CREDIT SPREADS ON STOCK INDEXES

WHY SELL CREDIT SPREADS?

• Non Correlation to Traditional Investments• Limited Risk• Ability to take advantage of time

S&P500 (SPX) Stock Index Chart

S&P100 (OEX) Chart

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S&P500 Futures Index Chart

WHY TRADE FUTURES BASED OPTIONS INSTEAD OF STOCK BASED

• Lower Margins = More leverage• Flexibility with the use of Futures Contracts

Margin RequirementsStock based vs. Futures based

NAKED PUTS AT THE MONEY

Examples Margin Requirements• • Naked Options• (2 months out)• Index at 1075• • Stock Index• Short at the money put• 5 SPX 1075 put 1075 x 500 x 15% = $80,625• strike price x index multiplier x 15% = • • Futures Option• Short at the money put• 2 S&P500 1075 puts SPAN requirement = $48,000•

Margin RequirementsStock based vs. Futures based

• NAKED PUTS 100 POINTS OUT OF THE MONEY• Naked Options• (2 months out)• Index at 1075• • Stock Index• Short put 10% out of • The money• 5 SPX 975 put 975 x 500 x 10% = $48,750• strike price x index multiplier x 10% = • • Futures Option• Short 10% out of• The money• 2 S&P500 975 puts SPAN requirement = $33,000

Margin RequirementsStock based vs. Futures based

• CREDIT SPREADS OUT OF THE MONEY• (2 months out)• • Stock Index• Short 5 SPX 950/900• April put Spread (50 x 500) – 2,500 = $22,500• (width of spread x multiplier) –

premium• • Futures Option• Short 2 S&P500 • 950/900 April • put spreads SPAN requirement = $7,700

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CREDIT SPREAD EXAMPLES

• ALL PRICES AND MARGINS ARE BASED ON THE CLOSE FROM THURSDAY, FEBRUARY 11,2010

• THE EXAMPLES DO NOT INCLUDE COMMISSION AND FEES

SELL PUT CREDIT SPREADS

• Sell April 950/900 put credit spreads• Premium: 4.4 points or $1,100• Margin requirement: $3,900• Maximum Risk: 45.6 points or $11,400• Expiration Date: April 16, 2020• Current level of the S&P500 1075

• Market was last at 950 in August, 2009

SELL CALL CREDIT SPREADS

• Sell April 1160/1200 call credit spreads• Premium: 4.6 points or $1,150• Margin requirement: $4,600• Maximum Risk: 35.4 points or $8,850• Expiration Date: April 16, 2020• Current level of the S&P500 1075

• Market was last at 1160 in October, 2008

SELL PUT AND CALL CREDIT SPREADS

• Sell April 950/900 put credit spreads• Sell April 1160/1200 call credit spreads• Premium: 9 points or $2,250• Margin requirement: $4,000• Maximum Risk: 41 points or $10,250• Expiration Date: April 16, 2020• Current level of the S&P500 1075

COMPARING SPREADS FOR DIFFERENT MONTHS

• The same spread for different months.• • March 950/900 Put Credit Spread• Value: 2.2 points or $550• Margin requirement: $4,400• Exp. date: 3/19/2010 (1 month)• • April 950/900 Put Credit Spread• Value: 4.4 points or $1,100• Margin requirement: $3,900• Exp. Date: 4/16/10 (2 months)• • May 950/900 Put Credit Spread• Value: 6.4 points or $1,600• Margin requirement: $3,400• Exp. Date: 5/21/10 (3 months)

COMPARING SPREADS FOR DIFFERENT MONTHS

• Similar premium for different months• March 1000-950 Put Credit Spread• Value: 4.6 points or $1,150• Margin requirement: $4,650• Exp. date: 3/19/2010 (1 month)• • April 950/900 Put Credit Spread• Value: 4.4 points or $1,100• Margin requirement: $3,850• Exp. Date: 4/16/10 (2 months)• • May 925/875 Put Credit Spread• Value: 4.9 points or $1,225• Margin requirement: $3,200• Exp. Date: 5/21/10 (3 months)