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 Lih; oliuyt

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 Requirements Stock based vs. Futures based NAKED PUTS AT THE MONEY ExamplesMargin Requirements Naked Options (2 months out) Index at 1075 Stock Index Short at the money put 5 SPX 1075 put1075 x 500 x 15% = $80,625 strike price x index multiplier x 15% = Futures Option Short at the money put 2 S&P putsSPAN requirement = $48,000

Margin Requirements Stock 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 put975 x 500 x 10% = $48,750 strike price x index multiplier x 10% = Futures Option Short 10% out of The money 2 S&P putsSPAN requirement = $33,000

Margin Requirements Stock 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&P /900 April put spreadsSPAN requirement = $7,700

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&P 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&P 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&P

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 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)