Financial Commodity Investments : FX Premium Program (Prop)

Summary

The goal of FCI is to achieve capital appreciation with the use of alternative investment strategies. FCI will attempt to obtain consistent quarterly returns that exceed those of the equity market and to protect capital against adverse market trends.

Investment Strategy

FCI - FXPP engages in the selling or “writing” of options (puts and calls) on currency futures; within FXPP, FCI also sells vertical credit spreads and some volatility spreads like strangles or iron condors, for example. Also within FXPP, FCI utilizes a short-term momentum trading strategy; with this non-option selling component in FXPP, FCI will go long or short an underlying currency futures contract either using full size currency futures, e-mini or e-micro currency futures. We may hedge mark-to-market losses on short option positions that we intend to hold by going long or short the underlying e-micro currency futures contracts or full size currency futures contracts if the market structure is appropriate. However, in the future, FCI - FXPP may trade a broader portfolio of options, futures and cash markets. In doing so FCI reserves the right to place trades in any commodity futures contract or option contract thereon, on any exchange, foreign or domestic, at FCI's sole discretion. FCI may use other volatility spreads in the future in FXPP such as a backspread, ratio vertical spread, straddle, butterfly, or calendar spread.

Risk Management

FCI projects a trading range for a commodity contract over a specified period of time, usually from four (4) days to three (3) months. After considering other factors, FCI sells put and/or call options on the outer limits of that trading range. If the contract price stays within the projected range, time will erode the value of the option to the purchaser, the option will be worthless at expiration, and the premium that the client collected upfront, net of brokerage fees, will be profit. If the contract price starts to get close to a strike price and threatens to breach one of the projected limits, FCI will hedged is positions as a method of managing risk.It should be emphasized that, unlike an option buyer who risks losing only his investment in the premium, the seller of an option has unlimited risk. FCI must carefully manage this risk. If it does not manage this risk, a client could have substantial losses. In addition, there may be market conditions that make it impossible to properly manage this risk. Thus, FCI’s options selling program is designed for sophisticated investors who can accept a high degree of risk. Due to the risks involved in selling options, significant emphasis is placed on risk management techniques to minimize the losses on any particular trade on the portfolio as a whole. Stop-losses orders are used and managed in a proprietary manner to balance the potential loss in any trade versus the opportunity for maximum profit. Stop-loss orders may not necessarily limit losses since they become market orders upon execution; as a result a stop-loss order may not be executed at the stop-loss price. Depending on the model used, risk may be managed through variable position size or risk levels for any market. Additionally, modern portfolio techniques are used to construct the overall portfolio for a given program. These techniques will account for the volatility and correlation for markets as well as behavior during specific market extremes. Portfolio adjustments will be made to account for systematic changes in the relationships across markets. Portfolios are managed to meet risk and volatility tolerances.