january 15, 2011 protected index program presentation
DESCRIPTION
This is not investment advice – it is for educational purposes only. It is an example of investment risk management program provided by PTI Securities & Futures LP and may or may not be suitable for every portfolio. Information in this presentation is as of 1/15/2011.TRANSCRIPT
PTI Securities & Futures L.P.www.PTISecurities.com 800.821.4968
Protected Index Program®
This is not investment advice – it is for educational purposes only.
It is an example of investment risk management provided by PTI Securities and may or may not be suitable for every portfolio.
Please read the Options Disclosure Document
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Considerations: Understand the obligations and risks Options are not suitable for all investors Commissions, Taxes, and Margin Requirements are not calculated here ..and may have significant effects on your returns Investors considering option investing should consult their tax advisor as ..to how taxes affect option transactions
Options involve risks and are not suitable for all investors. For more information, consult your investment advisor. Prior to buying or selling options, a person must
receive a copy of Characteristics and Risks of Standardized Options, which is available from the Chicago Board Options Exchange by calling 1-800-OPTIONS or by writing the Exchange 400 S. LaSalle St., Chicago, IL 60605. “Dow Jones(SM)” and “The Dow”(SM), are service marks of Dow Jones & Company, Inc. and have
been licensed for use for certain purposes by the Chicago Board Options Exchange, Inc. (CBOE). CBOE’s options based on Dow Jones Indexes are not sponsored,
endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in such a product. Copyright 1997, The
Chicago Board Options Exchange, Inc.
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PTI Understands the Needs of Traders and Delivers Full
Service At Competitive Rates
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Excellent, Fast Spread Execution: Superior spread execution is critical and all PTI brokers fight to get the best and fastest execution. Many PTI clients do spread trading and our business is built on premium spread execution.
Competitive Commission Rates: PTI is not the cheapest place to trade, but we know that there is more to gainingyour business than simply the commission rate. Obtaining the best possible executions is what our clients want - at a fair competitive rate. And PTI Delivers!
Dedicated Team of Highly Qualified Brokers: At PTI our brokers work as a trading team – YOUR trading team! When you call PTI, every broker who picks up the phone is ready to answer our questions AND take your orders.
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In order to simplify the computations, commissions have not
been included in the examples used in these materials.
Commission costs will impact the outcome of all stock and
options transactions and must be considered prior to entering
into any transactions. Any strategies discussed, including
examples using actual securities and price data, are strictly for
illustrative and educational purposes and are not to be
construed as an endorsement, recommendation, or solicitation
to buy or sell. Supporting documentation for any claims,
comparisons, recommendations, statistics or other technical
data, will be supplied upon request. Past performance is not a
guarantee of future performance.
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PIP Investment Program Objectives
To achieve a return substantially equivalent to the return of the overall market, with defined risk and considerably less volatility
Why Diversification?
Three types of risk:1. Company Specific2. Industry3. Market
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Not Just A Recent Phenomenon
Former Widely Held Stocks:
PRD: $74.56 on May 26, 1972 / $.03 May 27, 2003
XRX: $28.58 on August 8, 1972 / $10.75 May 27, 2003
EK: $66.61 on Jan 3, 1973 / $31.92 May 27, 2003
KM: $16.67 on Jan 2, 1973 / $00.00 May 27, 2003
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Performance Review Mar’00 to Mar’03
S&P 500: Down from 1498.58 to 848.18 (-43 %)
QQQ: Down from 109.50 to 25.25 (-77%)
LU: Down from 47.48 to 1.47 (-97 %)
CSCO: Down from 77.31 to 12.98 (-83%)
SUNW: Down from 46.85 to 3.26 (-93%)
JDSU: Down from 115.94 to 3.25 (-98%)
* Comparing prices from 3/31/00 to prices on 3/31/03
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Performance Review Feb’08 to Feb’09
S&P 500: Down from 1330.63 to 735.09 (-45 %)
QQQ: Down from 42.75 to 27.48 (-36%)
CME: Down from 500.76 to 181.77 (-64%)
RIMM: Down from 103.62 to 38.55 (-63%)
C: Down from 22.46 to 1.50 (-93%)
GM: Down from 22.99 to 2.25 (-90%)
* Comparing prices from 2/29/07 to prices on 2/27/09
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Diversification Solutions
Purchase Baskets of Stock (Unit Investment Trusts)
S&P 500 Index (SPY) Russell 2000 Index (IWM) NASDAQ 100 Index (QQQ)
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Why Unit Investment Trusts?
Tax Efficiency
Lower Costs*
Transparency
Buying & Selling Flexibility
All Day Tracking & Trading
Diversification
A Wide Array of Investment Strategies
*Ordinary brokerage commissions apply
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What Are SPDRs? SPDRs (SPY) represent ownership in the SPDR Trust, a unit investment trust owning substantially the same stocks and in the same percentage as the S&P 500 Index. These stocks represent a broadly diversified investment that spans over 90 separate industry groups. The price performance and dividend yield of the trust should be substantially the same as the S&P 500 Index.
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SPY Basics
SPYs are S&P 500 Depository Receipts
SPYs are 1/10 value of the S&P 500
SPYs trade in increments as little as $.01
SPYs can be bought or sold at any time during trading day
SPYs pay quarterly dividends (2010) (annual $2.27 yield of 1.76%)
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The Russell 2000 Index offers investors access to the small-cap segment of the U.S. equity universe.
The Russell 2000 is constructed to provide a comprehensive and unbiased small-cap barometer
The Russell 2000 includes the smallest 2000 securities in the Russell 3000.
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What are IWMs?
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What are QQQs? QQQs represent ownership in the NASDAQ 100 Trust, a unit investment trust owning substantially the same stocks and in the same percentage as the NASDAQ 100 Index. These stocks represent 100 of the largest non-financial U.S. and non-U.S. companies on the NASDAQ Stock Market. The price performance and dividend yield of the trust should be substantially the same as the NASDAQ 100 Index.
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Index Portfolio Example
Buy: 1000 shares SPY @ 128.27 - Cost: $127,270 Buy: 1000 shares IWM @ 79.86 - Cost: $79,760
* All prices as of 1/13/11
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Why Portfolio Protection?
Impossible for anyone to foresee short- term market shocks: Enron collapse, Sept. 11, UAL disaster of 1989, Kennedy assassination, etc.
Lessens the need for market timing decisions.
The solution – ALWAYS have protection in place.
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Why Protective Put Options?
Define a maximum amount of downside investment risk when purchased to protect an underlying security Retain unlimited upside potential for the life of the option
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Why Buy LEAP Puts?
Longer period until expiration – a LEAP is an option which has an expiration date in excess of 1year in the future. Short term options are less than 1 year.
Maintain limited downside investment risk feature.
The more time an option has until its expiration date, the more slowly the premium declines, and the more time in which an investor’s market opinion may be realized.
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Time Decay of Options
Time Value: The portion of the option premium that is attributable to the amount of time remaining until the expiration of the option contract.
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Protected Portfolio Example
Long the S&P 500 Index - Purchase of the SPDRs Long the the Russell 2000 Index - Purchase of the IWMs Long the SPX and IWM LEAP Puts -To achieve a level of portfolio protection
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Why Sell Near-term Covered Calls?
Short term options theoretically decay at a faster rate than LEAP options
Attempts to offset cost of long-term Put protection
The sale of Covered Calls limits upside investment potential
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Protected Index Investment Strategy
Long the SPDRs, IWMs and/or QQQsTo achieve overall market exposure
Long the corresponding LEAP PutsTo achieve a level of portfolio protection
Sale of nearer term Covered CallsTo enhance yield and offset cost of Put insurance
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PTI Proprietary Management Program Attempts to maximize returns and diversification through a blend of S&P 500, Russell and/or NASDAQ 100 indexes, as requires.
Looks to limit initial total risk to 10-15% of portfolio value.
Uses the faster time decay of the short Call to pay for the Put protection.
Looks to roll the Calls and/or Puts in volatile or trending markets as needed.
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Example of An Initial Position
Buy 1000 shares SPY @ 128.27 - Cost: $128,270
Buy 10 SPY Dec’13 120 Put @ 16.25 - Cost: $16,250 ($46 per month)
Sale of 10 SPY Feb 133 Call @ .55 or $550
Total Cost: $143,970
Total Risk $23,970 or 16%
* All prices as of 1/13/11
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Example of An Initial Put Spread Position
Buy 1000 shares SPY @ 128.27 - Cost: $128,270
Buy 10 SPY Dec’13 120 – 70 Put Spreads @ 12.50 - Cost: $12,500
($35 per month per put)
Sale of 10 SPY Feb 133 Call @ .55 or $550
Total Cost: $140,220
Total Risk $20,220 or 14.4% (assuming SPY above 70)
* All prices as of 1/13/11
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Protected Index Strategy Expectations
This strategy will under-perform the underlying index during periods of rapid price advances, due to the short Calls which limit upside potential and declining LEAP Put values.
This strategy should outperform the underlying index in static markets, due to the faster time decay of the short Call vs. the long LEAP Put.
This strategy should significantly outperform the underlying index in decreasing markets due to both the short Call premium and the long LEAP Put.
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Profit & Loss at Call Expiration
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Protected Index Strategy Objective
This is a conservative strategy suitable for investors looking for market participation with finite risk parameters.
The Protected Index strategy goals are to equal or exceed the long-term return of the market averages.
Utilizing this strategy, a portfolio has less total risk and less short term volatility.
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A Decade: Lessons Learned
Over the past decade the performance of the Protected Index Program®, relative to the S&P,
has exceeded even our expectations.
As Howard Cosell once said,
"That's why you play the game."
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Possible Reasons for the Over-performance
1. It seems a little easier to have patience and to do some minor market timing with the Calls when you are never in a panic situation. We were always protected and always knew what our risk was.
2. It is easier to take some small chances with the Calls within the framework of a successful program. Once the program starts to work and it is exceeding the return on the S&P you almost develop a “momentum”.
3. The ability to roll "up and out" has worked better than anticipated. We have solid brokerage relationships with brokers in the various pits that have surprised us with some amazing executions on several occasions.
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Possible Reasons for the Over-performance
4. We really had only one nightmare month, the wild swings in November, 1999 brought about by the Long-Term Capital situation and resulting bail-out.
5. Maybe, just maybe, part of it is because we have some talent and work hard for every dollar the market gives us. We believe in the program and think it is the right strategy for a lot of customers and institutions for the long term. We are motivated to prove ourselves correct. The first eight years only makes us more convinced.
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PTI Securities News: For full articles and media coverage, visit www.PTISecurities.com
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Interested In Joining PTI Now?
Please speak with Dan after this seminar or visit
www.PTISecurities.com to download an application.
Possibly Interested In Joining PTI Later?
Call PTI to set up an individual meeting to review your goals.
Call PTI toll free at 800.821.4968 to request an application.
Visit www.PTISecurities.com to download an application.
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