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Do you like the prospects for Oil Service Holders Trust (OIH)? I absolutely love this EFT, and my option portfolio has made 100% on it in the last six months. Over that time, OIH went up about 33%, a great run, (as of the middle of April 2006). But the option portfolio did about three times as well.
Even better, my options portfolio would have made 100% even if OIH had not enjoyed such a good run.
The Oil Service Holders, Trust (OIH) is made up of 18 component companies, all of whom serve some aspecct of the oil and gas industry, such as exploration, drilling, and production. These comanies are ranked according to their relative importance to OIH --
Baker Hughes Inc. (BHI)
Schlumberger Ltd. (SLB)
Halliburton Co. (HAL)
BBJ Services Co. (BJS)
Global Santa Fe Corp. (GSF)
Nabors Industries (NBR)
Transocean Sedco Forex Inc. (RIG)
Noble Drilling Corp. (NE)
Smith International Inc. (SII)
Weatherford International LTD (WFT)
Diamond Offshore Drilling Inc. (DO)
Ensco International Inc. (ESV)
Grant Prideco Inc. (GRP)
Rowan Cos Inc. (RDC)
National Oilwell Varco (NOV)
Hanover Compressor Co. (HC)
Tidewater Inc. (TDW)
Cooper Cameron Corp. (CAM)
If you like OIH, you should like OIH options even more (if you manage them right). In 2005, I ran 8 actual option portfolios using several different underlying stocks for my subscribers, and the average annualized gain for these portfolios was 103%. Only one portfolio lost money, and that was less than $600 (while several portfolios gained 10 or 15 times that much).
So who am I? My name is Terry Allen. I have an options newsletter called Terry’s Tips. I graduated from the Harvard Business School and have a Doctorate in Business Administration from the University of Virginia. Most of my life, I have been a business school professor, but my real love has been stock options ever since I traded as a market maker on the floor of the CBOE in 1979. For the past 27 years, I have perfected a strategy of trading stock options that I believe is truly unparalleled in the investment world. I have summarized this options strategy in a White Paper. I want you to buy it. Following this strategy could change your life.
For the past several years, this strategy has enabled me to maintain my goal of giving away $1000 every single day to worthy charities in my home state of Vermont. People have asked me why I continue working like this (at an age when most of my peers have retired). The answer is that I absolutely love stock options, and I am a teacher at heart. I want you to prosper as I have prospered, and give away lots of money to worthy charities in your own home state, just like I have done.
They say that buying stock is like playing checkers, while trading options is like playing chess. It can be a life-long learning experience. Many of my trading experiences were not profitable – I have lost millions of dollars trading options. And I have learned from every trade. I want to pass on that learning to you through my WhitePaper. I hope you will invest five minutes of your time to read the rest of the story that follows -
Back to OIH: I made an average of over 100% (annualized) in 2005 with an option strategy partly based on OIH. In many respects, this strategy involved taking less risk than if I had just purchased OIH stock. Half the options were “long”, meaning they benefited when OIH moved in one particular direction, while half were “short”, meaning that they benefited if OIH moved in the other direction. No matter which way OIH moved, half the options would benefit from the change in stock price.
Last year, I created two actual option portfolios for my Insiders who liked OIH (and other companies in the same industry) to mirror if they wished. The first portfolio started on September 9, 2005 with $10,000, and here is how an investment would have fared for this portfolio compared to the same amount of money invested in the stock (OIH):
A second portfolio was set up on October 24, 2005 with a starting value of $5000 in response to Terry’s Tips Insiders who liked OIH (and other Oil Service industry stocks), and who wanted to mirror my trades with a smaller starting investment amount. Here are the results for this second portfolio for its first six months of operation:
On April 18, 2006, just under 6 months from the portfolio being started, it had doubled in value!
OIH options can be better than OIH stock. I must admit that I am an options guy, not a stock guy. No matter how much I like OIH (and I do), I know that I can make a whole lot more with the options than I ever can with the stock. And I can do it with a strategy that is “hedged”. I can make money with OIH even if the stock does not go up. Usually, I can even make money when it goes down, (just as long as it doesn’t go down too much, too fast).
I call my system the 10K Strategy. It is somewhere between a boring buy-and-hold strategy and day-trading. It is not a marathon – you do not have to wait forever to see results. Neither is it a sprint, dependent on short-term increases in the price of the stock. Like any race, it takes a little effort to execute. But the extraordinary profit potential makes it all worth while, at least to my way of thinking.
A Simple Options Strategy: The 10K Strategy is based on the simple fact that all options become less valuable every day (if the stock stays flat), but short-term options go down in value (decay) at a faster rate than long-term options. I purchase slower-decaying long-term options and use them as collateral to sell faster-decaying short-term options to someone else. If the stock stays flat, I always win. Guaranteed!
But as we know, all stocks do not stay flat. Some good stocks, like OIH, actually go up much of the time. Having a good feeling about a stock (and being right) makes the 10K Strategy even more profitable than just enjoying the option decay advantage. If the stock goes up, I can make more with the 10K Strategy than I ever could with the stock alone.
If the 10K Strategy is so simple, why doesn’t everybody follow it? First of all, only Terry’s Tips Insiders know about it. That’s a pretty small, but growing, universe. Second, it really isn’t as simple as the basic underlying concept makes it seem. The strategy consists of calendar spreads at several different strike prices (both above and below the stock price), with differing numbers of spreads at different strikes (depending on your personal risk tolerance), often involves puts rather than calls (even if you are bullish on the stock), and is governed by a strict set of Trading Rules that determine when adjustments need to be made.
Why would I buy puts on a nice stock like OIH? Yes, it is true that you buy puts when you expect the stock to go down. And you don’t expect OIH to go down, at least most of the time. Yet the 10K Strategy deals mostly in puts, even for strong stocks such as OIH. In 2005, our 10K Apple Computer portfolio doubled in value in only four months using puts almost exclusively, and the stock rose about 50% during this same period. The way I trade puts, I can make money when the stock goes up just as easily as I can make money when it goes down.
In my White Paper, I have a special report which dramatically proves why puts are unequivocally better than calls for certain kinds of option strategies, regardless of which way you believe the stock is headed. This report alone is worth several times the cost of the White Paper. In fact, this one report could save many option traders thousands of dollars every year, and I have never seen this important secret mentioned in any of the hundreds of books I have read about stock options.
Does the 10K Strategy make money all the time? I’m afraid that nothing could be quite that good. But it is close. In 2005, I managed 9 different portfolios using the 10K Strategy. Each portfolio was set up in an actual brokerage account all by itself, and the positions (and every trade) updated each week for Terry’s Tips Insiders . Only one portfolio lost money, and that was a measly $594 loss. One portfolio went from a starting value of $10,000 to $20,000 in only four months. The average of all 9 portfolios recorded a 103% annualized gain for the year.
In the first two months of 2006, I encountered losses in my Phelps Dodge portfolio when the stock gyrated by $15 four times in only two months, each surge or drop requiring that I make adjustments to protect against losses. This kind of market action is precisely the one condition that the 10K Strategy cannot tolerate (although some variations of the strategy can handle this kind of market action as a trade-off for a lower possible maximum gain).
It all sounds too complicated – can you manage the 10K Strategy for me? Unfortunately, I can’t manage your money. I publish an options newsletter, and am not a licensed investment advisor. But through a mechanism called Auto-Trade, many brokerage firms will execute my recommendations in your account for you. Auto-Trade programs are available at OptionsXpress, thinkorswim, Questrade (for Canadians), and several other brokers as well.
Do you actually trade OIH options? No, I don’t. I believe that (most of the time) trading options on an individual company is too risky, and the option prices are usually too inefficient for our trading purposes (i.e., there is too big a gap between the bid and asked prices of the options). Instead, I trade options on Oil Service Holders (OIH), which is made up of 18 separate companies in the same industry. OIH is an important component of this group of companies.
Why are options on OIH too risky? It has nothing to do with the company. Rather, it has to do with the price behavior of most individual companies. The 10K Strategy does best when the stock does not gyrate wildly. At certain times, most individual companies are subject to sudden wide swings in their stock prices. Earnings are announced, and the company either exceeds (or fails to meet) expected results, and the stock moves accordingly. An analyst upgrades (or downgrades) the stock unexpectedly, and the stock makes a big move. Sudden price changes in the stock can result in losses when using the 10K Strategy, so we prefer to trade on a basket of stocks (like OIH) rather than an individual company. That way, if one company has a big swing in stock price, the effect on the total basket of stocks is usually minimal. (If the companies are all in the same industry, sometimes one company’s gain is another’s loss, so the net effect on the basket of stocks is zero).
Of course, we do trade in some individual stock options, like Google (GOOG), Apple (AAPL) and Sears (SHLD), but we know that these companies will be extremely volatile at times, and need to take special care to protect against such volatility. Most of the time we are successful, but not all of the time. In 2005, for example, one of our Google portfolios gained over 100% in six months before losing nearly half its value when earnings deviated significantly from expectations. Most of us don’t like that kind of emotional roller coaster ride, and prefer a basket of stocks like OIH that is not dependent on a single company’s results. (That Google portfolio did manage to make 57% for the year, however, in spite of the set-back).
Does the stock have to go up for the 10K Strategy to be profitable? Most of our strategies are designed to make the most profit if the stock goes up. But quite often, we can make money even if the stock goes down, as long as the drop is not too fast for us to make adjustments to the lower price level. For example, our Sears portfolio gained 50% in 2005 (in less than 5 months of existence) while the stock fell from $144 to $116. The stock fell 6% on the very first day that we established the portfolio, and it took a full month for us to recover from that initial drop. After that early shock, the stock drifted slowly down, giving us lots of time to adjust and gain profits each month.
A Strategy for Every Risk Level. The 10K Strategy is versatile. You can change the parameters of a portfolio (number of options, strike prices, length of time of the long positions, etc.) to achieve any risk profile you would like. The 10K Strategy can be entirely different for different people, depending on their relative risk comfort level. Most of our portfolios are designed to make 100% a year, but the risk level is understandably higher for these portfolios than many people’s comfort level.
At the other end of the spectrum, we have our lowest-risk strategy designed to gain only 20% - 30% a year. It is called the DIA Sleeping Giant portfolio, and is based on the tracking stock for the Dow-Jones Industrial Average (DIA). It does best if the stock goes slowly up. In 2005, DIA fell slightly, about ½ of 1%. Our Sleeping Giant portfolio earned 23% for the year (after commissions – all of our portfolios are actual broker accounts, and all trading costs are included, unlike many investment newsletters who report their results without taking commissions into consideration).
In 2006, in response to subscribers who wanted more action than the Sleeping Giant provided, but less risk than the 100%-possible-gainer portfolios, we have set up the Fifty And Out portfolio. It is designed to make a profit of 50% for the year. It has about half the risk of the Google (GOOG), Apple (AAPL) and Sears (SHLD) portfolios that might well earn 100% or more for the year. (By the way, the Oil Services portfolios have considerably less risk than these three portfolios, and through April 2006 were on track to achieve 100% before their first year of existence ended).
Why is it called the Fifty and Out portfolio? Once the portfolio gains 50% in value, that entire profit is turned into cash and removed from the portfolio. This is like taking some of your casino earnings off the table, and not betting them again so that you are assured of taking at least something home. An example of the Fifty and Out portfolio would be to get set up with Apple Computer, a stock that is quite volatile, but which has shown technical resistance at $65 on the low side and $85 on the high side. We set up a portfolio that would gain a minimum of 12% if the stock ended up at any price within this range in two months after initiating the positions. Here is what the risk profile graph looked like for this portfolio which was set up with just less than $10,000 when the stock was trading at $71:
You can see from this graph that at least a $1200 profit will take place in the portfolio if Apple manages to fall anywhere between $61 and $85 on April 21st when the April options expire. That works out to be 12% for 2 months, or 72% annualized, a little higher than our 50% goal (but we know that there will be probably be some periods when the stock falls outside the range and no profits result). Over most of the range, the profit will actually be about 15% - 20%, but we try to keep our expectations low so we can be pleasantly surprised when they are exceeded.
We include a risk profile graph like this one for every one of our portfolios each week so that Insiders can easily see what will happen to their investment at the next expiration of their short option positions – at each of the various stock price levels. These graphs make it simple.
Would you be comfortable with a portfolio that would make a 72% - 120% annualized profit regardless if Apple fell (but no more than $10, about 14%) or went up (but no more than $14, about 20%) in a two-month period? Most of us would feel some level of comfort with those odds. If you are still uncomfortable, I can show you how you can expand the range of possible stock prices if you are content with a smaller possible profit for the period.
Below is a graph showing positions that could have been put on in the middle of April 2006 using Oil Services Holders (OIH) as the underlying (when it was trading at about $150). These positions would cost $10,000 to establish. Our goal in setting up this portfolio was to create a situation where we were indifferent to a move in the stock of at least $20 in either direction, at which point we would have to make an adjustment to create a new range of prices within which we would earn the same profit. As you can see, a $2000 profit (20%) would occur if the stock landed anywhere between $130 and $170 at the July expiration.
How Much Does It Cost to Learn All About the 10K Strategy? The White Paper costs less than a meal for two at a decent restaurant. It gives you all the information you will need to execute the 10K Strategy, and set up, and maintain, a portfolio that matches the degree of risk that you are comfortable taking. Complete Trading Rules for every risk level portfolio are included as well.
And there is more. First, you will receive a free Stock Options Tutorial which will acquaint you with the basics of option trading, including a simple explanation of the often-intimidating “Greeks.” Second, you will receive a free two-month subscription to our Insiders Newsletter, where you can watch our actual portfolios unfold each week (and receive Trading Alerts whenever a change is made in a portfolio). If you wish, you can mirror one or more of these portfolios in your own account, or sign up for Auto-Trade with your broker and have the trades made for you.
And there is still more, like a list of 20 “Lazy Way” companies which allow you to make two trades at the beginning, and do nothing more for two full years. At the end of this period, you will have earned a minimum 100% on your investment, mathematically guaranteed, if the stock stays flat or goes up by any amount. In most cases, it can even fall by 5% and you make at least 100%, and it can fall by 25% and a small profit still results. (You can figure out all these numbers precisely, before you make the investment.)
Once you have become an Insider (by buying the White Paper), you will have access to several valuable reports on a variety of option strategies, many of which you will not be able to find in any books on options.
All this for less than the cost of a meal for two at a decent restaurant. And once you put the strategy to work, you might well be spending many pleasant evenings at better-than-decent restaurants for the rest of your life. Who knows? In could happen. It did to me, and I want to pass on my learning experiences to you.
So here’s my offer:
Become a Terry’s Tips Insider, pay only $79.95, and receive my 72 page White Paper which describes 4 unique trading strategies with complete Trading Rules for each, including the 10K Strategy that earned an average of 103% for 8 portfolios in 2005, and get all these additional benefits absolutely free:
Here is the link that could change the way you invest your money for the rest of your life - https://www.terrystips.com/secure/order.php.
If you are not convinced that now is the right time to make this investment in yourself, at least sign up for my free newsletter. In your first issue, I will show you how I used the 10K Strategy to make 124% on Fannie Mae in a year when the stock fell by over 8%.
For more information about the "Lazy Way" strategy to double your money, click here.
For more information about how you can use the 10K Strategy in your IRA, click here.
For more information about options in general, click here.
But the most important link is right here - https://www.terrystips.com/secure/order.php. That is where you can order my White Paper and maybe change how you ever thought about investing for the rest of your life.
| Tip 1: All About Stock Options | Tip 5: Double Your Money The Lazy Way |
| Tip 2: All About the 36% Solution | Tip 6: The 10K Option Strategy To Make 100% Every Year |
| Tip 3: Never Buy A Mutual Fund | Tip 7: Trading ETF Options |
| Tip 4: Turbocharge Your IRA, Roth IRA, or 401K | Tip 8: Other Stock Option Resources |
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