Spectrum Asset Management Corp.

Retail Options

Spectrum Options Programs. Retail Options Program. Clients may not open a managed option account with SAM unless they are familiar with the futures, forward and option markets. The minimum account size is $10,000, provided that SAM may in its discretion waive the minimum account size. The Retail Options Program charges $35.00 round-turn commission, where Spectrum takes part of these commissions. There is however no Management or Incentive fees. Please refer to Description of fees and expenses. The Retail Options Program do write naked options as one of its strategies. Uncovered Option Strategy The objective of this strategy is to achieve substantial capital appreciation through the speculative trading of futures contracts, options on futures contracts (and potentially forward contracts), and other futures-related interests, which objective entails a comparatively high level of risk. SAM engages in this strategy of selling or writing options (puts and calls) on futures contracts, including agricultural products, metals, currencies, financial instruments, and stock, financial and economic indices (collectively, Commodity Interests). SAM may also, from time to time, purchase options. Credit Spread Strategy One of the more popular alternative option writing strategies is the credit spread, which involves selling an option (just as in the uncovered strategy) but also includes purchasing another less expensive option. When writing a credit spread, the writer is credited the difference between the premium collected from writing the option, less the cost of the option purchased. Unlike writing uncovered options, where the potential for unlimited loss exists, option credit spread risk is limited to the difference between the strike prices of the options written and purchased, plus commissions and fees. Any loss would be further reduced by the amount of the credit received. While the option credit spread clearly offers the advantage of limited risk, the writer must sacrifice some of his potential profit in exchange for acquiring a limit to the risk, i.e. buying the option that covers his uncovered position. SAM may also, from time to time, implement other strategies, such as but not limited to, buy calls and puts, debit spreads, straddles, strangles, ratio spreads, calendar spreads and other options strategies.