points that we’re referring to and talking about Vietnamese production and the weather in Brazil, this just not tell us, as you know, what the price of coffee is going to do next week. It doesn’t tell us what it’s going to do next month. What it tells us is where the price is not going to go. That is the key to understanding the fundamentals to the market. If someone’s listening to us today and they think they’re going to trade coffee and take 2 cents out of the market and then continue programming their computer to buy and sell on the market based on these fundamentals, that is not what this program’s all about. This program is for people understanding the fundamentals the fundamentals won’t allow the market to fall 50%, it won’t allow the market to go up 100% without our prior knowledge, and that’s what we’re doing here. Anyone listening right now, the fundamental factors will allow the market to move a small amount, but if they’re bearish the market won’t double in price, if they’re bullish they won’t fall 50%. Those are the option strikes we’re selling, and that is how we sleep at night trading markets like coffee, cocoa, and sugar.

Michael: One question for you, James. These market’s you’re talking about… coffee, sugar, cocoa… they’re trading on the weather, they’re trading on what their supply is, they’re trading on how much they plan to ship next month. DO these prices care one iota about what’s going on in the stock market?

James: No, they don’t. The beauty behind getting diversified, the beauty of being diversified in something like commodities, whether the stock market goes up 20% next year or down 20%, the value of cocoa will probably not change, the value of coffee probably won’t change, the fundamentals certainly won’t, and that is the beauty of being diversified. For investors listening to us now that maybe have stock holdings, or whether they do or they don’t, a lot of people need to be diversified. At least, that’s what we hear when people call us. I think we do a very good job of getting their assets in something that will not be determined by the price of Apple or any other telephone-making company. So often, the NASDAQ moves up and down based on different ideas and how many phones were sold. The beauty behind what we do, I feel, is that coffee, cocoa, and sugar have been around for a long time, and they’ll continue to be. What happens in Washington or what happens in San Francisco doesn’t make any difference, and that’s why I love what we do.

Michael: Alright, let’s move over. Speaking of diversification, let’s talk a little bit about soybeans here. Nice thing about soybeans is not only are they not correlated to stocks or equities or anything going on in financials, but they’re also not correlated to anything going on in the markets we just talked about. Commodities tend to march to the beat of their own drum or their individual fundamentals for a while. Even on some of the commentary we read right here at, the soybean market has had a very bearish fundamentals. The market has been in a downtrend. As a lot of readers and listeners know, that can be very profitable if you’re a call seller. Certainly that was a market to take advantage of on the downside in the latest USDA report that came out October 12th, the USDA gives their monthly supply/demand report. That was expected to be a very bearish report for soybeans. Ending stocks were at 365 millions bushels. In this USDA report, they raised that to 395 million bushels, which is bearish but not quite as bearish as many had expected. What tends to happen, and James I’m going to pass this to you in just a minute, but talking about seasonal tendencies… when you get into the heart of harvest, which is in October, that’s when soybean supply is typically at its highest because of new supply coming in. Prices, agricultural prices, soybeans in particular, tend to be at their lowest. From that point, traders tend to start focusing on forward sales again. Prices tend to put in a bottom this time of year and then they start to rise. This USDA report might have been an impetus for that. I don’t know if a seasonal low is in but it certainly looks possible right now. Prices are starting to rally. That sets up a situation. Is it overly bullish, James, or what do you see coming up here?

James: The October low and the report that just came out are probably going to coincide. We had soybeans trading $10.50, $11.00, $11.50 a bushel, recently. Now we’re in the mid $9.00. I think that does coincide with the harvest. Harvest lows normally are made in the first and second week of October. The report that just came out from the USDA showing ending stocks not quite as bearish as previously thought, that is likely the low in soybeans. We think that, going forward, all of the sudden you’re into December, then you’re into January, then there are worries about planting season. Likely, soybeans will be trading well above $10.00 at the beginning of 2017. So, we are looking at put selling opportunities for that April-May, May-June timeframe for next year. That is when the anxiety hits for planting season in the Midwest and the United States. We’re expecting soybean prices to probably rally 10-15%. If we’re looking at selling puts 20-30% below the market, which we are, that sets up a really nice safety net for the market to either go sideways, go up a little bit, or actually fall like we talk about in our book in all 3 scenarios of selling puts and soybeans. It’s likely going to be profitable over the next 3-4 months. We are looking to do that here in the next week or two.

Michael: So, you could sell puts and then if it rallies a bit possibly sell calls, turn it into a strangle.

James: The bullishness really isn’t there for soybeans to rally to $12 or $13. We do see the market rallying possibly a dollar from where they are now, especially going into early 2017 as we starting looking at weather conditions and things of that such. Brazil, Argentina, there will be weather problems there, possibly. It seems as though the trade always makes something up and the market does rally, especially after the harvest in the United States. So, we would look for a rally in soybeans early in 2017 and to what we say “leg on a strangle”. We would sell puts now, if the market rallies we would look to sell calls and put a very large window around the price of soybeans. We think that would work probably through the first half of next year.

Michael: If you’re a high net worth investor and you’re listening to this and you’re want to learn more about some of these things we’re talking about and how we apply them when we’re investing for high net-worth investors, like yourself, you can go and watch some of these instructional videos we have on our website. If you want to learn, for instance, we’re talking about ending stocks, stocks to usage ratio, two very important figures when you’re doing agricultural analysis, you can watch our video at If you want to learn about the strategy of strangles that James just talked about, you can watch that video at Let’s talk a little bit about the upcoming newsletters. If you’re on our mailing list and you get our newsletter, the November newsletter, which you should be getting sometime on or around November 1st, interesting piece in there. We’re going to talk about 5 ways to survive the next 4 years, regardless of who’s the President. We talked a little bit earlier in this broadcast about not focusing on the next couple of weeks but the next 4 years. We’re going to list 5 things that, as a high net worth investor, you can focus on. We’re going to talk about those things that should help you reap higher returns. As far as our trading strategy in this month’s newsletter, we’re going to get into some specific strategies for some of these softs markets that we talked about earlier. We talked heavily about the fundamentals today. The newsletter is going to give you some specific strategies you can use to potentially profit from that. These are strategies we’re using here. Obviously, if you’re a client, you’re having these done for you. A lot of investors at home, they want to look, they’re trying to learn this. Sometimes they’d like to follow the trades. Some people actually like to take and do one or two of them to get a feel for how it works to see if it’s something they might want to invest in. So, that’s what these are for. Also, going to talk about the two key criteria for judging an alternative investment. There’s some original insights in there that, if you do invest in alternatives, this will be helpful to you. Getting into our trading lesson this month, James, this is a question that comes up often. As far as structuring, building a portfolio to target returns that different investors want to look for. I know that when I’m talking to potential investors on the phone and, certainly, when you’re speaking with new clients we’re setting goals and then we’re putting together a plan to hit those goals through writing option premium. We have one program here, but we have the ability to scale that to a conservative, moderate, or aggressive posture. I think some of our listeners might be interested in hearing how you do that when you’re building out this type of portfolio. Can you talk a little bit about that?

James: Certainly. When I speak to a new client, we go over their goals, their objectives, their risk tolerance, and what they’re hoping to achieve over the next 5-10 years investing with us. The question always comes up, “If I’m conservative, do I sell these certain options? If I’m aggressive, I sell closer in options? Or I’m trying to sell premiums that are wider than the possible $600-700 per contract that we normally sell options for.” The answer is quite simple. We are basically selecting the most conservative strike prices with the highest availability of opportunity and decay in those values that we can find. So, we are going to sell options that are 50, 60, 70% out-of-the-money. For a slightly more aggressive client, we sell the exact same options, we’re just utilizing more of their margin money. A slightly conservative client would be positioning their account approximately 40-50%. A moderately traded account, we are positioning slightly higher percent. An aggressive account is a 60% plus. We’re utilizing the same option strikes that we would for a conservative account as well as an aggressive account, and we’re simply throttling their leverage. That can make quite a difference. When we are utilizing the ability to use more leverage and sell a greater deal of premium, on positive years that can make quite a difference. We are looking at trying to produce returns of 15-25%. Conservative account is on the 15% side and the aggressive account would be 25% or greater. Very happy, as you know, Michael, to talk about how we did last year. We beat all of those numbers. We are on track to beat those again this year, whether you’re a conservative or aggressive client. That is how we throttle someone’s leverage, and that is how we understand risk for each client. Before we get started trading, that’s exactly what we talk about and make sure that everyone’s on board with exactly what we’re trying to accomplish and the risks that are involved.

Michael: James, I want to throw in a disclaimer here. I’ll be the compliance guy … there’s risk involved and you can always have loss in any type of investing, including this one. Although we’re not making guarantees, these are the type of targets we go. Based on our past, we feel these are realistic targets. One of the questions we get often when we’re talking about the differences to these conservative, moderate, and aggressive stances. One program, we scale it up and down only through the use of margins. Some investors might think, “well, aggressive you use different strategies. You might write different types of options for that than you do a conservative. You might manage risks differently.” What we tell them is what you were just saying – that’s not the case. We manage risk the same across the board. The only difference there is really how much margin you’re keeping as backup and your position size. So, an aggressive account would have slightly more positions on than a conservative, but they’re going to be the same positions. Is that correct?

James: That’s exactly right. It’s very easily done. We are selling the exact same options, the exact same strike prices, for all of our accounts. We simply tailor the leverage to what a client and their goals are. It’s very easily done, but we do have a long discussion before someone does start investing with us. That’s exactly how it’s done, Michael.

Michael: James, one final point to make here. I know a lot of listeners out there, if you’re listening to this, a lot of index option traders. Whether you’re trading the S&P, a lot of Russell 2000 traders… one thing about this type of portfolio, if you do get into it on your own or through a company like ours, it offers the ability to diversify across a whole sloth of uncorrelated markets. We were just talking earlier about coffee, sugar, cocoa. They’re trading in complete opposite directions. If you’re just trading a Russell, you’re in one market. If you’re in the wrong side of that market and the thing moves against you, you’re not very diversified. The advantage of this type of portfolio is you can diversify over a group of different uncorrelated markets. You’re selling options and many of them, even if 1 or 2 of those markets goes the wrong way, you still have 4, 5, 6 that are working in your favor. Is that what you’ve found, James?

James: Michael, it’s interesting. You know what our portfolios look like, our clients know what our portfolios look like. We’ll have a strangle around gold that we’re short from 2,000 and long from 1,000. We are bullish crude oil for the summer driving months, we’re bearish for the winter months. We follow seasonalities for cocoa, coffee, sugar, and orange juice. We watch seasonal fundamentals to trade soybeans. We follow the silver market extremely closely. The ability to diversify inside a portfolio like this, I know I’m kind of beating the drum on it, but I know so many investors right now are listening to the Carl Icahn’s of the world right now and saying, “The stock market might not be the place to be over the next 5-10 years.” Nobody knows that. Not even Carl, he doesn’t know it either, but when you hear people talk like that there is no diversification. If the stock market falls, it doesn’t matter really what stock you’re in. The fact that we have the ability to be neutral on different commodities and at the same time be bullish and bearish another basket of commodities, it truly does diversify you. Of course, we don’t have anyone have 100% of their portfolio with us, certainly it’s a smaller than that. The ability to, as we state on the front cover of our book, “Possible good returns in bull and bear markets”, and that’s what a lot of people are excited about right now as the stock market might be at an inflection point. I know I’m not a big cheerleader for shows like Bloomberg, or CNBC, or what have you because they have so many different people coming on, but you talk to these billionaires that they are interviewing and they are certainly waving a couple flags when it comes to stock market for the next several years. So, we’ll see what happens. Maybe being in commodities is not for everybody. Everything we do we are not right all the time; however, being in another asset class certainly is looking more interesting to a lot of our listeners and, certainly, our clients.

Michael: James, that’s a great point to bring up just in closing here. When we were writing our newsletter and putting stats together, we pulled a stat from Barron’s a couple weeks ago. I might have to put a disclaimer on the end of our podcast here just to document where I got it and who said it, but out of Barron’s looking for a, I believe, 1.4% annualized return in the S&P over the next 10 years. That’s after inflation. Even if the thing doesn’t roll over, that’s not the type of investment I’d be looking to put money in, but take that for what it’s worth. I’ll get the stats from where it comes from.

James: Michael, I’m a big Barron’s reader and I missed that stat, I missed that article. That is almost jaw dropping. Can you imagine being invested like that and that is your goal? We’ll see! To each their own. Investing is personal. When people say, “How much should I invest? How much should I do?” Investing is personal. Those are definitely interesting stats that Barron’s and the people that they were talking to are looking out at the next 10 years. I think mattress sales are going to go up quite well, as in “Put you money under mattresses”. That’s an interesting stat.

Michael: Well, we’ve had an interesting talk this month. For those of you inquiring about new accounts, unfortunately we have none available until after thanksgiving right now; however, Rosie still has a few consultations available in November. If you’re interested in booking a pre-account interview consultation, you can call Rosemary at 800-346-1949. You can also request online at James, thanks for your great answers this month and information for our listeners.

James: Michael, it has been my pleasure. I love doing this show and educating people who think outside the box, like our listeners, is just so entertaining and so much fun for me. Looking forward to doing so again for the next several months.

Michael: Of course, anyone listening, if you’d like to learn more about our company and our program, you can go to There’s a wealth of information there. Have a great month of option selling, everyone. We will talk to you at the end of November.

*** Mr. Gross’ reference to the forecast listed in Barrons is from the August 29th issue in which Research Affiliates projected the S&P 500 to average a 1.1% annualized return over the next 10 years, after inflation.

  1. Anderson B. Says:
    October 24, 2016 at 2:18 am

    Hi James and Michael
    After listening to this Podcast, I went ahead and took a look at a daily chart of Natural Gas. It has been falling for the past week or so, which increased the implied volatility. I guess my question is, is it better to sell calls after a rally in the asset and a lower IV, or a drop in the asset and a higher IV?
    I hope I made some sense.
    You guys are fantastic!
    Thank you so much for all you do!

    • Michael Gross Says:
      October 24, 2016 at 2:24 pm

      Mr. Anderson,

      Thank you for your kind words and excellent question.

      There is no “right” or “wrong” answer here as there is no way of telling which way the market will keep moving. Selling calls against a rising market with high volatility can often mean the ability to sell deeper out of the money. But selling calls “after” the rally can have the added edge of potentially selling into a market which has already turned. The problem here is, there is no way of telling if the top is actually in or this is simply a pause.

      This is exactly why we recommend averaging into positions – just like you would if you were buying a stock. Sell part of your position into a rising market. If fundamentals are bearish, you can add to your position as the market begins to fall. That can bring your average premium received up but also enable you to take advantage of faster premium decay should the market begin trekking lower.

      I hope that helps.


      • Anderson B. Says:
        October 24, 2016 at 2:37 pm

        But they usually have a negative correlation to each other (price rising and implied volatility) … So, I guess I meant what gives the deeper OTM strikes, in this calls trade example, a rally in price and a drop in IV, or the inverse, a drop in price and a higher IV?

      • Michael Gross Says:
        October 24, 2016 at 2:46 pm

        Mr. Anderson,

        Price rising and implied volatility do not necessarily have a negative correlation. I reiterate that either of these could be option selling opportunities (if selling calls.) However, in my experience, a rising market with falling IV can be a key indicator of a trend change in commodities – if that helps.


  2. Dear James and Michael,
    many thanks for the new interesting video.
    i would like to ask your view on 1) Soybeans and 2) Coffee markets.

    For Soybeans we are in Oct harvest low and hedge funds started buying and pushing prices up. Hightower suggest prices should go down. The crop yields are expected to actually increase further up from 51.4 bushels and November USDA report might prove more bearish? Would be great to hear your view on this. Would you still expect soybean prices to increase another dollar from today’s levels?

    For Sugar (and soybean too), what kind of influence on crops and prices the developing La Nina may have?

    Thanks so much if you can share your thoughts on this.

    • Michael Gross Says:
      October 21, 2016 at 2:28 pm


      Thank you for your feedback.

      While we are not an advisory service (the detailed information you are asking is reserved for our clients) we do provide outlooks for different commodities on our various media channels. For our outlook on soybeans, I recommend reviewing our October 14 article right on this blog. Our coffee market outlook will be featured in the November newsletter -out on or around November 1.

      I hope these resources are helpful to you and best of luck in your trading.


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