Paul Baiocchi, Moderator

ETF Analyst, IndexUniverse

Chintan Kotecha, Panelist

Equity-Linked Analyst, US Equity Derivatives Bank of America Merrill Lynch

Michael Lally, Panelist

Regional Sales Director Capital Wealth Planning LLC

Jeffrey D. Wycoff, Panelist

Managing Partner Fort Point Capital

ETF Options Strategies:

Keeping Your Options Open

Paul Baiocchi Moderator ETF Analyst IndexUniverse

ETF Options Strategies:

Keeping Your Options Open

Chintan Kotecha Panelist Equity-Linked Analyst, US Equity Derivatives Bank of America Merrill Lynch

Jeffrey Wycoff Panelist Managing Partner Fort Point Capital

Michael Lally Panelist Regional Sales Director Capital Wealth Planning LLC

The Current State of the ETF Options Market

ETF option market size & breadth:

Over the last year, the total notional traded on ETF options has ranged approximately $40-50bn per day. For perspective, listed S&P 500 index notional option volume ranged about $80-95bn

Roughly 85% of the total ETF option volume is traded among only four ETFs (SPY, IWM, QQQ, and GLD)

Despite this concentration, there is nearly $6bn notional traded per day in the remainder of liquid ETF options

0

10

20

30

40

50

60

70

Q1-

99

Q4-

99

Q3-

00

Q2-

01

Q1-

02

Q4-

02

Q3-

03

Q2-

04

Q1-

05

Q4-

05

Q3-

06

Q2-

07

Q1-

08

Q4-

08

Q3-

09

Q2-

10

Q1-

11

Q4-

11

Q3-

12

Med

ian

no

tio

nal

vo

lum

e ($

bn

)

SPY IWM QQQ GLD Other

75%

11%

10%4%

Equity $4,416mn

Debt $671mn

Commodity $620mn

Currency $208mn

Excluded:

SPY $26,296mn

IWM $3,392mn

GLD $2,433mn

QQQ $2,235mn

Median daily ETF option notional volume per quarter

Source: BofA Merrill Lynch Global Research. Data through 7 Sep 2012

Q3-12 ETF option notional volume by asset class

Applications and trades with ETF options:

80

90

100

110

120

130

140

150

Dec-1

0

Feb-1

1

Apr-1

1

Jun-1

1

Aug-1

1

Oct-1

1

Dec-1

1

Feb-1

2

Apr-1

2

Jun-1

2

Aug-1

2

Underlying of GLD

TRADE 1: A put spread hedge on GLD to reduce risk in being long gold

Gold prices whipsawed in 2011

Source: BofA Merrill Lynch Global Research. Data through 7 Sep 2012

Applications and trades with ETF options:

0

500

1000

1500

2000

2500

3000

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

Tota

l ret

urn

Trea

sury

inve

stm

ent

0%

2%

4%

6%

8%

10%

12%

14%

16%

30-year Treasury Yield

30-year Treasury futures TR 30-year Treasury yield

TRADE 2: Put options on TLT to hedge a rise in US Treasury yields

US TSY yields near multi-decade lows

Source: BofA Merrill Lynch Global Research. Data through 7 Sep 2012

Applications and trades with ETF options:

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

1.55

1.60

Dec-

10

Feb-

11

Apr-1

1

Jun-

11

Aug-

11

Oct-1

1

Dec-

11

Feb-

12

Apr-1

2

Jun-

12

Aug-

12

Euro/USD spot rate

TRADE 3: Long FXE call options

EUR/USD spot rate declining

Source: BofA Merrill Lynch Global Research. Data through 7 Sep 2012

Iron condors on GLD for alpha:

70

75

80

85

90

95

100

105

110

115

120

Jun-

08

Oct

-08

Feb-

09

Jun-

09

Oct

-09

Feb-

10

Jun-

10

Oct

-10

Feb-

11

Jun-

11

Oct

-11

Feb-

12

Jun-

12

GLD Iron Condor HFRI Fund Weighted Composite

Options generally trade rich due to a risk premium that accounts for unexpected increases in volatility

A less risky way to sell options is a short iron condor strategy (short call and put spread)

Short iron condor strategies on equity indices globally have performed well over the long term. With ETF options, this strategy can be applied across other asset classes (Gold in this case)

Hypothetical P&L of a GLD short iron condor A 1M 88/96 106/114 short iron condor strategy on GLD

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

-20% -15% -10% -5% 0% 5% 10% 15% 20%

%-age change in GLD

%-a

ge

P&

L S

ho

rt Ir

on

Co

nd

or

Source: BofA Merrill Lynch Global Research. Data through 7 Sep 2012

Other ETF Options Strategies

Capital Wealth Planning, LLC :

• Building and managing private portfolios since 2005

• Exists at the forefront of implementing covered call strategies on Exchange Traded Funds (ETFs).

• Over $320 million in our ETF Covered Call Equity Income Portfolio

• 20+ years trained and experienced option professionals

• Technology driven platform

• $250,000 minimum investment

Selling Stock Options

Options are Cash Flow Generators Others “rent” from you with an option to buy – for a higher price You receive the cash (“rent-dividend”) – immediately

Current Breakdown:

Simple Covered Call Income Analysis: Purchase Strike Option

Symbol Shares Price Value Price Price Cash Flow

20-Jun 07/21/12

SPY (40%) 1180 $135.50 $159,890.00 141 $0.38 $418.00

SH (15%) 1635 $36.70 $60,004.50 39 $0.20 $320.00

LQD (10%) 340 $116.90 $39,746.00 0 $0.00 $0.00

MDY (10%) 235 $170.70 $40,114.50 182 $0.30 $60.00

IWM (10%) 505 $78.75 $39,768.75 82 $0.40 $200.00

IYR (5%) 320 $62.65 $20,048.00 65 $0.22 $66.00

XLU (5%) 545 $36.75 $20,028.75 38 $0.04 $20.00

Cash (5%) 0 0 $20,400

Optionable Est. Monthly

Portfolio

Value $400,000.00 Cash Flow$

$1,064.00

Est. Annual $

$13,832.00

Est Annual % 3.46%

This illustration of potential portfolio cash flow from a covered call option writing program is not based on an actual portfolio. Covered call option cash flow for any portfolio will vary depending on actual portfolio positions, option premiums received, individual stock price volatility, and general stock market volatility. Positions covered by call options may be called away, creating possibly unwanted capital gains or losses. Cash flow is not guaranteed over any period. More information may be found in CWP’s Form ADV.

Solutions That Work

Practice vs Theory:

Investor Failure:

The Investment Experience

Why Volatility Selling Works

Volatility Strategies Compared

Case Study: DFA Portfolio

Case Study: Blue Chip Portfolio

Thank You.

Questions?