Our investment strategy is to sell options on the Standard & Poor’s 500 stock index futures contract. We primarily sell uncovered or naked options, although credit spreads are utilized at times. This is a niche investment strategy with a number of unique advantages.  Although option writing has become more popular, this type of trading program is still not widely used.

Our investment program is based upon 15 years of observing trades in put and call options. During that time we came to the conclusion that buyers of puts and calls generally lost money on their trades, often losing the entire amount they had paid to purchase the options.

Since we concluded that options buyers usually lose money, we designed a risk based system to consistently and systematically sell options.  We do not sell options based strictly on the premium available; rather we sell options based on the statistical risk of a given strike going “into-the-money”.  The S&P 500 index futures contract was chosen as the primary investment vehicle, due to its liquidity, contract size and the percentage distance “out-of-the-money” that strikes could be profitably traded.   

Selling uncovered options on a stock index does require the use of leverage and unlimited risk. Our risk controls include placing a limit on the number of options we sell and setting prices in advance at which we would hedge or close out the positions.  All options sold are "out-of-the- money" options, which means the S&P 500 must move against the option by the amount that it is “out-of -the-money'' before there will be a loss at its expiration. This provides a built-in margin of error for moves against short option positions.

We believe that an investment strategy can only be as successful as the discipline of the manager to adhere to its requirements in the face of market adversity.  Unlike discretionary traders, whose decisions may be subject to behavioral biases, Zenith Resources, Inc. follows a disciplined systematic program and extensive research has shown that the programs should produce a positive expectation over time. In the “Index Option” program, the average statistical risk of a short option trade going “into-the- money” has been less than 2%.  This equates to a 50 to 1 chance for the options to expire worthless.  If we are successful in managing risk, then we believe the profits will follow. Past performance is not indicative of future results. The risk of loss, inherent in an options writing program is substantial.