High Profit - Low Risk Trading

© 2002 Optionetics 1
 Who We Are
1. Leading stock market education
company in the United States &
Canada

2. Courses taught by experienced,

successful traders

3. Since 1993, we have helped over

30,000 students trade the markets
successfully.

© 2002 Optionetics 2
 Option Elements
Stock
Price Expiration
Call Prices: Months

Price of XYZ - 105

STR July Aug Oct
Strike 100 6.3 7.5 8.2
Prices 105 2.0 3.9 4.7
110 0.4 1.6 2.7
Option Premiums
© 2002 Optionetics 3
 Average Trader
1. Uses discretionary method
2. Greed and Fear
3. Buy Low – Sell High
4. The Religious Approach
5. System Trading with Limited
Risk
© 2002 Optionetics 4
 Dogs of the DOW System
1. Uses the DOW 30 Stocks
2. System only BUYS certain stocks
3. One Year Trading System
4. No Risk Management

© 2002 Optionetics 5
 Dogs of the Dow for 2002 January - March
Stock Symbol Price 12/31 Yield Price Today Difference Yield Totals
EK 29.43 6% 34.06 4.63 0.450279 5.080279
JPM 36.35 4% 34.96 -1.39 0.3398725 -1.05013
SBC 39.17 3% 39.25 0.08 0.25558425 0.335584
IP 40.35 2% 45.98 5.63 0.25017 5.88017
XOM 39.9 2% 44.02 4.12 0.233415 4.353415

Totals 185.2 14.59932

ROI 8%
Annualized 16%
32%

© 2002 Optionetics 6
 System Recap
Long Term Stock Buying System

Unlimited Returns (Best 40% in One Year)

Substantial Risk (Actual worst was 6.8% for One

Year)

Outperforms nearly every fund in the last 30

years (Average Annual Returns – 22% in the last
30 years)

© 2002 Optionetics 7
 Analyzing Positions

1. What if I am right?
2. What if I am wrong?
3. Great traders look at risk.

FIRST !

© 2002 Optionetics 8
 Bullish
Buy a Call instead of buying stock
• Lower Cost and Risk

• The Power of Leverage

• The Power or Protection

© 2002 Optionetics 9
 Dogs of the DOW System
Using Call Options
1. Uses the DOW 30 Stocks
2. Buy 1 year ATM Call Options
3. Rebalance each year in December

© 2002 Optionetics 10
 Options on the Dogs of the Dow for 2002
Stock Symbol Premium Yield Price Today Difference Yield Totals
EK 3 0% 3.5 0.5 0 0.5
JPM 3.5 0% 3.2 -0.3 0 -0.3
SBC 4 0% 4 0 0 0
IP 4 0% 6.5 2.5 0 2.5
XOM 4 0% 6 2 0 2
Totals 18.5 Interest 2.3125
Profit 7.0125

ROI 38%
Annualized 76%
152%
© 2002 Optionetics 11
 Bearish
Buy a Put instead of selling stock
• Lower Cost and Risk

• The Power of Leverage

• The Power or Protection

© 2002 Optionetics 12
 DOW Sell System
Buy 60-90 Day Put Options on the
DOW when the VIX drops below a
level of 20.

Exit the trade within 30 days to

expiration.
© 2002 Optionetics 13
 Index System

© 2002 Optionetics VIX Sell Signals for the last 3 Years 14

 Index System

5/20/2002 19.99 DOW DROPS 1000 points JUL02 Puts up 220%

The Option Returns reflect buying 60-90 Day options and holding them no
longer than 30 days to expiration.

NOTE – We will show you a system using this indicator that works 96% of
the time with Delta Neutral Trades
© 2002 Optionetics 15
 Spreading
With “Creative Financing” we can trim
the cost of our trades, therefore:

1. Further reducing both the cost and risk

2. Reducing the Breakeven on the Trades

3. Increasing the Return in Investment

4. Smoothing out the equity curve and stress

© 2002 Optionetics 16
 Spreads on the Dogs of the Dow for 2002
Stock Symbol Premium Yield Price Today Difference Yield Totals
EK 1.5 0% 3 1.5 0 1.5
JPM 2.5 0% 2.8 0.3 0 0.3
SBC 2.5 0% 3.5 1 0 1
IP 2.5 0% 5.5 3 0 3
XOM 2.5 0% 5 2.5 0 2.5
Totals 11.5 Interest 2.3125
Profit 10.6125

ROI 92%
Annualized 184%
369%
© 2002 Optionetics 17
 Comparing Trades
• Dogs of the Dow original system would
cost $18,500 for 100 shares of each
stock.
• Dogs of the Dow call option system
would cost $1850
• Dogs of the Dow Spreading would cost
just $1050
• Using Options lowers the risk
dramatically on this safe system
© 2002 Optionetics 18
 Optionetics
• Visualize your Risk to determine the
BEST strategy to use.
• Combining Options into “Spreads” -
Slash your risk over 90%!!!
• Great Trading Systems to use the other
11 months of the year.
• TRADING SESSION Using the right tools
and indicators for High Octane/ High
Probability trades.
© 2002 Optionetics 1500/500/5 19