Cabot Investors Conference 2014www.cabot.net Options Primer Jacob Mintz Analyst, Cabot Options Trader

Cabot Investors Conference 2014www.cabot.net Options Primer Calls Puts Market Leverage Using Options to Create Yield How to Trade Like a Hedge Fund

Cabot Investors Conference 2014www.cabot.net About Me How did I become a Trader? My Uncle “Knew a Guy” Learned under Two CBOE Legends Became a Market Maker Designated Primary Market Maker on CBOE and Pcoast Took my Team off the Trading Floor in 2010 What I’m Doing Now

Cabot Investors Conference 2014www.cabot.net Call Option A Call Option gives its Holder the Right to BUY 100 Shares of the Stock at the Strike Price Anytime Prior to the Option’s Expiration Date Equity Option Contracts Represent 100 Shares of the Underlying Stock

Cabot Investors Conference 2014www.cabot.net FB Call Buy 1 FB September 75 Call for $2

Cabot Investors Conference 2014www.cabot.net FB Call Symbol: FB Month of the Call’s Expiration: September Date of Expiration: September 20, 2014 Strike: 75 Price: $2

Cabot Investors Conference 2014www.cabot.net An Option’s Price The Potential Loss for the Holder of an option is LIMITED to the Initial Premium Paid for the Contract

Cabot Investors Conference 2014www.cabot.net How is the Price of the Call Determined?  Supply and Demand  Likelihood the Call will Finish In- the-Money Due to Time

Cabot Investors Conference 2014www.cabot.net Profit and Loss

Cabot Investors Conference 2014www.cabot.net Power of Options Instead of Paying $7,300 to Buy 100 Shares of FB, you can Pay $200 for the Opportunity to Buy 100 Shares at $75

Cabot Investors Conference 2014www.cabot.net Put Option A Put Option gives its Holder the Right to SELL 100 Shares of the Stock at the Strike Price at Any Time Prior to the Option’s Expiration Date

Cabot Investors Conference 2014www.cabot.net AAPL Put Buy one AAPL September 95 Put for $2.50 Symbol: AAPL Month of the Put’s Expiration: September Date of Expiration: September 20 Strike: 95 Price: $2.50

Cabot Investors Conference 2014www.cabot.net How is Price of Put Determined? Hurricane Insurance Likelihood of Finishing In-the- Money Due to Time

Cabot Investors Conference 2014www.cabot.net Profit and Loss

Cabot Investors Conference 2014www.cabot.net The Power of Options Unless you have Special Arrangements, Brokers won’t let you Short Stocks without paying Significant Margin due to the Risk With Options, you only have to Pay $250 to have the Ability to Short 100 Shares of AAPL at 95

Cabot Investors Conference 2014www.cabot.net Creating Yield

Cabot Investors Conference 2014www.cabot.net Buy-Write/Covered Call Writing A Covered Call Write consists of Buying or Owning a Stock and Selling (i.e., Shorting) a Call Option on that Stock

Cabot Investors Conference 2014www.cabot.net IPG Covered Call You can Write One Call on Each 100 Shares of Stock you own. Your Short Option position is “Covered” by the Stock. A Short Call on Stock in your Account (a Covered Call) is a Very Conservative Strategy and requires No Margin.

Cabot Investors Conference 2014www.cabot.net IPG Covered Call On May 29, we Bought 100 IPG at $19.07 Sold IPG June 20 Call for $0.40

Cabot Investors Conference 2014www.cabot.net Profit and Loss

Cabot Investors Conference 2014www.cabot.net Rolling Sold IPG June 20 Call for $0.40 Sold IPG July 20 Call for $0.63 Sold IPG August 20 Call for $0.48 Cost Basis now 17.56

Cabot Investors Conference 2014www.cabot.net Net Yield Created Stock at 19.50, we have Created a 10.39% Yield Stock at 20, we have Created a 13.06% Yield

Cabot Investors Conference 2014www.cabot.net Order Flow Reading Tracking Hedge Fund Options Trading Activity Calls are the Weapon of Choice Puts are the Stealth Way Becoming a Detective Market Tone It’s a “Feel”

Cabot Investors Conference 2014www.cabot.net How Do I Determine Which to Follow? Size of Trade vs. Typical Trade Volume Repeated Buys Price is Not an Issue

Cabot Investors Conference 2014www.cabot.net Size of Trade: HSH Average approximately 250 Options/Day Buyer of 11,000 June 40 Calls for $0.45 $495,000 Worth $22.08 or a Profit of $21.63 per Call $24 Million Profit 4,800% Return in One Month

Cabot Investors Conference 2014www.cabot.net HSH Risk Reversal Buyer of 3,000 October 38 Calls for $1.20 Sale of 3,000 October 34 Puts for $1.625 Net collected $0.425 or $127,500 Call Worth $25 or Profit of $7 Million Put Expired Worthless so Collected $487,500 Profit of $7.5 Million

Cabot Investors Conference 2014www.cabot.net Repeated Buys: AMAT 70,000 January 20 Calls: $16,800,000 15,000 January 21 Calls: $2,850, ,000 January 22 Calls: $21,000, ,000 January 24 Calls: $9,600,000 55,000 January 25 Calls: $3,850,000 15,000 January 26 Calls: $750, ,000 Calls or 41,500,000 shares Capital at Risk: $54,850,000

Cabot Investors Conference 2014www.cabot.net Price is No Issue: CSCO June 30: Bought 55,000 Calls for $0.15 July 1: Bought 40,000 Calls for $0.27 July 3: Bought 15,000 Calls for $0.34 July 21: Bought 30,000 Calls for $0.48

Cabot Investors Conference 2014www.cabot.net Market Tone Where is the Fast Money Going?

Cabot Investors Conference 2014www.cabot.net It’s a Feel Blink Clorox July 11, 2011: 16,000 July 70 and 72.5 Calls 4 days until expiration 50x Volume July 14, % Return