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Financial Commodity Investments
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Access This Page Directly:
http://financialci.altavra.com
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Program Description
The
goal of Financial Commodity Investments ("FCI") is to achieve appreciation with the use
of alternative investment strategies. FCI will
attempt to obtain consistent quarterly returns that
exceed those of the equity market and to protect
capital against adverse market trends.
The
Program engages in the selling or “writing” options
(puts and calls) on futures contracts in the natural
gas, crude oil, coffee, soybeans and corn markets,
among others. However, in the future, FCI may trade
a broader portfolio of options, futures and cash
markets. In doing so FCI reserves the right to
place trades in any commodity futures contract or
option contract thereon, on any exchange, foreign or
domestic, at FCI 's sole discretion.
FCI has
extensive research and knowledge in the area of
selling far out of the money (“OTM”) options.
Historically, about 90% of the purchasers’ of
options are net losers on their purchased investment
in options. Many of the purchasers of options are
making this investment merely as an insurance
investment; allowing them to hedge their underlying
commodity from a substantial decrease in value. This
is done as insurance to protect against a
substantial increase or decrease of their underlying
investment. Other purchasers of options of
commodities are speculators. These speculators are
playing calculated odds, assuming that an event may
occur, causing a substantial shift in the value of
an underlying commodity.
FCI
uses an approach to trading that relies heavily on
selling or “writing” options on futures contracts.
FCI may also, from time to time, purchase options
and may employ the use of hedge strategies such as
option spreads, strangles, straddles, or may
purchase or sell futures to offset an open option
position.
The
implementation of this trade program depends on both
technical and fundamental considerations. Technical
analysis involves the study of charted prices,
volumes, momentum, strengths, and moving averages to
determine the future course of prices. Technical
indicators also include the prices of various
options, both in absolute terms in relation to their
historic price level, and in relative terms
comparing the prices of puts to the prices of
similar calls. Fundamental considerations include
the condition of the market, the trend and
volatility of the markets, supply and demand, as
well as business and economic factors, governmental
policies, weather, and other worldwide events, which
can influence the markets.
FCI
utilizes a market neutral trading strategy that does
not attempt to forecast market direction. FCI
utilizes options on futures to initiate market
neutral positions by simultaneously writing
(selling) OTM call and put options, followed by
appropriate adjustments based on movement of the
underlying futures contract. Profits are derived
when the price of the options that have been written
(sold) declines such that the options can be
purchased for amounts less than the price at which
those options were initially sold. Profits also are
realized when options expire worthless, providing
full profit on the option premium sold (after
commission and other fees). FCI's primary trading
philosophy is for profits to be made when the value
of options are reduced as a function of time, rather
than a function of market direction.
The
profitability of a trading program consisting of
selling options on a futures contract depends upon
the subsequent price movement of the underlying
contract. For example if FCI writes puts on an
index, and the puts are not bought in before their
expiration, the strategy will be profitable if the
index is above the strike price of the put when the
put expires. If the price of the underlying contract
is below the strike price of the put when the put
expires, the strategy may potentially produce a
loss.
Conversely, if FCI writes calls on a futures
contract, and the calls are not bought in before
their expiration, the strategy will be profitable if
the underlying contract is below the strike price of
the call when the call expires. If the price of the
underlying contract is above the strike price of the
call when the call expires, the strategy may
potentially produce an unlimited loss.
It is
the intention of FCI to write options that are at
least 10% to 20% out of the money from the price of
the underlying futures contract.
“Out-of-the-money” puts have strike prices below the
current price of the underlying futures contract,
and “out-of-the- money” calls have strike prices
above the current price.
The
price of the underlying futures contract determines
whether the option expires without being exercised
(which is what FCI anticipates will happen) or
whether the option is exercised because it is
“in-the-money.” Prices on futures contracts are
volatile. Price movements of these contracts are
influenced by a wide variety of complex and hard to
predict factors, such as: government trade, fiscal,
monetary and exchange control programs and policies;
national and international political and economic
events; changes in interest rates; and prevailing
psychological characteristics of the marketplace.
The profitability of FCI’s options program may
depend on anticipating trends in the volatile price
movements of futures contracts.
FCI has
developed a proprietary strategy for finding,
measuring, monitoring, investing, and recognizing
the commendable returns for option selling. Real
time pricing information is used and is compared to
the additional numerous amounts of financial data
available. Information used to influence the
investing decisions includes:
- The
historical pricing patters of the underlying assets
and / or indices
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The
historical and current implied volatility and is
compared to the commodity’s historical and current
volatility
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The
commodity’s price movement
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Current
press release and financial forecasted data of a
commodity
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The
liquidity of an underlying asset and its related
option
An
investment of option selling is done with the
strategy of selling options that are targeted to
expire within one to six months of expiration. The
current price of the underlying commodity, the
volatility of the commodity, and the amount of time
left until expiration, all are factored in
determining the calculated percent of probability
for FCI’s investment strategy to be profitable.
The
entire investment portfolio is further monitored, by
consistently calculating the expected returns, using
discounted probabilities of options expiring out of
the money and the estimated monthly premiums
received on an annual basis. The portfolio is
monitored and adjusted so that maximum annualized
returns are achieved with minimal additional risk.
The portfolio is further adjusted based on the
financial markets. By collecting premiums from the
selling of far out of the money options, commendable
annualized returns can be achieved. And it is this
strategy that allows investors to attain commendable
returns, in an environment, that is not dependent on
whether the financial markets are in an increasing,
decreasing, and/or stagnant mode.
FCI
plans on utilizing extensive research material to
find and identify specific commodities and the
underlying option contracts appropriate for these
strategies. FCI’s investment managers are also
experienced and versed in the measurement of the
risk and returns associated with these alternative
investment strategies.
The
amount of an account's net assets committed to
margin and option premiums will vary as a result of
market volatility, among other reasons. On average,
20% to 40% of net assets of an account will be
committed to margin and option premiums, although,
due to market conditions, the amount committed may
be substantially higher at various times. In
addition, if an exchange or the client's FCM
increases margin requirements (because of market
volatility or otherwise), the percentage of net
assets committed to margin and option premiums may
increase to levels beyond the stated averages.
There
can be no assurance that the investment objectives
of FCI will be achieved.
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Risk Management
Financial
Commodity Investment's
projects a trading range for a commodity contract
over a specified period of time, usually one to six
months. After considering other factors, FCI sells
put and/or call options on the outer limits of that
trading range. If the contract price stays within
the projected range, time will erode the value of
the option to the purchaser, the option will be
worthless at expiration, and the premium that the
client collected upfront, net of brokerage fees,
will be profit. If the contract price starts to get
close to a strike price and threatens to breach one
of the projected limits, FCI needs to manage this
risk. It should be emphasized that, unlike an
option buyer who risks losing only his investment in
the premium, the seller of an option has unlimited
risk. FCI must carefully manage this risk. If it
does not manage this risk, a client could have
substantial losses. In addition, there may be
market conditions that make it impossible to
properly manage this risk. Thus, FCI’s options
selling program is designed for sophisticated
investors who can accept a high degree of risk.
Due to
the risks involved in selling options, significant
emphasis is placed on risk management techniques to
minimize the losses on any particular trade on the
portfolio as a whole. Stop-losses orders are used
and managed in a proprietary manner to balance the
potential loss in any trade versus the opportunity
for maximum profit. Stop-loss orders may not
necessarily limit losses since they become market
orders upon execution; as a result a stop-loss order
may not be executed at the stop-loss price.
Depending on the model used, risk may be managed
through variable position size or risk levels for
any market. Additionally, modern portfolio
techniques are used to construct the overall
portfolio for a given program. These techniques will
account for the volatility and correlation for
markets as well as behavior during specific market
extremes. Portfolio adjustments will be made to
account for systematic changes in the relationships
across markets. Portfolios are managed to meet risk
and volatility tolerances.
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Management Information
Craig B. Kendall, is
the owner and manager of Kendall & Company,
Financial Investment, Inc. and Financial Investment,
LP. Mr. Kendall, is a CPA licensed in the state of
Virginia. Mr. Kendall operates, Kendall & Company, a
local CPA firm, tailoring its services to
entrepreneurial business needing comprehensive CPA
and Chief Financial Officer, "CFO Services for
Hire".
In 1997, Mr. Kendall,
founded Financial Investments, Inc. an investment
firm participating in the acquisition of equities,
private placement memorandums (PMM), and has
participated in other investments securities. In
2001, Financial Investments, Inc. developed and Mr.
Kendall is the general manager of Financial
Investment, LP (FILP), a limited partnership
developed to capitalize on the opportunities
available using alternative investment vehicles.
Mr. Kendall is Series 3
and Series 66 licensed in the state of Virginia. He
is a Registered Investment Advisor, and serves as a
firm investment advisor. His business
experience includes over twenty years in the
finance, accounting and investment banking industry.
The
descriptions above
are from the manager’s website and disclosure document.
THE
RISK OF LOSS IN TRADING FUTURES, OPTIONS AND
OFF-EXCHANGE FOREX
CAN BE SUBSTANTIAL. PAST RESULTS ARE NOT
NECESSARILY INDICATIVE OF FUTURE RESULTS. PLEASE READ THE
CTA'S RISK DISCLOSURE DOCUMENT CAREFULLY BEFORE
INVESTING MONEY.
Disclosure Statement
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