A Comment -- General Comments From an Expert (A Commentary)

Markets. You have 2 sides of the market at play. There is a lot of uncertainty including 1) US election, 2) fiscal cliff (which he doesn’t think is going to be that big an issue), 3) the euro zone (which he thinks could go on for some time), 4) Fed underneath the market providing a lot of liquidity which could change depending on the election, 5) US tax issues depending on who is elected, 6) Mr. Romney would like to simplify the tax code and capping some of the benefits. However, looking at the Options market, which tends to measure risk, there seems to be a great deal of complacency. Expects all of this will result in a “trading range” environment. It will likely be a widening one as we go further down over the next 4-6 months but he doesn’t see any big breakout either up or down. In this scenario, the options strategies work really well. You are getting cash flow and can frame your trading range.

People use Puts to protect the downside. What is the difference between this and using a Stop Loss? Excellent question. A Put Option is insurance. The difference between this and a Stop Loss is that if you go through a Stop Loss, your stock is sold and likely very close to the price of your Stop. If you are not necessarily thinking that you want to sell your stock, but you don’t like the short-term prospects, the Put may be a better way to do it.

Cdn ETFs versus US ETFs? US do not hedge their positions because they own the reserve currency of the world and they don’t really look at any other currencies as being an issue for them. If you are comfortable with the currency fluctuations and we do get a significant downturn in the market, the US$ will do quite well because people will move into this in a panic.

Shorting both a Long and Short leverage ETF? By shorting the Short you are actually long and by shorting the Long you are actually short so you are taking the directional bias positions out of play. All you’ve got left is the roll affect of the underlying futures contracts that maintain those securities.

Better to buy Options with a Strike Price above or below the current price of the stock? When you are buying options in general, time is working against you so it is important that you not only have a view about the direction but that you are pretty tight on the timing of that move. An “out of money” option will give you a much better return if you are right about your timing and “at the money” option will act most like an option and an “in the money” option will profit even if you a very small move in the right direction. If you buy “at the money” option, 90% of the time this is the option where there is the most liquidity and the highest open interest.

Natural Gas. Had a nice rally from its $1.80 lows in early spring. Almost doubled in price to about $3.50-$3.60 MCF. Thinks this trend will continue and has a good chance of being between $4 and $5 as we exit the winter in March 2013. Starting to see hedging now from companies that are starting to layer on some hedges as a forward curve. As hedges are in, production will come back to a lesser extent than where we were a couple of years ago for 2 reasons. 1.) A lot of the major natural gas producers are focusing more on liquids and oil. 2.) 2 or 3 years ago there was a big rush to drill natural gas in the US that was financed by zero cost of capital joint venture money offshore so it was really drilling uneconomically. They were drilling their best properties. When they go back to drilling these pools over the next few years, they’ll be going back into their B properties.

Markets. He is holding his powder dry to a certain extent. He is doing covered calls on broadly based indexes. Romney has a 50/50 chance which is good for keystone and Canadian oils. He is not aggressive and basically holding pat. His covered calls are a hedge. He has been looking for an opportunity to buy into base metals in China but not quite ready yet. He will be looking at it carefully. He likes to be second or third in. There are far too many ETFs out there anyways and it is a healthy sign when some of them fold up.

Generate $12K per year on covered call strategy. Stock could be too high or too low to write a covered call, but he would advise a $200K portfolio for this strategy.

Covered Calls on Energy Stocks. Nothing wrong with it. It is stock picking. It is a fairly liquid market. On some ETFs it is not that liquid.

High yield bond funds. are junk bonds. Lots of people like them despite the fact that they are junk bonds because as economies recover a lot of the bonds will promote to higher classes of bonds. He thinks that game is over now. You are taking more risk of default. Keep it as a small part of your portfolio. You can get clobbered. Look on the ETFs web site for the yield to maturity on their holdings.

Sell deep in money calls for high dividends stocks and use funds to purchase additional shares of the same underlying security to lever the position to receive more dividends. Problem is that you are trying to extract time value. Deep in the money don't take advantage of the time value you could get. Chances of getting called away are good before X-div date. Not a good ideas because you give up too much advantage.

Buying back in-the-money covered calls. Doesn't normally do it but today he did it. Time value is very low and then he will buy back option and then re-sell it 6 months later. He did it because of the US election and its impacts on oil. He was removing hedges.

Buying back calls to roll further out. I will do it under certain circumstances. If he has squeezed as much time value out of it as reasonable. He gets a better commission for “Call/Writes” when he does this.

ETFs being over bought or oversold. In general it is not an issue. They create more units as required.

Bull Put Spreads. Not a bad strategy. He would prefer to just sell the put. For the retailer there is a big spread between bid and ask that really chops into your spread.