We hope you enjoy the third issue of The Trading Floor! Sincerely, Jeff Chiappetta

Transcription

1 Vol. 1 Issue Dear Valued Advisor, When will interest rates begin their ascent? This is a million dollar question that has been discussed and debated for what seems like many years. Table of Contents Pages 2-4: Technical Analysis Grading Your Portfolio on a Curve An in-depth look at the study known as Relative Strength. Pages 5-8: Income Generation Covered Strangles for Income Enhancement Discussion of a strategy that combines a covered call with a cash-secured equity put. Pages 9-10: Trading Strategies Riding the Bull, Caging the Bear, or Cruising in Neutral Study past trades and their results in an effort to learn about future trade considerations. Pages 11-12: Key Indicators Potential Market Movers: What to Watch for A look into what the Strategy Desk will be following in the economic calendar. Pages 13-14: Education Series Options Market Center Education Series Want to learn more? Tune into a weekly webcast or join us in-person, or both! Page 15: Contributing Writers Have you been in a holding pattern waiting to deploy idle cash? If so, why not consider implementing strategies that may potentially earn income for your clients while you wait for interest rates to climb? In this issue of The Trading Floor, we look at a popular strategy of combining a covered call with a cash-secured equity put. Many advisors utilize at least one or more basic option strategy. Some strategies can be combined to potentially enhance income and portfolio returns. Additionally, if you want to see where the rubber meets the road, check out the recent performance of some real-life income generation strategies in the Trading Strategies section. Of course, there s more to The Trading Floor than just options. Whether you think technical analysis is complete voodoo, or you re a power-user of Fibonacci retracements and Elliot Wave, basic technical indicators are hard to ignore. Clint Cowles explores Relative Strength, a study available in the thinkpipes platform, and how it can be used to gauge the strength of different sectors or individual equity positions. With these tools at your disposal, why not take a look? We hope you enjoy the third issue of The Trading Floor! Sincerely, Jeff Chiappetta Managing Director, Trading and Fixed Income TD Ameritrade Institutional 1 The following information is not a recommendation or endorsement of any particular investment or investment strategy. Returns will vary and all investments involve risk, including loss of principal.

2 Technical Analysis Grading Your Portfolio on a Curve How can you tell if the security you re evaluating is outperforming its industry or the overall market? Or, how can you tell if you re currently invested in strong industries? By viewing the Relative Strength study with comparison charts within thinkpipes, you can easily answer these questions. A quick and easy way to view multiple symbols at one time, in an effort to identify the top performers, is to use comparison charts. This chart study can help you decide which sectors and stocks to analyze further with the Relative Strength study in thinkpipes. Displayed below is a three month daily chart of the nine major market sectors, in addition to the broader market (S&P 500). As you can see from this chart, there are three sectors that have outperformed and six that have underperformed the S&P 500 over this time period. Being too concentrated in any one sector, no matter how well it has performed, can be risky. However, many advisors look to overweight those sectors that are outperforming. Technology, Healthcare, and Consumer Discretionary have all performed better than the broader market. In fact, Technology has outperformed its peers so much that it may raise a caution flag with some advisors. Clint Cowles Senior Specialist, Trade Desk/thinkpipes TD Ameritrade Institutional The Relative Strength study, not to be confused with the RSI or Relative Strength Indicator, compares the price performance of an equity versus an index, sector, or another equity to show their price correlation. It is derived by dividing one security s price by another security s price. The result of this division is the ratio or relationship between the two securities. The top section of the chart below is a simple price chart of the security in question; the bottom section is this security s relationship to the index, sector or other security involved in the comparison. For illustrative purposes only. Not a recommendation. 2

3 Technical Analysis For illustrative purposes only. Not a recommendation. From the comparison chart, we learned the healthcare sector has performed stronger than the S&P 500 for the last three months. Let s dig a little deeper and take a look at the Relative Strength of Select Medical Holdings (Sym: SEM) from the healthcare sector. The price chart above shows that SEM was in a strong uptrend, but the whole market was in a strong uptrend as well. So, how can you tell if this was a market star or just rising with the tide of the overall market? That s where the Relative Strength study comes in. The blue line underneath the price chart is the Relative Strength of SEM versus the broader market (S&P 500). An up-trending Relative Strength line indicates outperformance of the broader market. (A flat Relative Strength line would signal performance that is equal to the broader market). Since the intermediate-term bottom in December (at the green arrows), and through the end date on this historical chart, SEM had been consistently beating the market. Look at Relative Strength the same way you look at price action - higher highs and higher lows indicate an uptrend. Just like normal price action, Relative Strength will not move in a straight line so drawing support (shown by the red line) and resistance lines may be helpful. Using the Relative Strength study in conjunction with support lines can also be very helpful in identifying when a security may be starting to lose favor. As you know, stocks come in and out of favor frequently and when this happens you will often see the Relative Strength line break its support before the price action does. This may give you a warning signal that its trend of outperformance may be coming to an end. 3

4 Technical Analysis For illustrative purposes only. Not a recommendation. The next example, The Travelers Companies (Sym: TRV) from the financial sector, illustrates how a security can go in and out of favor frequently. Take a look at how pronounced the shifts in price action and Relative Strength have been over the past year. During the last few months of 2013, TRV was moving consistently with the S&P 500, however when it made a new high in price (see #1), the Relative Strength line made a lower high. Even though the price action looked bullish, the Relative Strength line showed TRV was beginning to lag the general market. Further confirmation came a month later when there was another lower high in Relative Strength confirmed by a lower high in price. Both of these signals were bearish and depending on your clients holdings, this may have been an applicable place to apply short to intermediate-term protective strategies. Refer to #2 on the chart where a small reversal signal appears. Up until then, Relative Strength had been trending lower signaling weakness in the stock. At #2, the downward trend in Relative Strength was broken, showing TRV was gaining some strength versus the S&P 500. Had protective strategies been applied, this signal may have been a good reason to remove them. This gain in strength was confirmed at #3 when the Relative Strength started a new uptrend; this was an example of how the Relative Strength line could be used as a long entry signal. Points #4 and #5 confirm the price reversal from the previous months. At #4, the upward trending Relative Strength line was broken which gave us the first warning sign of some weakness in the stock. A lower high in price and Relative Strength at #5 confirmed this warning. Again, this could be a signal to incorporate some protection strategies. Not only can this type of analysis be useful during your stock selection process, but it can also be used when monitoring existing holdings. In the case of TRV, the stock seemed relatively stable, but that s on the backdrop of a powerful bull market. How would it fare if the market turned south? As always, remember that past performance does not guarantee future results, and technical analysis cannot predict or project performance, but this analysis can give you one more tool in your toolbox. 4

5 Income Generation Covered Strangles for Income Enhancement Long Stock + Short Call + Cash-Secured Put = Covered Strangle Are you looking for a way increase the amount of premium collected from your option enhancement strategies? Does the idea of lowering your trade break-even while setting a price at which you are willing to acquire additional shares sound appealing? Then, perhaps the covered strangle is a good fit for you and your clients. Your clients could benefit from potentially generating additional income on stocks they already own while putting themselves in position to purchase more shares at what you consider a reasonable price if the stock pulls back. The covered strangle is designed to provide extra income from the simultaneous selling of an equal number of out-of-the money call and put options with the same expiration month against the same long underlying position. Keep in mind, owning the underlying equity position is required, as is the cash to cover possible assignment on the put, and the sale of the put will add risk to the traditional covered call position (to the extent of the put strike price minus the premium received, as you will see in the example below). Joe Mazzola Senior Strategist, Institutional Trading Education TD Ameritrade Institutional Covered strangles achieve maximum gain if the underlying stock rallies above the short call strike and the shares are called away, consequently closing out the long stock position at the strike price of the call. As with any option selling strategy, the potential profit is limited while the potential loss could be substantial if the share price drops dramatically. The risk of this strategy is truly dependent upon the client s motivation. If the client is long-term bullish on the stock, then an initial loss on a position that causes additional shares to be assigned (cash-secured put) might actually be a good thing. Why? Because it could increase the number of shares held at a lower cost per share. But you need to understand that the purchase price (the put strike price) will likely be higher than current market price at the time of assignment. That s why you are assigned because the stock pulled back below the put strike price and the price could continue to fall. Before you consider the strategy, however, you should understand any tax consequences for the different potential results. Finding Covered Strangle Candidates: Fundamentals It is important to perform some fundamental analysis and to have a good grasp of what an underlying s intrinsic fair value should be. This may help reduce some of the risks associated with covered strangles. Here are some potential candidates for covered strangles: Stocks of strong companies that are not wildly overvalued (lest they drop sharply) nor grossly undervalued (lest they surge) Dividend paying stocks, as the divided income streams can be enhanced with the additional income from the covered strangle Stocks in fully-valued or stalled market sectors 5

6 Income Generation Technicals To implement this strategy, look for stocks that are: Sideways to slightly up-trending Establishing their longer-term support and resistance levels Option Selection In many instances, the option s time frame, strike selection, and implied volatility can make all the difference. Listed below are some criteria to consider: 1. Time Frame: The covered strangle strategy is helped by time decay, so the closer to expiration, the faster the time decay. A good frame of reference would be 4 to 10 weeks prior to expiration. 2. Strike Price: You can determine your strike price based upon support and resistance levels or where you are willing to add more shares or unload your current shares. 3. Implied Volatility Levels: Consider employing options where the implied volatility level is at or above the 50th percentile. This will generally generate more premiums and lower the break-even of the position. Covered Strangle Example in Kinder Morgan Inc. (KMI) KMI is an example of a widely held dividend paying stock that has paid a nice annual yield of over 4.67% with quarterly dividend payments of $0.42 per share. The dividend yield is fairly robust given the market run-up over the past two years and the fact that KMI is at approximately the same price it was back in December of 2013, as you can see in the chart. The healthy dividend yield alone may not be enough to continue justifying ownership of the stock because the overall market is up nearly 12% during the same time period. Not all clients will agree with this logic and may want to continue to hold KMI. In this case, consider employing the covered strangle strategy with the criteria from above over a 60 day period. This could help improve the income potential dramatically. On April 14, KMI closed at $32.44 with its current implied volatility residing slightly above the 50th percentile, meaning that option premiums are relatively higher at this point. Higher premiums potentially generate higher income opportunities. The June $30 puts, slightly below support could have been sold for $0.55 and the June $35 calls could have been sold for $0.25, resulting in a covered strangle sale price of $0.80. If your clients owned 1,000 shares of KMI on April 14, you could write 10 June $30/$35 covered strangles for $0.80 per share, generating $800 of additional income (minus transaction costs) for the portfolio over the next 60 day period. With a stock price of $32.44, this would potentially provide an additional yield of 1.28% over that same 60 day period if the stock does absolutely nothing ($800 premium / [$32,440 + $30,000] cash-secured). By rolling this strategy multiple times a year, the additional income could potentially really add up, but you would need to consider the additional transactions costs involved with multiple trades. Additionally, if you get assigned on the short call and lose your shares of stock, you wouldn t be able to continue with the strategy unless you bought the shares of stock again. Let s break this trade down further to provide more clarity. 6

7 Income Generation For illustrative purposes only. Not a recommendation. If you remember, a covered strangle is simply a covered call position with the addition of an out-of-the money cash-secured put. In this example, the June $35 call is sold for $0.25 and the June $30 put is sold for $0.55 for a combined credit of $0.80 or $800 for 10 strangles. The $0.80 credit received lowers the break-even of the shares held from the current $32.44 level to $31.64, so there is a minimal amount of cushion provided. The call sold could obligate you to sell the 1,000 shares at $35 if KMI settled above that point at expiration. This also happens to be the point where the position would achieve its maximum profit potential of $3,360 (less transaction costs). We calculate this number by utilizing this formula (call strike price ($35.00) minus the break-even ($31.64)) x (1,000). The addition of the cash-secured put would require cash in the amount of $30,000 to be held and could obligate your client to purchase an additional 1,000 shares at $30 if KMI settles below that point on or before June expiration. This could be appealing if you were looking for an opportunity to add shares of KMI to the portfolio. The reason shares would be assigned is a result of the market price of KMI dropping below $30. So, you would need to believe that $30 was a fair valuation for the shares. In this instance, if the shares were to be put to you at $30, it would represent a 7.52% discount from the April 14 closing price of $ If you were calculating the potential maximum return on this covered strangle, the amount of cash secured must be added to the cash value of the stock position to get a true value. In the case of KMI, this would be calculated by taking the $3,360 maximum profit divided by ($32,440 + $30,000) for a potential maximum return of 5.38% over the next 60 days (if KMI settled above $35). Even if the stock did absolutely nothing over the next 60 days, the addition of the covered strangle would enhance the return versus simply holding the shares. 7

8 Income Generation When would the covered strangle not benefit the client? The covered strangle would not be beneficial if the stock is expected to make a big move either up or down, in this instance by more than 10%. On a big move up, the covered strangle would underperform a long stock-only position as the stock gains would be capped at the short call strike. A big move down could result in an assignment of additional shares at the short put strike. The maximum loss to the position would occur if the stock goes to $0. Below are three possible scenarios for the KMI stock and the covered strangle at June expiration: 1. KMI shares trade flat (around its current price of $32.44) The options expire worthless and you keep the premium of $800 (minus transaction costs). In this case, the covered strangle strategy would successfully outperform just holding the stock alone. 2. KMI shares fall by 8% to $29.84 (just below the short put strike) The call options expire worthless while the put options would be in-the-money by $0.16. You sold the 10 covered strangles for $0.80 and now they are worth $0.16, so there would be a profit of $640 on the 10 covered strangles, with a loss on the long shares of KMI of $2,600, yielding a net loss of $1,960 on the strategy. You would be assigned on the puts and would take delivery of an additional 1,000 shares at the $30 strike price (if the puts are not rolled over to a different month, or closed out). Your trade would still outperform holding the stock alone. 3. KMI shares rise 10% to $35.68 (just above the short call strike) The put options would expire worthless while the covered call would cap the gains of the total position at $3,360 (minus transaction costs). The shares would be called away at $35 leaving you with no position. In this case, the covered strangle strategy would still slightly outperform the outright long position by $120 ($3,360 option gain versus $3,240 stock gain). KMI: Here is what actually happened KMI shares continued to rally into June expiration and closed on June 20 at $ This represented a whopping 11% move in the share price over that 60 day time period. The 11% move caused the puts sold to expire worthless but the covered call position to be capped out and assigned at the $35 price level. The covered strangle profit reached its maximum potential of $3,360, however, in this instance, the long-only position would have outperformed the covered strangle by $230. The lesson learned is that the covered strangle is generally best suited for small moves in the underlying and will almost always underperform when big moves, greater than 10%, occur. 8

9 Trading Strategies* Riding the Bull, Caging the Bear, or Cruising in Neutral Example: Adobe Systems Inc. (ADBE) Three short-term trades on eve of earnings release: ADBE closed at $67.50 on June 16, 2014 For illustrative purposes only. Not a recommendation. If you were already long stock and still bullish, you could have Bought 1 June $67.50 strike call and sold 2 June $70 strike calls while simultaneously selling 1 June $65 strike put Strategy Call ratio spread combined with a cash-secured put Expiration 2 Days Max Loss $13,185 (below $64.35, long position risk down to market price of $0) Max Gain $565 (if ADBE closes at or above $70 at June expiration) Break-even $66.85 (current stock price minus net credit of $0.65) Explanation By buying the 1x2 call spread and selling cash-secured put, you will take advantage of the elevated premium in the short-term expiring options. Making this trade is based on the expectation that any post-earning s move will be inside the expected move on the downside and inside any extreme move occurrence over last eight earnings cycles on the upside. Overall position will outperform stock alone from $64.35 to $73.15 and by adding this option overlay, you should be willing to purchase additional shares at 5% below current price and forgo additional profits above upside at 8.4% level in return for outperformance between these levels. If you were bearish, you could have Bought 1 June $67.50 strike put, sold 2 June $65 strike puts and bought 1 June $62.50 strike put for a $0.50 debit Strategy Long put butterfly below the market Expiration 2 Days Max Loss $50 (if stock closes below $62.50 or above $67.50 at expiration) Max Gain $200 (if ADBE closes at $65 at June expiration) Break-even $63 and $67 (put strikes long +/- $0.50 debit paid) Explanation If ADBE moves lower it potentially could find support at the 20-day moving average level of $65. That is why the $65 strike was selected as the mid-point of this butterfly. A butterfly, at expiration, will maximize its value at that mid-point where the two short options expire worthless. Because volatility is elevated due to the impending earnings release, you are able to buy this butterfly fairly cheap, which offers a decent risk/reward with a potential 4 to 1 payout. If you were neutral, you could have Sold the June $72.50/$75 call spread and sold the June $65/$62.50 put spread for a $0.90 credit Strategy Explanation Selling an iron condor Expiration 2 Days Max Loss $160 (occurs if stock below $61.60 or above $73.40 at expiration) Max Gain $90 (if ADBE between short strikes at June expiration) Break-even $61.60 and $73.40 A short iron condor is a high probability, range bound trade that is risk-defined, positive theta (time decay) and has wide break-even points up/down from ADBE s current stock price. The pre-earning elevated volatility in ADBE offers an attractive credit to enter into this position. This trade will also benefit from a volatility contraction, which we would expect once the company s earnings are released. ADBE: Here is what actually happened ADBE closed at $72.61 on June expiration up $5.11 from the initial trade value after a very strong earnings report. The shares popped and haven t looked back since. Volatility came crashing in, as it normally does following an earnings event, so the premium selling strategies did well in this environment. Each of the trades yielded the following results: Bullish: Long stock with June $67.50/$70 strike call 1x2 ratio while simultaneously selling 1 June $65 strike put resulted in a gain of $565 (minus commissions and fees) Bearish: Long put Butterfly with June $67.50/$65/$ x2x1 put butterfly purchased for a $0.50 debit expired worthless and resulted in a loser of the full debit amount of $50 (plus commissions and fees) Neutral: Short iron condor with June $72.50/$75 call spread and $65/$62.50 put spread sold for a $0.90 credit resulted in a gain of $79 with assignment risk on the call spread if not closed or rolled prior to expiration (minus commissions and fees) 9

10 Trading Strategies* Example: Visa Inc. (V) Visa stuck in range priceless V closed at $ on May 21, 2014 For illustrative purposes only. Not a recommendation. If you were already long stock and bullish, you could have Sold 1 June $220 strike call and sold 1 June $200 strike put for a $1.70 credit If you were bearish, you could have Bought 1 June $215 strike put and sold 1 June $210 strike put for a $2.85 debit If you were neutral, you could have Sold the June $210 strike straddle for $7.60 and bought the June $220 call/$200 put strangle for $1.70 for a net overall credit of $5.90 Strategy Covered strangle Strategy Long put debit spread Strategy Selling an iron butterfly Expiration 30 Days Max Loss $40,830 (if V closes at $0) Max Gain $1,160 (if V closes at or above $220 at June expiration) Break-even $ (current stock price $ minus net credit of $1.70) Explanation This covered strangle lowers the overall break-even, while credit of $1.70 potentially yields almost 1% in 30 days (assuming both options expire worthless and you keep the entire premium). With this trade we receive a premium to take on the potential obligation to purchase additional shares 5.6% lower at $ or receive a premium to take on the potential obligation to unload current long shares 5.5% higher at $ Expiration 30 Days Max Loss $285 (occurs if stock closes above $215 at expiration) Max Gain $215 (if V closes below $210 at June expiration) Break-even $ (long $215 put strike minus $2.85 debit paid) Explanation Visa currently sits around $2 above its 50 day moving average and a move down to this level is certainly possible. A debit spread is a way to make a directional bet in a stock, using option leverage, while at the same time paying little to no time premium for that leverage. In this example, you are paying $2.85 for a $5 wide put spread that is intrinsically worth $4.90 ($215 put strike minus current $ stock price) if stock stays here. This means the trade is positive theta and time decay will work in your favor (all else held equal). This trade is also risk-defined and could function nicely as a short-term, partial hedge against a current long stock position. Expiration 30 Days Max Loss $410 (occurs if stock closes below $200 or above $220 at expiration) Max Gain $590 (if stock closes at $210 at expiration) Break-even $ and $ ($210 strike plus $5.90 and $210 strike minus $5.90) Explanation In this example, you should have a strong opinion that in the next month Visa s stock price would be close to the current price of $ An iron butterfly is a strategy that is a more aggressive version of a standard iron condor. It is more aggressive because you have moved your short call and short put strikes to the ATM (at-the-money) strikes (straddle). This trade is risk-defined with a decent probability of success and a nice potential reward ($590) versus the risk ($410) taken. V: Here is what actually happened Stuck in neutral pretty much sums it up as V closed at $ on June expiration down only $0.61 from its May 21st trade value of $ Just like the trading strategies from ADBE, the premium selling strategies all did well in this environment. Each of the trades yielded the following results: Bullish: Long stock with June $220 call and June $200 put covered strangle sold for a $1.70 credit resulted in a gain of $109 (minus commissions and fees) Bearish: Long put vertical with June $215/$210 put vertical spread purchased for a $2.85 debit resulted in a gain of $215 (minus commissions and fees) Neutral: Short iron butterfly with June $210 straddle sold and June $200/$220 strangle purchased for net credit of $5.90 resulted in a gain of $539 with assignment risk on the short $210 put if not closed or rolled prior to expiration (minus commissions and fees) 10

11 Key Indicators Important information: Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options. Spreads, straddles, and other multiple-leg option strategies can entail substantial transaction costs, including multiple commissions, which may impact any potential return. These are advanced option strategies and often involve greater risk, and more complex risk, than basic options trades. Investors should also consider contacting a tax advisor regarding the tax treatment applicable to multiple-leg transactions. *The preceding information is not a recommendation or endorsement of any particular investment or investment strategy. Returns will vary and all investments involve risk, including loss of principal. Transaction costs (commissions, contract, exercise/assignment fees and other fees) are important factors and should be considered when evaluating any options trade. Examples presented are provided for illustrative and educational use only and are not a recommendation or solicitation to purchase or sell any specific security or to use a specific strategy. Supporting documentation for any claims, comparison, statistics, or other technical data in options communication will be supplied upon request. Potential Market Movers: What to Watch for Listed below are some key items that the Strategy Desk will be following in the upcoming month that may be of interest to you. Macro Data September 12 U.S. Retail Sales U.S. retail sales are a major indicator of consumer spending trends because they account for nearly one-half of total consumer spending and approximately one-third of aggregate economic activity. September 16 U.S. Producer Price Index The producer price index (PPI) for finished goods is a major indicator of commodity prices in the manufacturing sector. These prices are more sensitive to supply and demand pressures than the more comprehensive consumer price index. September 17 U.S. Consumer Price Index The consumer price index (CPI) is the most widely followed monthly indicator of inflation. The CPI is considered a cost-of-living measure since it is used to adjust contracts of all types that are tied to inflation. September 18 U.S. Housing Starts Trends in the housing starts data carry valuable clues for the stocks of home builders, mortgage lenders, and home furnishings companies. Commodity prices such as lumber are also very sensitive to housing industry trends. September 18 Philadelphia Fed Survey The Philly Fed survey gives a detailed look at the manufacturing sector. Since manufacturing is a major sector of the economy, this report can be a major influencer on market behavior. September 25 Durable Goods Orders Orders for durable goods show how busy factories will be in the months to come, as manufacturers work to fill those orders. The data provides insight not only into the demand for items such as refrigerators and cars, but also into business investment such as industrial machinery, electrical machinery, and computers. September 26 GDP GDP components such as consumer spending, business and residential investment, and price (inflation) indices illuminate the economy s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio. The four major categories of GDP personal consumption expenditures, investment, net exports, and government all reveal important information about the economy and should be monitored separately. Date Source: Econoday 11

12 Key Indicators Widely Held Stocks Quarterly Earnings Calendar (Estimated Dates) Symbol Earnings Date Average Forecast* Previous Current Quarter EPS Quarter EPS WFC 10/10/ JNJ 10/14/ INTC 10/14/ BAC 10/15/ GOOGL 10/16/ IBM 10/16/ GE 10/17/ VZ 10/21/ MCD 10/21/ T 10/22/ AMZN 10/22/ MSFT 10/23/ AAPL 10/28/ FB 10/29/ *Source: Morningstar 12

13 Education Series About the Options Market Center TD Ameritrade Institutional s Options Market Center is a comprehensive options offering, which includes: Strategy Desk Leverage options-related expertise and guidance to help you to make more informed decisions. Education Join us online or in person at one or more of our ongoing educational events. Technology Monitor the markets and place your orders on thinkpipes, a next-generation, innovative software. For more information, please contact your Relationship Manager. Options Market Center Webcasts Clients are more sophisticated now more than ever and may have a heightened sensitivity to portfolio risk. Join us to learn how to adapt to the evolving needs of your clients. Hear how utilizing options and incorporating technical analysis strategies may: - Help manage risk - Potentially generate income - Work to reduce portfolio volatility 13

14 Education Series Upcoming Option Market Center Webcasts for September and October: Earn 1 Certified Financial Planner (CFP ) CE Credit for each Webcast Dates and Topics I Time: 4:30 p.m. ET Duration: 1 hour Sept. 9 Gauging the Cost of Options With Volatility Charts Join us for a discussion around comparing and charting option implied and historical volatility. The webcast is geared toward advisors looking to determine the relative value of options. Sept. 16 Key Trading Metrics: Return on Capital, Probability of Profit and Estimated Move Learn how these metrics can help option traders make more informed trading decisions. Sept. 23 Technical Analysis: Determining Price Targets Using Price Patterns Join us for a discussion about how determining price targets using price patterns could lead to more effective order management. Investors tend to react in predictable patterns to various situations. Identifying these patterns could assist in forming specific entry and exit points as well as predetermined price targets. Sept. 30 Battle of the Income Strategies: Covered Calls Versus Naked Puts Join us to discuss the battle over generating income and find out how each of these strategies stack up in terms of cost, effectiveness, and scalability. Learn about the goals, potential benefits and risks and costs of each strategy. Oct. 7 Technical Analysis: Oscillating Indicators Join us for a discussion about how utilizing oscillating indicators could lead to trend strength or weakness, identification, and more effective order management. Oct. 14 Scaling and Position Sizing Your Option Trades Join us for a discussion on interpreting trade risk and applying proper position sizing as well as ways to scale to manage some of those risk factors. Oct. 21 Technical Analysis: Dow Theory Join us for a discussion about what Dow Theory is, how it was developed and how to use it. Oct. 28 Applying Short Call Vertical Spreads Join us for a discussion about how short call vertical spreads can be used to potentially enhance returns and reduce volatility on a single position or a portfolio. Note: CE credits are not available when accessing the webcast through the replay link. You must attend the live webcast to be eligible for the CE credits. Register for one or several webcasts using our new multiple registration page! 14

15 Contributing Writers Contributing Writers Joe Mazzola Senior Strategist, Institutional Trading Education TD Ameritrade Institutional Joe, a former market maker and options risk manager, also has an extensive background in options education. He not only teaches many of the options education events, but also designs webcasts and workshops for advisors. Additionally, Joe is on the TD Ameritrade Institutional Strategy Desk and helps advisors explore ways to potentially enhance portfolios based on price, volatility, and probability strategies ranging from basic hedging to complex options spreads. Clint Cowles Senior Specialist, Trade Desk/thinkpipes TD Ameritrade Institutional Clint is a Chartered Market Technician (CMT), who in addition to his duties on the thinkpipes Trade Desk, is also a thinkpipes chart specialist. He also designs and teaches multiple college workshops focusing on technical analysis. Bob Groves Strategist, Institutional Trading Education TD Ameritrade Institutional Bob is a former market maker and options risk manager. In addition to teaching about options strategies on weekly webcasts and at regional options workshops, Bob is also a member of the TD Ameritrade Institutional Strategy Desk, and helps to educate advisors on the practical application of risk-defined options strategies. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options. Investors should consider contacting a tax advisor regarding the tax treatment applicable to options transactions. A covered call strategy can limit the upside potential of the underlying stock position, as the stock would likely be called away in the event of substantial stock price increase. Additionally, any downside protection provided to the related stock position is limited to the premium received. (Short options can be assigned at any time up to expiration regardless of the in-the-money amount.) The naked put strategy includes a high risk of purchasing the corresponding stock at the strike price when the market price of the stock will likely be lower. Naked option strategies involve the highest amount of risk and are only appropriate for traders with the highest risk tolerance. Examples presented in workshop sessions are for educational and illustrative purposes only and are not a recommendation or solicitation to purchase or sell any specific security or product. While certain webcasts discuss technical analysis, other approaches, including fundamental analysis, may assert very different views. Transaction costs (commissions and other fees) are important factors and should be considered when evaluating any options trade. Supporting documentation for any claims, comparison, statistics, or other technical data in options communication will be supplied upon request. TD Ameritrade Institutional, Division of TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank TD Ameritrade IP Company, Inc. All rights reserved. Used with permission. 15