Summary

Uncovered Option Strategy The objective of this strategy is to achieve substantial capital appreciation through the speculative trading of options on futures contracts. This objective can entail a comparatively high level of risk. CBCM currently engages in this strategy of selling or writing put and call options on stock index futures. However in the future, CBCM may trade a broader portfolio of options and futures contracts including agricultural, metals, currencies and financial instruments. Each of CBCM's clients will receive advance notice, before having their account traded in any other type of commodity interests other than the stock index futures and options. CBCM may trade commodity future and option contracts on any United States Exchange. CBCM's option strategy collects premiums by writing (selling) out-of-the-money options. The seller (writer) of the option risks losing the difference between the premiums received for the option and the price of the underlying futures contract. Trades are usually made 45-30 days from expiration. The idea is to hold the option until expiration. This maximizes the return on the option by retaining all the funds received in the account when the option was initially sold. The goal is to be profitable regardless of market direction. What is unique with CBCM's strategy is that historical prices are not used to establish positions. The majority of methods used by advisors is based on the assumption that historical price data can predict future prices. The use of historical price data has shown to be profitable, however, substantial drawdowns and low accuracy is generally the result. CBCM uses the future perceived value in its proprietary algorithms, derived from the current month's option expiration, to determine the strike prices the options are sold. In addition, position sizing methods are employed to optimize returns and reduce risk. The profitability of a trading system consisting of selling uncovered options on an index depends upon the price movement of the index. If CBCM writes calls on an index, and the calls are not bought in before their expiration, the strategy will be profitable if the index is below the strike price of the call when the call expires. If the index is above the strike price of the call when the call expires, the strategy may produce a potentially unlimited loss. If CBCM writes puts on an index, and the puts are not bought in before their expiration, the strategy will be profitable if the index is above the strike price of the puts when the puts expire. If the index is below the strike price of the puts when the puts expire, the strategy may produce an almost unlimited loss. CBCM will occasionally buy back (cover) the option before expiration to avoid or minimize risk of loss. MANAGEMENT David Thomas Bedford attended Pepperdine University in Malibu, California, graduating in 1990 with a Bachelor of Science degree in Sports Medicine. David also took graduate courses at Golden Gate University. During this time his course work focused on quantitative analysis, statistics, and information technology. This coursework combined with his interest in the markets launched the pursuit of researching profitable trading methods. Since, August 1999 he has been an active market participant testing his methods and skills in the futures markets. From January 2003 to Present, he has been President of Crescent Bay Capital Management, Inc. He established this firm to form a business entity for the sole purpose of trading and market research.