Kawaller & Company LLC

Understanding our approach requires an appreciation of the difference between the spot price (relevant for imminent delivery) for any good or commodity and a futures price (relevant for delivery at some prescribed time in the future) for that same good. Ultimately, when futures contracts expire, these two prices must necessarily converge. While this price convergence may be either a cost or benefit to futures traders, we restrict our activities to buying options on futures contracts – but only when this convergence effect works in our favor to a greater extent than option time decay works against us. While purchasing options has the attribute of offering the potential of unlimited gain with limited risk, these options have the added benefit of necessarily appreciating if held to their expirations when underlying spot prices are stable. This is a condition that can be determined at the point of purchase, and we believe it to be an edge that is available only in connection with the market for options on futures contracts.