Investment Secrets from a Wall Street Insider
“Here are my secrets to
making high returns on
your money whether the
market goes up or down”
Step-by-step my report takes you through an example of how
my strategy yielded a 16.3% return in just 36 trading days1
My name is David LeVine and I want to share with you an investment strategy that has the potential
to do all of the following:
1) offers a higher long-term return than either stocks or bonds.
2) exposes the investor to less long-term risk than stocks.
3) provides a more consistent return than stocks.
4) is market neutral so you can make money in both bull and bear markets.
5) pays a pre-determined investment premium at the time of the investment.
6) helps portfolios diversify through a non-correlated market approach.
My investment strategies come from years of directly working with seasoned, professional option
traders. These investment “pros” taught me how to capture short-term, high-payout, options
premiums using high-return strategies. Since their strategies were often complicated, my “geek”
side set out to automate the process of identifying the best investment opportunities. The result
is my website that does the analysis. I call my website “Uncle Bob’s Money”
(www.UncleBobsMoney.com).
However, I also realized that many people preferred a professional manager to implement my
trading signals. Many of my website subscribers began asking me to directly manage their money.
As a result, my clients no longer have to worry about diversifing their money using my signals, or,
when to time the liquidation of their positions.
But first, a word about investing...
You may already have a preconceived notion about stock options. If you do, please put those
assumptions aside for a minute and let me share my investing strategy.
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An Inconvenient Investment Truth
Almost every stock market study
shows that buying and holding a
diversified portfolio longterm
outperformings the market timers.
This better performance also
supports the notion that the market
is random and, other than short-term
luck, over time the average investor
fails to beat the market averages.
Most investors are better off buying
and holdingdiversified stock indexes
than trying to predict the market’s
next move.
“One of the biggest advantages
in knowing the market’s volatility
is that our investment strategy is
entirely independent of future
market direction. If our estimates
are correct, we generally make
money either way.“
But is there another way to look at the market that might help investment returns?
Is it possible that what we really should be measuring is market volatility? Why? Because, unlike
market appreciation, market volatility is fairly constant and this is where our option strategies come
into play.
Stock options are something akin to insurance policies. Before a life insurance policy is written, the
underwriter looks at his actuarial tables and charges a premium based on the probability of his
policy making a profit. Similarly, by knowing the volatility, or price range of an underlying
investment, the option strategist can structure his profit with a predetermined payoff.
Here’s an example of how my strategy works..
My strategy’s first step is to estimate the volatility of our target investment - which, for our
example, is the S&P 500 index. Why have I chosen the S&P 500? Because it is made up of hundreds
of stocks and there is less investment “noise” in a large, diversified groups of companies. The
strategy we are about to apply can be used for other investments with options but volatility of large
investment indexes is one of the most consistent. Chart 1 shows the price history of the S&P 500
Index from May 1, 2012 to October 26, 2012.
To estimate the S&P 500’s volatility we use a statistical measure called standard deviation(SD). SD
effectively tells us how spread out our S&P 500 Index numbers are. What we want to estimate is
what the distribution probability is for the future price range of the S&P index. We are not
interested in forecasting the market. We are only interested in measuring the volatility of our
investment index.
Because the S&P is highly diversified, the probability of its past price volatility being similar to its
future price volatility is statistically very high. One of the biggest advantages in knowing the
market’s volatility is that our investment strategy is entirely independent of future market
direction. If our estimates are correct, we generally make money either way.
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Chart 1: S&P 500 Index price history May 1, 2012 to October 26, 2012 with a closing price 1,412 on October 26, 2012.
By using standard deviation to measure the previous 6 month’s S&P 500 Indexes price history, we
have a probability of the Indexes price behavior over the immediate future. These numbers
determine where we expect the maximum and minimum price ranges to occur. Chart 2 summarizes
our findings
Chart 2: The S&P’s standard deviation suggest that there is a 68% chance that the index
will fluctuate near term between a low of 1338 and a high 1509 and a 96% chance that it
would fluctuate between a low of 1253 and a high of 1595. A conservative investment
strategy targets the 90% probability outcome.
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Next we implement our strategy. Using options spreads we “lock in” our profit from
the premiums we collect. As long as the index remains within our estimated upper
and lower target range we will keep all our option premiums.
Chart 3: Maximum price ranges: Graphing the upper and lower limits of the Standard
Deviation to S&P 500 Index price chart, statistically shows a 90%+ probability that prices
will not exceed the two extremes of our analysis (upper 2015 and lower 1275).
Our strategy calls for implementing both a call and a put “spread”. Each spread position involves
buying and selling two options. If you go to my website (UncleBobsMoney.com) you will see the
analytical tools I have designed to determine which option spreads have the highest investment
return potential.
For our Call Spread we sell the S&P 500 1515 strike price call option and buy the 1520 strike price call
option. This nets us a $30 premium per contract that we keep as long as the option expires below
our strike price on December 20, 2012, 36 trading days from now.
For our Put Spread we sell the S&P 500 1275 strike price call option and buy the 1270 strike price call
option. This nets us a $40 per contract premium that we keep as long as the option expires above
our strike price on December 20, 2012.
Our premium is $70 ($30+$40). Our margin requirement is $430 which is determined by the
maximum possible loss of $500 minus the $70 in premiums that we take in. So, if on December 20,
2012, the S&P 500 closes between 1515 and 1270, our net return on investment is 16.28% minus
commissions . To calculate the net return we take our $70 in premiums and divide it by our $430 net
maintenance margin.
Notice that we know what our expected return is even before we have invested our money...16.3%.
Also , whether the market goes up or down, as long as we don’t exceed our upper and lower limit
range, we will keep both our premiums when our options expiration.
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Chart 4 below summarizes our positions and potential profit:
Chart 4 shows a profit of $70 on a $430 “investment” in 36 trading days if the S&P 500 expires between 1275
and 1515 on December 20, 2012. Note that the brokerage firm holds margin only on one side despite our
holding two positions. The logic being that only one side can be at risk at expiration so the greater amount
of the two is used.
Shown below (Chart 5) is yet another way to visualize our spread positions:
Chart 5 illustrates the range of our profit and loss. We keep our entire premium, or $70 per contract, as long
as S&P 500 stays within a range between 1275 and 1515 between Oct 26, 2012 and expiration December 20,
2012. Our Standard Deviation calculation estimates that there is a greater than 90% probability that the
indexes’ price will stay within this range. If the price exceeds either of these extremes, our maximum loss is
$430 per contract. Our return (16.28%) is calculated by dividing our premium ($70) by the margin
maintenance of our position (in the case $430).
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How did this trade turnout compared to holding the S&P 500?
Chart 6 illustrates the comparative performances of a buy and hold strategy versus using our option spread
strategy. Note that a buy and hold strategy would have been losing money for much of the 36 day period.
The option spread strategy has a significantly wide range to avoid losses during the investment period. The
final return was 2.3% for the buy and hold strategy versus 16.3% for the option spread strategy.
What is the long-term performance of your options strategies?1
Chart 7 shows a 10 year growth of a dollar of David LeVine’s conservative portfolio net of all fees and expenses.
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Chart 8 shows David LeVine’s 10 year growth of a dollar of the conservative portfolio net of all fees and expenses.
How did you do during the 2008 stock market meltdown?
We were up 13.67% after all fees and expenses while the S&P 500 was down 36.99%.
What happens if your option limits are about to be hit and your positions look vunerable?
What helps us to make consistent returns is that we adjust positions in those rare cases when the
market moves against us. We don't sit around idly and wait for losses to accumulate. Trading smart
means taking a small loss early or ending up with a zero return for the month saves you from the big
losses. It takes discipline to remove positions that still look like they might be OK, and that is the
benefit of having a managed portfolio. We've practiced that discipline and it pays off. Zero is always
better than a loss. Using a smartly-designed checklist to know when to stay out of the market is a
very powerful method for achieving maximum profits in options.
Now have a look at these two sample scenarios:
Chart 9: Our checklist tells us to stay out of the market in the fourth month. You’ll notice the same profit in the other
months in this example. The only difference is that you’ll make no trades in the fourth month.
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What is the single most important factor affecting my option portfolio’s investment return?
Our expected return is correlated to the market’s volatility. When volatility increases the option
premiums expand and greater returns are possible. The opposite is also true. If the market has
lower volatility the premiums shrink and may result in lower returns. Placing trades when short
term market volatility have expanded premium values is another benefit of a well managed
account. My website is specifically geared to spot these kinds of money making opportunities.
Dave, please tell us more about your managed private accounts?
Our managed account minimums are $100,000. We offer just one style of account: conservative. If
you are not already familiar with option investing and want to monitor your portfolio for a while ,
we can start your account trading with a smaller minimum. All our accounts are on a discretionary
basis so your investment funds are held in your name and are never comingled. We use Interactive
Brokers (https://www.interactivebrokers.com/en/main.php )as our trading and clearing agent. For
most investors, opening an account can be easily done online. If you have an account at another
brokerage house, account transfers generally take 7 to 10 days.
What are your management fees?
Our annual management fees is 1% plus 20% of profits billed quarterly.
For Further Information:
For additional information call 1-707-874-8610 or email [email protected].
1) DISCLAIMERS / NOTES
A. Returns on this page are the net performance of a representative account in the strategy. The returns are net after the 1% annual management fee (calculated
on the daily NetLiquid value on the account) and the 20% performance fee which are deducted on a Quarterly basis. The values on this page assume that the
profits are not reinvested and that only the original principal is used for Options trading.
B. Returns on this page may differ from client returns due to a number of different factors.
C. The information provided on this page is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such
distribution or use would be contrary to law or regulation or which would subject us to any registration requirement within such jurisdiction or country.
D. This material has been prepared by David LeVine and UncleBobsMoney.com.. This document is for information and illustrative purposes only and does not
purport to show actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security or course
of action. Opinions expressed herein are current opinions as of the date appearing in this material only and are subject to change without notice. Reasonable
people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not prove to be true, results are likely to vary
substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and
each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No representation is being made that any
account, product, or strategy will or is likely to achieve profits, losses, or results similar to those discussed, if any. No part of this document may be
reproduced in any manner, in whole or in part, without the prior written permission of David LeVine and UncleBobsMoney.com., other than to your
employees. This information is provided with the understanding that with respect to the material provided herein, that you will make your own independent
decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own
judgment, and that you are capable of understanding and assessing the merits of a course of action. David LeVine and UncleBobsMoney.com. does not purport
to and does not, in any fashion, provide broker/dealer, consulting or any related services. You may not rely on the statements contained herein. David LeVine
and UncleBobsMoney.com shall not have any liability for any damages of any kind whatsoever relating to this material. You should consult your advisors
with respect to these areas. By accepting this material, you acknowledge, understand and accept the foregoing.
E. The sender of this marketing piece is Money Manager Review who has a solicitor relationship with David LeVine and UncleBobsMoney.com. You are
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