All drilling has challenges that directly affect the profitability of the endeavor, but when the production potential is expected to be extremely profitable, companies proceed with the endeavor. Drilling for natural gas is no different in this regard, and can be relatively easy to locate when it is present in Marcellus Shale. It is becoming more popular as well due to newer drilling methods that result in more profits.
In order to understand drilling into Marcellus Shale, it is first important to understand this geological wonder. This black shale layer was first deposited about 400 million years ago in deep water that was very low in oxygen, thus it does not have much in the way of fossilization. Organic matter settled to these depths but did not immediately decompose thereby keeping its organic carbon. This layer is between impermeable limestone layers that have resulted in trapping natural gas as the organic carbon has decayed over millions of years.
What was under deep seas 400 million years ago is now far above as our planet has changed. If these layers were still only reachable by going through miles of water and then miles of ocean floor, they would certainly be of little use to the natural gas driller. Luckily, they are present now under land, and even better they are abundant under an area where natural gas is in high demand – the northeastern part of the United States.
In the United States there is one large deposit of Marcellus Shale that extends from southern New York down through western Pennsylvania, west into Ohio, south into West Virginia, Virginia and a small portion of Maryland. Most of Marcellus Shale is more than a mile down from the surface, although it is at the surface in Marcellus, New York, hence its name. The middle Devonian shale layer in which Marcellus Shale is present extends further – into Kentucky, Tennessee and an extremely small area of Georgia and Alabama.
One concern about natural gas drilling is the projected amount that can be obtained. Early estimates devised from surveys tagged the area as having about 1.9 trillion cubic feet of natural gas. This may sound like a lot but since it was spread over a very large area, the amount in any given acre of land did not excite many drilling companies. However, many did drill anyhow which led to nearly 400 wells between 2005 and 2007. In 2008, new surveys were conducted that surprised the industry – indications were that the number was far higher than the previous 1.9 trillion estimate; perhaps being as much as 50 trillion cubic feet! Some geologists believe it is even much more than that. Even if only 10% of this were actually recoverable, it would mean billions of dollars, perhaps even a trillion dollars! Since some geologists even believe that as much as 30% could be recovered, it is clear why natural gas drilling is increasing in popularity.
In order to understand what makes the natural gas recoverable, one has to consider that natural gas is within the Marcellus Shale in three ways:
1. in the minute openings in the shale
2. within vertical fractures that break through the shale
3. absorbed in organic material and mineral grains
Obviously not all of the natural gas is actually easily removed from the shale. The fractures are the easiest to contend with, so drilling methods must consider the best way to work with fractures. Because the fractures are vertical, vertical drilling does not intersect as well as horizontal drilling. Horizontal drilling also allows drilling to extend far beyond the surface area of the well taking advantage of deposits far beyond the well. Used in conjunction with a process called hydrofracing which uses high-pressure water or a gel to bring on fractures the production rate can be increased dramatically.
The number of Marcellus Shale drilling wells is very much on the rise with the incorporation of these more effectual drilling methods. Companies scramble to obtain mineral rights on properties throughout the region as well as lease land for pipelines. In Pennsylvania alone, the number of wells drilled as exploded in numbers – from just 27 in 2007 to nearly 1,400 in 2010.
The increases also equate to more money for landowners. In the beginning, leases ran about $100 per acre. Now we are seeing numbers ranging from $2,000 to nearly $20,000 per acre depending on the location. Add to that a regular royalty check based on the amount of natural gas produced and it is clear to see why natural gas drilling companies are not running short of eager landowners. Even state agencies are enjoying payments for activity on state lands. At a time when much of this area of the country is experiencing economic distress, this activity may be the shot in the arm that it needs to recover.
I personally spent some time in these small Boon Towns throughout the region and have seen the trucks running up and down the streets all day even all day on Saturdays. Many towns are still fighting against it due to several reasons but from what I see the drilling will go on so I would look for some options plays for the natural gas market.

Whether you are new to the trading world or a veteran who knows the ropes, the chances are that you have had an earful on whether or not crude oil is a smart option for your investment dollars. Some people in the trading field will tell you that crude oil is something that you want to stay away from, while others will say that as an investment crude oil is actually a way to help you gain nice profits. So, which outlook are you to believe? As a smart investor, new or old, taking a good look at all of your options is the only way to find out what is best for you and your investment funding.

Certainly, in order to make the best possible decision on whether or not you should invest, it is necessary to take a look at the various aspects of crude oil. When it comes to crude oil, natural gas, unleaded gasoline and heating oil, you should know that they could be the perfect avenue for big profits with a number of advantages. Energy markets end up being volatile in nature. This volatility and price movement is needed in order to gain decent profits in the trading world. Once you learn how to properly manage risk, you could be able to take this market volatility and turn crude oil investing into into profits.

The bottom line is, there is money that can be made from crude oil. When you go into such investing with your eyes open with a grasp on how this trend works, then you will have a better chance of higher profits with less risk. Certainly, every single investment has a potential level of risk as well as reward. As an investor, you always hope for a decent return as a reward for the risks that you put in front of you. Knowing how to weed out crude oil investment schemes will help you to put your best foot forward as you trade.

Take the time to look into all of the research and numbers that are available to you regarding all of the potential crude oil investments that are out there. There are a number of publications and online outlets where you can get the latest numbers and reports on crude oil and related investing. At the same time, be sure that you keep track of supply and demand, as well as the fluctuations that take place from season to season. Additionally, various news stories and political situations going on around the globe can have quite an impact on how you should be planning out your crude oil investments.

When it comes to seasonal trends, you will see that the market and the trading patterns where crude oil is concerned will change greatly around holidays or changes in the weather. During the summer months, driving season will kick into full swing and gasoline will be very high in demand. On the other end of the spectrum, during the winter months heating oil tends to rise in prices as the demand gets higher. The general rule in trading in this case is that price actually precedes consumption. This means that the prices can fluctuate in anticipation of the upcoming need.

As you look around for ways to invest in crude oil, you will see that there are many opportunities for trading. For starters you have crude oil companies of all kinds including major petroleum companies along with medium sized oil companies. The bigger petroleum companies have huge reserves and are generally traded publicly all over the world. There are exchange traded funds to name a few.

When it comes to some of the independent oil companies that are out there, you will see that there are thousands throughout the United States that actually give you the option to take your money and turn it into an investment in their various products. There are a number of risks involved in such a trading venture. You simply have to make sure that you go back and do all of your research if you decide that this may be where your money is best suited to your level of comfort in terms of investing. My choice is in the NYMEX crude oil options on Futures. I can provide you with ideas on trades such as should you write options or trade spreads or just outright futures.

No matter what you decide to invest in, when it comes to crude oil or any other type of investment; you should never invest any more than you can actually afford to lose. Since there are so many risk factors involved in crude oil trading, it is important that you take into account any potential wars, the fact that accidents and oil spills can always happen or even the economy will come into play as you look to the future and your potential for a good return. All in all, crude oil investing is a smart way to make a decent return as long as you go into the venture knowing all of the possible risks.

TRADING FUTURES AND OPTIONS INVOLVES RISK. TRADE WITH RISK CAPITAL ONLY.

Recently, the news and the Internet were full of the news of the Ireland stock market crash. Though some time has passed, the affects of the crash are still being felt all over the world, but especially in the European countries.
Recently, the situation of the debt in Ireland has intensified and the finance ministers of the European Union found themselves worried about Europe’s debt problem escalating once again. But there are experts who have pointed out that the European market is much too worried about debt problems of Ireland, Greece, the debt problem debt crisis and amplification, and they are pointing out there’s a big difference.
Analysts have pointed out that the borrowing that the Irish government borrowing from the funding costs of the financial market has been much too high. The return is not going to be sustainable and the Irish have already probably lost credibility in their investor’s eyes or they will lose it in the near future.
Whether it’s rational or not, the panic over the market has started to show destruction, leading to a situation that is worse in Ireland, and it has affected even Portugal and Spain, thanks to the rise recently in the bond yields.

Soon Ireland will be demanding aid from the European Union, with a loud, clear message. The worry over the debt that the Irish market is in may cause a domino effect, and this could set off a much bigger debt crises. Ireland might become what is known as a second Greece and set off another debt crisis wave.
From back at the end of October, the institutions from the European Central loaned a total of about 130 billion euros or 177.7 billion in United States dollars, and this is equal to about 80% of the country’s domestic product. At the end of September, 2010, Ireland’s government announced that there are five banks as the country’s highest cost around 50 billion euros, and it’s expected that the budget deficit is going to shoot up 32% of the GDP, and this proportion is a lot more than Greece, though this is rare.
Whether the deficit is a public one or otherwise, Greece is first in the 27 countries of the European Union and as of 2009 Ireland ranked second.

Regardless, the analysis of Dominique Strauss-Kahn says that the difficulties that Greece and Ireland are facing aren’t the same thing. Ireland’s situation mainly is larger scale measures to allow the banks to lead. With Greece, it’s a situation that is financial hardship and the issues with competing exist.
Chen Fengying has said that the economy of the world, the crisis with Ireland, and the crisis with Greece all have fundamental differences. It’s not his opinion that the Ireland crisis will affect Europe or will there be a big impact on the world economy. The deficit in the Irish budget was caused by the debt crisis. The debt crisis in Europe is a part of that, and it’s not a new problem coming up.
Tan Yaling believes that the people in Europe are worried about the crisis too much, whether it’s Ireland or Greece’s crisis, and that the situation’s been exaggerated deliberately. She’s also pointed out that they should maintain the positive growth in the European economy in the market’s context, and that she wants to guide the public opinion and speculation, in order that they consider this a good reason for thought.
Experts have also said the financial giants of Wall Street have inflated Europe’s debt crisis in order to attack the country’s euro, to maintain the status of the dollar, and so that they can solve the crisis that is currently facing the United States.
So how bad is the problem with Ireland and Greece, and how is it going to affect the rest of the world? No one really knows. You will get different answers from different sources. But wherever you live, it’s a good idea to remain vigilant and prudent, and to be ready for a financial crisis. Because usually there is a trickle down affect that means that when something affects one part of the world the rest of the world is affected just as much. It may not be in the same way but it affects them just the same.

There is a lot of talk about investing in gold, but there is another precious metal that I believe is just as important to consider when looking at possible investments, and that is silver. Silver is often overlooked as a possible investment and is overshadowed by gold. However, there are some really good reasons why I believe that silver is just as sound as an investment as gold, and why I encourage others to consider it as well.
• Price – One of the best reasons why I encourage people to invest in silver is the price of an ounce of silver is still very affordable, so you do not need to have a lot of money up front in order to invest in silver. Any money that you do work with must be risk capital.
• Useful – Another good reason why silver is a good investment is the fact that it’s a highly used precious metal. Although most people look at it as something that is used in jewelry, there are literally hundreds of uses for silver. Electronics, nanotechnology, communication, water purification, and photography are just some of the uses for silver. The reason that it’s so useful is that it’s corrosion resistance, softness, its lustrous feel, and the fact that it’s a good electricity conductor.
• Versatile – The third reason that I encourage people to invest in silver is that there are different sizes and shapes that the bullion comes in, making it very easy to invest in. They come in as little as a gram up to hundred kilograms. This means that you can invest in the silver right away and then invest in more as you have more money.
• Substantial – Another good reason why I encourage investors to turn to silver is that even the small amount of silver is considered to be an investment that is substantial as opposed to gold, which requires a half to a kilogram of investment in order to be considered substantial. This makes silver an attainable investment for a lot of people.
• Potential – The potential of silver is about the same as gold when the two are compared. Although the price of gold is higher and gold can be sold for more money but the potential of silver as a stable investment is comparable to gold. The fact that it’s more attainable than gold for just about anyone, even if they have a small amount of money to invest, is a big advantage.
• Limited – Another reason why I feel that silver is a good investment is that, like gold, there’s a limited supply of it. Although we aren’t sure about how much silver there is left in the mines, it’s going to eventually come to an end. It’s also costly to mine silver and that means that the mining costs might increase in the future.
• Attainable – Unlike other investments, it’s not difficult to obtain silver. It can be purchased through the United States mint, as well as private and national mints. There are older American coins that were circulated which were mostly made of silver that can be found at auction sites on the Internet, pawn shops, and coin dealers. Or through the use of Futures or Options. My choice is through Options but I will save that for another article.
• Tangible – A lot of investments that people purchase are just a piece of paper. But silver is something that you can hold in your hands. It’s real. You don’t have to trust in someone else if you invest in silver. You can see it, you can hold it, you can keep it in your house if you want, unlike things like mutual funds, bonds, and stocks. It’s also easy to sell fast because there are a lot of places where it can be sold in the majority of areas.
How many times have you looked at your investments and wondered why you put your trust in someone else? Remember that these are mostly my opinions and you should do your own research about what silver can do for you. But like gold, I feel that it’s a good, sound investment and it’s one that I trust myself. Precious metals such as silver are out there for investors.
If you are searching for an investment, I believe that silver is a good choice and has the potential to give you a good return on your investment.

TRADING FUTURES, OPTIONS, AND PRECIOUS METALS INVOLVES RISK. TRADE WITH RISK CAPITAL ONLY.

Successful investing requires knowledge, time and commitment, discipline and patience, and the ability to develop an investment strategy that is compatible with your personality.
Knowledge
Each individual must consider what he knows when planning an investment strategy. Recognizing your current level of knowledge, and how you will acquire the additional wisdom you need, are all-important factors.
Time and commitment
How much time are you willing to spend monitoring your portfolio? This is a critical question. An individual’s investment plan should be based on his level of interest in ensuring personal financial success. The more diversified a portfolio is, and the more complex your strategy, the more time you will need. To be successful, an investor must map out a strategy that carefully matches his own personality and level of commitment.
Discipline
Although many investors start with an approach that will work for them, the ability to maintain discipline eludes far too many people. This is caused by a variety of psychological issues, led by fear and greed that tend to dominate predetermined financial strategies. During various stages of a stock market, different investment styles will work better than others. Sometimes a value approach will be in favor. Other times a growth or momentum style to accommodate the market.
Patience
The last trait for successful investing is patience. Without it, your returns will be more limited. Warren Buffett reminds us that it takes nine months for a woman to deliver a baby. Investments usually take more time to work out than most people consider. Once you plan an investment strategy that complements your personality, managing a portfolio should be simple. The challenge will be to follow the game plan and to remain disciplined.
An investor who establishes varying time frames for holding different types of securities will be much less inclined to lose patience in well researched ideas. This type of analysis will also assist the investor from “holding too long,” while watching his momentum idea fall out of favor and create large losses.

The Derivatives and Futures Market can be the most potentially profitable market in the world. But it can be the most destructive one too! A Trader should understand the difference before he ventures into this market.” Read more

As many of you know, my firm was arguably the first firm to specialize in selling options and collecting premium for the retail speculator. Depending on factors such as volatility, pricing structure, time to expiration and pending events we have many types of strategies to implement.

Two markets that present excellent opportunities for selling overvalued options are the Japanese Yen and Gold. Let’s first look at writing a ratio spread using calls in the Japanese Yen. Today, 8/24/10, the yen is currently trading at 118.75. Based on history the yen has been as low as 33.43 in December of 1976 to as high as 126.25 in April of 1995. The proposed trade is intriguing because your breakeven point is well above the all time highs in the yen. Without any adjustments for commissions and fees, the following trade would be recommended:

Sell four December 131 Japanese yen calls. The premium is 55 tics per at $12.50 per tic the option seller would take in $687 times four for a total of $2,748.

In order to lessen risk, increase profit potential and lower your margin a December 126 Japanese yen call would be purchased. This forms what is known as a “ratio write”. The cost of the call would be 110 tics for a total of $1,375. Taking the $1,375 from the $2,748 we collected would leave us a collection of $1,373. Margin being $4,700 would make this trade, if it expired worthless, a 29% return on initial margin. Considering the trade expires the first Friday of December, the 4th, your potential return on the initial margin is impressive.

Although this return is nice, it is not the best case scenario. The best case is if on expiration the yen closes at 131. At this level the 131 calls we sold are worthless and the 126 call you own is worth 500 tics times $12.5 or $6,250. The premium collected initially of $1,373 combined with the $6,250 would be the proverbial home run. But, don’t count on it, this rarely happens, possible but not probable.

In all likelihood, the ratio expires worthless and the initial premium is retained. But what about the worst case scenario. If the market explodes through 131 and goes beyond all time highs, the position is never adjusted and no stops are used then theoretically your risk is unlimited.

Anyone can sit there and watch the option premium erode due to time decay. The broker justifies his commission by what actions are taken during the bad or volatile times.

The reasons the yen has rallied and is considered overbought are many. Due to the financial conditions of the European PIIGS, Portugal, Italy, Ireland, Greece and Spain investors have blindly sought refuge in the Japanese Yen.

To a certain degree, a haven has been sought in the U.S. dollar as well. But, because of this administrations massive spending, growing of government, increased rules and regulations and higher taxes, flight to the dollar due to European turmoil has been tepid at best.

I believe the yen may have reached its zenith. The economic news out of Japan is not good. The country’s revenues are 40 trillion yen and their expenses are over 95 trillion yen. Their debt load, interest expense and social security costs alone are more than their revenue.

The new minister of economics for Japan, Mr. Arai, agrees with his Prime Minister, Mr Kan, that “steep currency moves are undesirable” at the current 15 year high. They are pleading with the G-7 to help with any intervention. The fear is that their fragile economy will not be able to recover without exports due to a strong yen. If the Japanese powers believe this 118 area is undesirable can the yen go over 131. I think not.

An opportunity also exists in gold. People are starting to term gold “the other currency”. Historically thought of as just a hedge against inflation, gold has not performed poorly during these times of very low inflation. In fact, it has rallied over the last year from $950 per ounce to its current level of $1,215. A 28% rise in a non inflationary environment bodes well that gold’s luster is currency related.

The aforementioned reasons demonstrated why investors may have shunned the two most recognizable and widely held currencies, the United States dollar and the European currency. Safety is being sought. People have become more risk adverse. Under these conditions it may be conceivable that gold has a better chance to glide than slide.

We have found it is easier to predict where a market is not going rather than where it is going. Therefore, with the unpredictable nature of the world economy, gold may be unlikely to reverse its trend and go below $1,000.

A similar strategy that was used in the yen can be used for gold. Excluding any commissions or fees we can sell four February 2011 gold $1,000 puts. These puts can be sold for $780 each for a total of $3,120. Like before, we wish to lower our risk and margin while increasing our profit potential. Therefore we give back some of the money we have collected and buy a $1,060 February gold put. The cost is $1,220. By forming this put ratio write we collect a net of $1,900 prior to any commissions or fees with an initial margin of only $3,250.

Ideally, but not likely, the market is at $1000 on expiration. Were this to occur the $1060 put we own is worth $6000 and the $1000 puts we sold are worthless. The initial $1,900 combined with the $6000 brings a theoretical profit potential of $7,900. The trade will lose on expiration if gold is below $980 at a rate of $300 per dollar.

In summation, with proper implementation, the ratio write is a powerful tool. In many instances we can sell call and put ratios in the same market. The ratio can be anywhere from 1 versus 2 to 1 versus 4. They are not to be used in all markets but can be adapted to a majority of markets.

TRADING FUTURES AND OPTIONS INVOLVES RISK. USE RISK CAPITAL ONLY.

When it comes to selecting top-performing investment funds and the bigger brand is not necessarily better. Choosing the wrong fund by investing with big brand fund managers could cost investors dearly.

Many investors are deluded into thinking that buying from a big brand fund manager will in some way protect them against selecting a poorly performing fund. The big brand managers offer many great funds, but they’re also marketing plenty of duds. Just because one fund is a top performer, doesn’t mean it applies across that fund manager’s range. Investors need to look beyond the brand and more closely at the underlying fund.

Over recent years, Managed Futures Funds has seen a rise in popularity for many boutique investment houses, and, given their track record of consistent positive performance, it’s hardly surprising. There are many ways to classify a boutique, but generally speaking, boutique fund managers are independently-owned , and relatively small in size. They often invest in specialist areas of expertise, rather than attempt to be all things to all men and run funds across each and every sector.

The disappointing reality for most private investors is that neither they, nor in some cases their financial advisers, would have heard of some of these relatively unknown smaller investment houses, and are therefore missing out on great investment opportunities.

The same caution applied to big brands should also be applied to big names – or the so called ‘star fund managers’. Is it wise to stake your money on the reputation of an individual big-name fund manager when there’s no guarantee they will stick around?

In investment terms, familiarity doesn’t always necessarily breed content. Investors should monitor their investments very closely and ensure that they have the tools to hand to spot strong investment opportunities that would otherwise pass them by.

PREMIUM PROGRAM

The Premium Program has been designed to capitalize on the very high probability that a certain category of out-of-the-money options will eventually expire worthless. By seeking out and targeting these specific options for our selling program we expect to gain a trading edge. Our trading experience and research has shown that, in the long run, the writer of options should have a higher return on investment than the buyer.

You’ve probably heard it said that most futures options expire worthless. The Chicago Mercantile Exchange estimates over 80% of all options expire worthless. With this in mind, shouldn’t you be selling them instead of buying them?

THE PRIMARY ADVANTAGES OF SELLING OPTIONS

Time Decay: As time goes by and we get closer to option expiration, the value of an out-of-the-money option will tend to diminish as long as the volatility remains constant, and the underlying futures market does not make an adverse move. In other words, the passing of time, or time value, can work for you instead of against you. If you sell an out-of-the-money option, the entire value of that option (this is the premium the buyer pays to you) is time value (extrinsic value). As time passes, and if the market moves favorably, or does not move at all, the option will gradually lose its value (see accompanying chart). If, upon expiration, the option is out-of-the-money (the underlying futures has not exceeded the strike price of the option), it will expire worthless and you, the seller, will keep the entire premium excluding any commissions and fees. At this time the position automatically closes out.

You don’t have to be right about market direction: When you trade futures or buy options you have to be right about the market direction in order to profit on the trade. Since it is very difficult to predict market direction, wouldn’t it be easier to project where you think prices won’t go? For example, if you are bearish on a market, you could sell out-of-the-money call options. In this example the market can stay the same, move down or the market could move up (against you), and as long as it is at or below your strike price at expiration, you still profit on the option.

Collect premium instead of paying premium: When you take the selling side of an option the premium you collect, less commissions and fees, is then credited to your account. You are collecting a defined amount of money instead of hopefully trying to collect a questionable undetermined amount of money.

Yes, there’s risk! : Trading commodity futures and options carries risk, period. You can limit risk when purchasing options, but if you continue to lose premium on a continuous basis, your losses will accumulate. A short option can carry the same risk as a futures contract; therefore there is a margin requirement. If the market moves against your short option position, your margin might

Increase.I will work with you to determine what risk parameters and particular selling strategies are right for you.

Even though we believe selling options is more favorable than buying options, the biggest advantage to you is, selling options gives you a larger margin for error. Selling out-of-the-money options allows you to profit from sideways markets, trending markets, and at times profit can occur even if the underlying market moves against the seller’s position!

Selling Strategies

There are five primary strategies we implement involving the writing (selling) of options.

1. UNCOVERED WRITING

Uncovered, or naked writing, involves selling a call OR put without entering into an underlying futures contract. A naked call writer has a neutral to bearish view of a market, while a naked put writer has a neutral to bullish view on a market. In most cases we recommend selling out-of-the-money options. This means selling a call with a strike price that is above the futures price or selling a put with a strike price below the futures price. In either case a dollar amount, or premium, is collected and credited to a client’s account. In the case of a short call this premium is retained if, by expiration, the futures has moved lower, stayed the same, or moved higher but not up to the strike price of the call. In the case of a short put the premium is retained if the futures has moved higher, stayed the same, or moved lower, but not down to the strike price of the put.

Example: If December Silver is currently $17.00 an ounce. Selling a December $20.00 call option for $1000, on expiration you will keep the $1000* if the price has fallen below $17.00, stayed at $17.00 or even if it has increased but has not reached $20.00

2. THE SHORT STRANGLE
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A short strangle is a strategy in which a trader simultaneously sells both an out-of-the money put AND out of the money call in the same market for the same contract month. This is the optimum strategy for trading sideways markets. The entire premium* which was collected upon the initiation of a strangle will be kept if the underlying futures contract is between the strike prices on expiration.

Example: If December Silver is currently $17.00 an ounce. Sell a December $20.00 call option and a December $14.00 put option. Both options are $3.00 out-of-the-money. By selling these two options you will collect a total of $2000* in your account. On expiration, you will keep the entire premium if December is above $14.00 and below $20.00

3. THE RATIO WRITE

The ratio write is a strategy in which multiple out of the money options are written and one closer to the money option is purchased. This, in effect, creates simultaneous covered and uncovered option positions. Ratio writing involves either selling two or more calls against a long option position or selling two or more puts against a short option position. Instead of buying an option the same can be done with a long or short futures position. This strategy takes advantage of the fact that option premiums generally do not move dollar-for-dollar with futures prices. In other words, the delta of each option is less than one. This strategy enables the investor to potentially profit in the futures contract, and at the same time retains the entire premium* if the options expire worthless.

4. THE COVERED WRITE

This is a strategy, which combines a futures position with a short option. A covered call write consists of a long futures and a short call; a covered put write consists of a short futures and a short put. Both strategies are used only when an investor expects little volatility in the futures price.

Covered call writes are generally used when an investor thinks the futures will exhibit an upward bias. Covered put writes are used when the investor’s outlook is neutral to bearish. In a covered write, profits in the futures position will more than cancel the potential adverse move in the option premium, allowing the investor to earn a profit. If, on the other hand, the futures moves adversely there will be a profit in the short option that might or might not completely offset the loss in the futures. For the covered option writer, then, the ideal market is one in which the price moves in favor of the futures contract.

5. CREDIT SPREADS

The Credit Spread has been my choice of trade for all of my clients for over 10 years now.

This strategy enables you to hedge an existing portfolio or even trade directional. However, the most popular method is non-directional, selling a put and call credit spread, at the same time. Our most popular and profitable market has been the S&P 500. An example would be selling a October 1200 call and an 1000 put. These positions would be protected by buying a 1230 call and an 950 put. With the S&P 500 trading at 1100 a total of $2,300* would be collected. If the market on expiration remains between 1200 and 1000 the $2,300* is retained. The total risk on the trade if nothing is done and the market exceeds 1200 at expiration would be $5,200. Or if the market falls below 1000 at expiration would be $10,200.

Prices are based on the close of trade date August 9, 2010
*Does not include commissions and fees

My recommended criteria for selling options are as follows:

1. The option should be overvalued (selling at an inflated price).

2. The dollar value of the option, when sold should not be less than $350.

3. The strike price of the option should, at its minimum, be a certain percentage out-of-the-money from the underlying futures contract.

4. An exit or adjustment strategy should be established prior to entering the trade.

TRADING FUTURES AND OPTIONS INVOLVES RISK AND ONLY RISK CAPITAL SHOULD BE USED. COLLECTION OF PREMIUM DOES NOT MEAN RETENTION OF PREMIUM.

It is difficult to provide a general definition of a hedge fund. Initially, hedge funds would sell short the stock market, thus providing a “hedge” against any stock market declines. Sociologist, author, and financial journalist Alfred W. Jones is credited with the creation of the first hedge fund in 1949.Today the term is applied more broadly to any type of private investment partnership. There are thousands of different hedge funds globally. Their primary objective is to make lots of money, and to make money by investing in all sorts of different investments and investments strategies. Most of these strategies are more aggressive than than the investments made by mutual funds.

A hedge fund is thus a private investment fund, which invests in a variety of different investments. The general partner chooses the different investments and also handles all of the trading activity and day-to-day operations of the fund. The investor or the limited partners invest most of the money and participate in the gains of the fund. The general manager usually charges a small management fee and a large incentive bonus if they earn a high rate of return.

While this may sound a lot like a mutual fund, there are major differences between mutual fund and hedge fund:

1. Mutual funds are operated by mutual fund or investment companies and are heavily regulated. Hedge funds, as private funds, have far fewer restrictions and regulations.

2. Mutual fund companies invest their client’s money, while hedge funds invest their client’s money and their own money in the underlying investments.

3. Hedge funds charge a performance bonus: usually 20 percent of all the gains above a certain hurdle rate, which is in line with equity market returns. Some hedge funds have been able to generate annual rates of return of 50 percent or more, even during difficult market environments.

4. Mutual funds have disclosure and other requirements that prohibit a fund from investing in derivative products, using leverage, short selling, taking too large a position in one investment, or investing in commodities. Hedge funds are free to invest however they wish.

5. Hedge funds are not permitted to solicit investments, which is likely why you hear very little about these funds. During the previous five years some of these funds have doubled, tripled, quadrupled in value or more. However, hedge funds do incur large risks and just as many funds have disappeared after losing big. I personally like the Idea of talking directly to who is managing my money.