Commodities Investing Methodology

Trading Description of the Option Selling Strategy (OSS):

FCI utilizes a market neutral trading strategy that doesn’t attempt to forecast market direction. We use options on futures to create market neutral positions by simultaneously writing (selling) Out of the Money (OTM) call and put options, followed by appropriate adjustments based on movement of the underlying futures contract.

We earn profits when:

• The price of the options that have been written (sold) decline so that the options can be purchased for less than they were initially sold.
• Options expire worthless, which provides a full profit on the option premium sold (after commission and other fees).

OSS'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.

Our commodities strategies also include:

• Trading in liquid commodity markets such as energy, grains, metals, financials, softs and indexes.
• Targeting total invested capital requirements of approximately 40% to 60% of the total account balance, depending on the program.

Trading Description of the Credit Premium Program (CPP)

In contrast to FCI’s OSS program, it is the intention of FCI - CPP to write options that are closer to the strike price of the commodity. Writing options that are closer to the strike price, have a noticeably improved reduction in the bid/ask spread on these options. There is also much more liquidity on the closer options. This l improves our overall execution of writing options with favorable annual yields.

Offsetting hedges are established by the use of vertical or horizontal offsetting options or the opposite position in the underlying asset. The net spread is predetermined profit with the hedge allowing a predetermined loss point in the event of adverse market movements.