A Comment -- General Comments From an Expert (A Commentary)

Markets. Thinks we are stuck in a trading range until the markets get sorted out with respect to what does growth look like, where does growth come from and how do we resolve their debt problems of the Western world. There is not much growth baked into 2012.

2012 will be a great year to make money if you know what you are doing. You have to know when key events are going to happen. Presidential election will have a big impact. We are now at the end of the period of the Santa clause rally. When companies come out with 4’th quarter guidance, there will be a lot of revision downward. In a typical election year there is a great move upward after the election. It varies depending on who gets elected. It should rally until September. A new rally starts in October. The Toronto market should be flat for the year, but with lots of ups and downs. Sectors doing the worst in 2011 like energy, precious metals, which did badly in 2011 will do well in 2012.

China: Chinese New Year is Jan 23’rd and nothing is going to happen to their economy until then.

If you don’t have sufficient volume you can get significant fluctuations that aren’t that meaningful so technical analysis does not work as well. Min $100,000 traded each day.

RESP until next Sept.: Either an ETF or Mutual find. He would like his own fund – HAC.

Gold. Has fallen back because people want safety and they are not moving to gold but are moving to the US$. Also, there are some larger US funds that have been underperforming so have sold off some of their gold holdings. Also people are taking profits as gold has done better than other things this year.

Market: In studying the numbers coming out of China and the rate of change, he feels China is in for a hard landing and that will impact commodity demand. We are going to see a recession in Europe that is already in the markets, but China is not.

Silver Bullion. Buy Sell or Hold? He would be inclined to hang on to it now. It is the volatile cousin of Gold. He is not really bullish on the US$ right now. Feels these metals are getting oversold right now.

Gold. Buy now or wait until 2012? Thinks you are fighting the tape a little bit right now, which means the trade is going against you and this may go on a little bit longer. Would rather play the gold stocks here as they didn’t follow the move up of gold bullion.

Commodities. There are probably 2 or 3 that really stand out as being attractive including copper. Mine supply will not keep up with demand. In 2009 Chile, the #1 producer increased their production by around 60,000 pounds in that year alone but China demanded almost 1,000,000. Diamonds and silver look attractive. Oil will be the 2nd one and gold would be another one. Weak ones would include natural gas, aluminum and the weaker camp could even include nickel and zinc.

Identifying a high data stock and buying a Put and Call at same strike price on the stock ahead of earnings announcement? A really good idea if you are not afraid of losing money. What happens on these is that the option buyer’s enemy is time. You have to know the option expiry date relative to the earnings announcement. Also, what is the X-dividend date? If you are buying both sides of the option, the time value can erode very quickly.

ETF for the fixed income portion for a RESP account for a 4-year-old child? There are a lot of products out there but you might consider either the Royal Bank’s or BMO’s Target Maturity Bond. They go on to a specific date and as they approach the maturity date, they start rolling the bonds over into T-bills. That tends to eliminate a lot of the risks.

Naked Put Writing strategy? Identifying a stock, selecting an entry price and then writing put options, backed by cash or margin for that strike price. This is a really good idea. If you are buying $50,000 worth of stock, you should have $50,000 in cash minus the value of the put premium. A lot of people use margining, which is a really good idea unless the market drops.

In an RRSP or TFSA, can we only write covered calls and not puts? You can only write covered calls on any registered account because there is no way of separating out the money. And what do you think of the strategy of writing deep in the money covered calls when we feel a stock is toppy? If you already own the stock, and you feel it is toppy, just sell it.

Buy a stock for around $10 and sell a Covered Call about 3 months out for roughly $1 and then sell a Naked Put for $1, 3 months out with the same Strike so if the caller gets called away, it is like getting $12 for a $10 stock. If he gets Put he is buying a $10 stock for $8. Good strategy? To do this, you have to have a marginal position for the Naked Put, which always makes him feel a little uncomfortable. This is essentially a straddle. There is an element of risk if you are using margin. Good strategy but it has risks.