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Daily Newsletter, Monday, 12/27/2004

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The Option Investor Newsletter                   Monday 12-27-2004
Copyright 2004, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


In Section One:

Wrap: Holiday Trade 
Futures Wrap: See Note
Index Trader Wrap: Dollar, Treasuries and stocks decline   


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      12-27-2004           High     Low     Volume   Adv/Dcl
DJIA    10776.13 - 50.99 10868.07 10776.13 1.13 bln 1055/1745
NASDAQ   2154.22 -  6.40  2171.94  2147.59 1.46 bln 1276/1752
S&P 100   573.86 -  2.20   578.13   573.86   Totals 2331/3497
S&P 500  1204.92 -  5.21  1214.17  1204.92
SOX       423.09 -  3.34   428.80   421.41
RUS 2000  644.34 -  5.03   651.72   642.84
DJ TRANS 3754.23 - 33.55  3799.43  3752.32
VIX        12.14 +  0.91    12.16    11.53
VXO (VIX-O)12.16 +  0.93    12.34    11.53
VXN        18.33 +  1.53    18.43    17.62
Total Volume 2,596M
Total UpVol  1,108M
Total DnVol  1,445M
Total Adv  2331
Total Dcl  3497
52wk Highs  249 
52wk Lows    21
TRIN       1.12
PUT/CALL   0.84 
*******************************************************************

Holiday Trade
Jonathan Levinson

The stock indices followed the dollar and treasury bonds lower in 
a very light volume session.  There was little news but plenty of 
volatility, with the NYSE unable to break 1B shares and the 
Nasdaq 1.5B.

Daily Dow Chart


The Dow traded a high of 10868 before declining to a low of 10776 
to close at 10828, -51 for the day.  The year high at 10895 from 
last Thursday was not touched, and today's heavier volume decline 
combined with the weak intraday bounce suggest a downside bias 
within the ongoing daily cycle upphase.  10780 is the apex of a 
steep bear wedge on the daily chart, projecting to an implied 
target as low as 10440.

Daily S&P 500 Chart


The SPX managed to tag Thursday's year high of 1214 at the day 
high without exceeding it, falling to settle at the low of the 
day at 1210.  The day closed on a perfect gravestone doji finish 
and had a bearish intraday feel resulting from the impulsive 
nature of the drop and the relatively corrective bounce off the 
lows.   It's worth stressing, however, that with volume as weak 
as it's been since Thursday, technical signals need to be taken 
with a grain of salt.


Daily Nasdaq Chart


The Nasdaq broke the December 15 year high of 2171 by 1 point 
before falling to a low of 2148, settling lower by 6.4 points for 
the day at 2154.  The Nasdaq failed to make new highs on Thursday 
and may have been catching up to its peers.  The bear wedge on 
the daily chart projects to 2100, below support at 2130.


Weekly TNX Chart


Bonds had a rough day today, declining strongly alongside the US 
Dollar, with foreign currencies rallying with the ten year 
treasury yield (TNX).  TNX rose to a high above 4.310% before 
settling back down to 4.291%, where it closed for a 7.3 bp or 
1.73% gain.  On the weekly chart, with this week's candle based 
entirely on today's performance, the candle has crossed above the 
22 and 50 week EMAs for the first time since April's yield rally.  
Next resistance is implied by the upper Bollinger band at 4.345%, 
while next confluence resistance is at 4.40%-4.44%.




Weekly chart of Crude oil


The financial press attributed today's 6.45% shellacking in the 
price of crude oil to "unseasonably warm weather" as crude 
futures dropped to a low of 41.25 on the Nymex.  The decline 
printed what continues to appear as the right shoulder of a 
symmetrical head and shoulders top above either 40.00 horizontal 
or 41 sloping support.  This pattern has an implied downside 
target as low as 25 which, while not unimaginable on a 
fundamental basis, appears nevertheless to be an extremely low 
price to contemplate from here.  In any event, that's the 
potential technical message of the chart pattern, while 40, 38 
and 35-36 remain strong confluence levels.  For the day, crude 
oil declined 2.85 to close at 41.325.

It was an otherwise quiet newsday, with little in the way of 
headlines other than the weekend disaster in Asia.  The death 
toll from the tsunami following the Sumatran earthquake continued 
its climb, as rescuers searched for bodies in and along the shore 
of the Indian Ocean.  The earthquake, which measured a Richter 
8.9, was the largest since the Alaskan quake of 1964.  To put 
this in further perspective, the LA Times reported that the quake  
moved the entire island of Sumatra 100 feet to the southwest.  It 
touched off a tsunami that lashed the coast of the Indian Ocean 
with a wall of water 10 meters high.  However, some eyewitness 
accounts put the wave height as many a 3x higher.  From TamilNet, 
December 26, 2004 21:29 GMT:
 
"'We went from the hospital to retrieve some bodies of people 
killed by the first wave near the Pandiruppu beach. We saw at a 
distance another massive wave, more than hundred feet high, 
speeding towards Kalmunaikudi. It was like a diagonal wall rising 
out of the sea. The sight was terrible. We ran for our lives. I 
do not believe that anything could have survived the force of 
that wave,' said a doctor at the Kalmunai base hospital Monday." 


The US military base at Diego Garcia was reported untouched due 
to its location at the top of the Chagos Trench, which is 
sufficiently steep and deep to preclude the buildup of tsunamis 
to threaten the installation.  OPEC's only member in the affected 
region, Indonesia, saw no disruption to its oil production.  Four 
Seasons hotels (FS), whose Asian Pacific hotels represent 12%-13% 
of its management fee revenue, managed a positive close today, 
adding .18% to close at 83.20, while earthquake protection firm 
Taylor Devices (TAYD) closed higher by 4.23 at 6.75 for a 
whopping 170.56% gain.

Because the coastline is the most densely populated region, the 
disaster was particularly dire, and the rush continues to recover 
as many bodies as possible to avert the risk of disease.  The UN 
stressed that the risk of epidemic is at least as serious as that 
posed by the initial impact and fallout of the tsunami.   
Assistance is being offered by a variety of governments and 
organizations.  European insurers said that it was too early to 
provide reliable estimates of the damage, while AIG announced in 
the afternoon that it doesn't expect to incur significant losses 
as a result of the destruction.  AIG lost .87% to close at 65.71.

In corporate news, Sharper Image (SHRP) announced "disappointing" 
holiday sales and lowers its Q4 and 2004 earnings outlooks 
because of it.  The company is looking for Q4 earnings of $.94-
$.99 and for the full year of $.90-$.95 vs. First Call estimates 
of $1.31 per share for Q4 and $1.27 for 2004.   The company said 
that sales to December 24 reflect a 4% increase so far, well 
below its expectations of 15%-18% growth for the quarter.  SHRP 
lost 18.06% to close at 18.96. 

This meshed with anecdotal reports I received from friends and 
traders of a relatively quiet boxing day this year.  The National 
Retail Federation is forecasting a 4.5% gain in total sales for 
the November-December period (excluding restaurant and auto 
sales), and estimates that roughly 8% of holiday sales ($17.24B) 
will be sold in gift cards this season.  This week's retail 
activity will be closely watched for the proportion of sales 
resulting from redemption of these gift cards vs. fresh money 
coming into stores.  Last year, the International Council of 
Shopping Centers reported that the seven-day period ended 
December 27 accounted for 20.6% of holiday sales, up from 19.6% 
in 2002. The seven-day period ended January 3, 2004 accounted for 
14.1%, up from 12.8% the previous year.

Amazon, however, reported a record holiday season, the busiest in 
its 10 years of operations, and a new record of 2.8M units 
ordered in a single day (which works out to an amazing 32 units 
per second worldwide).  It wasn't books, however, but rather 
consumer electronics that led the charge as AMZN's top sales 
category.  WMT announced that it is expecting same-store sales to 
rise between 1%-3% for December, with strength principally in 
food, gift cards and general merchandise during Christmas week.  
AMZN rose 8.53% to close at 42.25 while WMT rose .46% to close at 
52.79.  The RLX lost .23% to close at 453.41

Strong holiday sales were credited for XMSR's surpassing its 
year-end goal for 3.1M subscribers and for SIRI's 1M subscriber 
milestones, both announced this morning.  SIRI noted strong sales 
in its portable plug-and-play products, reinforcing the strong 
consumer electronics results noted by AMZN as well.  XMSR lost 
0.48% to close at 39.73 and SIRI gained 1.89% to close at 8.10.

Tomorrow's lone economic report is Consumer Confidence for 
December, expected to come in at 94 from a November reading of 
90.5.  Market volume and corporate news were very thin today, and 
should only become thinner as the holiday week progresses.  Just 
as traders are wary of the thin, less-predictable afterhours
sessions, I would urge traders to be skeptical of this week's 
intraday market moves.  In this thin volume, intraday chop has an 
even greater propensity to trick, whipsaw and stop-hunt. 

That said, the negative closes for the indices, particularly for 
the Dow and SPX despite the strong decline in crude oil, suggest 
that the tide may be turning in the wake of this autumn's strong 
rally.  However, it's early for daily cycle traders to switch 
gears, as the daily cycle trend, despite it's bearish divergences 
and bear wedges, remains bullish for the time being.  A couple of 
days' worth of downside would change that, but it hasn't happened 
yet.


************
FUTURES WRAP
************

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


********************
INDEX TRADER SUMMARY
********************

Dollar, Treasuries and stocks decline

Investors appeared to be in a cheery post-Christmas holiday mood, 
but investors returned some recent bullish Santa Claus rally 
presents as the session progressed, where a sharp decline in the 
dollar, as well as Treasuries, had equity bulls moving to the 
sidelines in a very light volume trade.

Buyers pressed the major average higher at the open, but concerns 
that combined dollar and Treasury weakness could be signaling 
that foreign investors were dumping U.S. assets had the major 
averages relinquishing early session gains to close near their 
lows of the session.

In what many had predicted as a rather calm week of trade, 
Monday's session alone saw the broad S&P 500 Index (SPX.X) 
1,204.92 -0.43% fluctuate just more than 13 points intra-day.

While the major averages gyrated higher, to only finish near 
their lows of the session, continued weakness in the energy 
futures markets had February Crude Oil futures (cl05f) $41.32 
-3.84% falling more than 2% for a third-straight session, with 
the Oil Service Index (OSX.X) 122.25 -2.34% among today's top 
sector losers.

While the AMEX Gold Bugs Index ($HUI.X) 219.06 +1.37% had been 
falling faster than the U.S. Dollar Index ($dx00y) in the fourth-
quarter, today's dollar weakness had the HUI.X at the top of the 
sector percentage gainer's list, climbing 2.97 points.  Spot Gold 
in New York rose $3.50, or 0.79% to $445.00.

U.S. Market Watch - 12/27/04 Close

 

Treasuries found a strong round of selling from their opening 
ticks, where some signs of a stronger than previously thought 
holiday sales may have assisted in bringing yields higher to 
reflect a stronger level of economic activity at the consumer 
level.

A report from the National Retail Federation, which said shoppers 
came out in record numbers on Christmas Eve, projected holiday 
sales growth of 4.5% over last year, and spurred early buying 
interest in retail that had the sector in positive territory most 
of the day before a renewed wave of selling pressure pushed it 
and virtually every other sector lower.  The S&P Retail Index 
(RLX.X) 453.43 -0.23% fell 1.05 points by the close.

Pivot Matrix - 

 

A rather sharp rise in the 10-year YIELD ($TNX.X) finds a close 
above its WEEKLY R2, while a sharp decline in the U.S. Dollar 
Index (dx00y) to WEEKLY S2 leaves many of the equity-based 
indices pulling into their WEEKLY Pivots after early morning 
trade looked to have stocks challenging their WEEKLY R1s.

While I would agree that traders and investors can't read a lot 
into today's light volume activity, where a large constituency of 
institutional traders will be taking the week off, this could 
provide for some light volume chop the remainder of the week.

I (Jeff Bailey) would be surprised if institutional computers 
weren't defending WEEKLY S1s, where after a modest year of gains, 
and end of week pegging to recent 52-week highs wouldn't take a 
great deal of effort under the scope of a light volume trade.

Please note I was not able to verify today's DAILY highs and lows 
in the Pivot Matrix due to some subscription problems encountered 
with my QCharts software.

In Friday evenings Market Monitor, I did post updated INDU, SPX 
and NDX.X daily interval bar charts with updated WEEKLY Pivot 
retracement.  In today's Market Monitor (12:13:50) I posted the 
following chart of the NASDAQ-100 Tracker (NASDAQ:QQQQ) $39.59 
-0.40% just minutes before my QCharts feed expired.

NASDAQ-100 Tracker (QQQQ) - Daily Intervals

 

For equities, Wednesday, December 29 would be the last day for 
traders to implement any remaining tax-loss, or tax-gain 
strategies, which could also add some further chop into 
Wednesday's close.  The QQQQ looks to be trapped within a range 
of $39.07-$40.27.  

On Wednesday of last week, the QQQQ, which closed at $39.73 that 
day, was holding a 10.82% gain in the Beetle's Balanced Benchmark 
fund, if benchmarked back to December 26, 2003, and would have 
just edged out the S&P Depository Receipts (AMEX:SPY) 10.01% gain 
for top spot in our equity class of percentage gainers so far 
this year.

On a quarterly basis, the QQQQ was up 13.06%, nearly double the 
S&P Depository Receipts (AMEX:SPY) 7.98% gain.  

As I get ready to rebalance the Beetle's Balanced Benchmark at 
Friday's close for our scheduled quarterly rebalancing, we may be 
seeing some end of year rebalancing, combined with tax-gain 
selling impacting trade.

Beetles Balanced - 12/22/04 Close (from 12/26/03 & 09/30/04)

 

The above table was a screen capture I had taken after the close 
of trade on 12/22/04, where I thought the "lag" in the QQQQ of 
late might be partially explained by some rebalancing.  In PINK I 
had noted how the $HUI.X had DIVERGED, or traded notably weak 
relative to the U.S. Dollar Index (dx00y), which had declined 
6.51% since 12/26/03, and 7.23% since the most recent rebalancing 
performed on 09/30/04.

Since 09/30/04, Spot Gold prices had gained $21.60 per ounce to 
the 12/22/04 close, a more "hedge-like" gain of 5.16%.

Jeff Bailey


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The Option Investor Newsletter                   Monday 12-27-2004
Copyright 2004, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


In Section Two:

Stop Loss Updates: ACL, ETR, FSH, GOOG 	
Dropped Calls: MDC, SWN
Dropped Puts:  None
Watch List: Apples to Amazon and more! 
Combos/Straddles: New Year's Resolutions For 2005


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*****************
STOP-LOSS UPDATES
*****************

ACL - call play -
  ACL dipped to $80.11 before traders jumped in.  This
  looks like another entry point for the bulls.
 
 
ETR - call play -
  Shares of ETR failed near the $68.00 level again on Monday.
  We are looking for the stock to retest and bounce from its 
  simple 50-dma near $65.65. 
 
 
FSH - call play -
  FSH has turned lower following Friday's failed rally.  Look for
  a potential dip into the $60-61 region.
 
 
GOOG - call play -
  GOOG turned in a decent session up more than four points 
  to close over resistance at the $190 level.  Remember, our
  target is the $199-200 region.


*************
DROPPED CALLS
*************

M D C Holdings - MDC - close: 81.91 change: -1.89 stop: 82.00

The homebuilders hit some more selling pressure on Monday and MDC 
broke down to a new two-week low.  This is unfortunate.  MDC hit 
our early target in the $85 region several days ago but has since 
struggled to maintain its gains.  Now the technical picture is 
turning worse and its MACD indicator has produced a new sell 
signal.  We have been stopped out at $82.00.

Picked on December 12 at $ 81.01
Change since picked:      + 0.90
Earnings Date           01/11/05 (unconfirmed)
Average Daily Volume =       435 thousand
Chart =


---

Southwestern Energy - SWN - close: 48.70 chg: -2.60 stop: 49.50     

Ouch!  Investors decided to bail out of oil-related stocks when 
crude futures took a seven-percent tumble on Monday.  Crude oil 
closed at $41.32 a barrel, a four-month low.  Shares of SWN fell 
sharply breaking support at the $50.00 level and its rising 50-
dma.  We have been stopped out at $49.50.

Picked on December 14 at $ 51.05
Change since picked:      - 2.35
Earnings Date           00/00/04 (confirmed)
Average Daily Volume =       557 thousand   
Chart =




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DROPPED PUTS
************

None


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**********
Watch List
**********

Apple Computer - AAPL - close: 63.16 change: -0.85

WHAT TO WATCH: If you're a technical trader today's candle in 
AAPL looks somewhat bearish.  Actually it looks like a bearish 
engulfing candlestick, which can be a bearish reversal pattern.  
Of course AAPL has already been consolidating the last several 
weeks after its tremendous gains this past year.  Aggressive 
traders can look for a dip and bounce from the $61 region.  More 
conservative types can look for a new relative high over its one-
month trend of lower highs.

Chart=


---

Lockheed Martin - LMT - close: 57.38 change: -1.56

WHAT TO WATCH: Shares of LMT took a hit today reversing what 
looked like a promising bounce from support at the $57.50 level 
just three days ago.  Now LMT has broken down through support at 
$57.50 and its rising 50-dma.  Volume was pretty strong 
considering the season and we anticipate more weakness ahead.  
We'll look for potential support at the $55.00 level. 

Chart=


---

Amazon.com Inc - AMZN - close: 42.25 change: +3.32

WHAT TO WATCH: AMZN was a big winner today with a huge rally to 
new two-month highs on very strong volume. The stock surged after 
the company said this Christmas season was its best ever.  Shares 
are challenging price resistance near $42.50 and its simple 200-
dma.  Look for the breakout over today's high or a pull back and 
bounce from the $41 region.

Chart=


---

Beazer Homes - BZH - close: 139.45 change: -4.10

WHAT TO WATCH: Aggressive traders only!  BZH has been 
consolidating its gains the last couple of weeks but today's 
decline broke round-number support at the $140 level.  The next 
level of support appears to be the $130 region.  Technicals are 
negative and its MACD is in a new sell signal.  This looks like a 
short-term bearish entry point. 

Chart=




-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

APOL $78.85 -1.23 - APOL continues to look like a potential 
bearish candidate.  Shares failed again at the $81, which has 
been resistance for the past week.

KLAC $45.00 -0.56 - KLAC is looking more and more vulnerable as 
it closes under technical support at the 50-dma and nears round-
number support at $45.00.

IVGN $66.44 -0.15 - IVGN tested support at the $65 level again on 
Monday.  Look for a bounce.


****************
Combos/Straddles
****************

New Year's Resolutions For 2005

By Mike Parnos

Another year under our belt -- and a few more notches on the same 
belt.  We've had to let out our pajamas a couple of sizes.  
However, keep in mind that, in many countries, excess weight is a 
sign of prosperity.

We did a lot of things right in 2004.  A few trades, here and 
there, got away from us a bit, but nothing we couldn't handle.  We 
learned how to do some things better, and we also learned a few 
things not to do.  All in all, it was quite a successful year.  
From the emails I have received and from those I've met, a lot of 
CPTI students are sitting a lot higher on the couch because the 
cushions are filled with profits.

It's time for personal reflection.  I know my personal reflection 
is a bit larger than it was last year at this time.  Maybe it's 
prosperity.  Then again, maybe it those delicious round taco things 
they sell at 7-11. 

Looking Into The Future
Our January positions look quite secure, at least for now.  So, 
let's take a few minutes to look back and objectively(?) assess the 
last 12 months.  A lot has happened -- mostly good and a little 
not-so-good.  This would be a great opportunity to make some 
resolutions for 2005.  Here are some of mine.

I Hereby Resolve . . .
1) . . . not to be greedy when selecting my short strike prices.  
The extra $.30 of premium is not worth the potential grief.
2) . . . not to order anchovies on my pizza no matter how much I 
like the woman.
3) . . . not to do any more than 10-point credit spreads unless I'm 
way, way, way out of the money.
4) . . . not to separate the colors of my M&Ms.  It's just wastes 
time and they all taste the same anyway.
5) . . . to separate the colors before I do a wash.  I love pink 
skivvies, but I don't need any more.
6) . . . not to put on directional trades, regardless how tempting.
7) . . . not to make fun of my ex-brother-in-law, regardless how 
tempting.
8) . . . not to scold CPTI students who break the rules and lose 
money.  However, I do reserve the right to say, "I told you so."
9) . . . not to use the same knife for the peanut butter and the 
mayonnaise (without washing it first).
10) . . to learn how to trade futures.  You never know when it 
might come in handy.
11) . . to maintain my self-discipline and close out trades at the 
pre-established levels.
12) . . to limit my search for companionship to English-speaking 
women.  It won't stop me from going to Chinese restaurants.
13) . . not to tolerate people who want to blame their failures on 
anything or anyone but themselves.
14) . . to only have on three televisions at the same time -- at 
least not on the same station.
15) . . to learn more of those indicators on charting software.
16) . . to try and respect the viewpoints of others -- even though 
they're wrong.  I believe in the first amendment, but I don't have 
to listen.
17) . . to continue to teach people to fish and to admire and 
reinforce their effort and perseverance.
18) . . to continue to work toward my goal of establishing a hedge 
fund for CPTI followers who have requested it.
19) . . to meet as many CPTI students as possible in 2005 and let 
them know that appreciation goes both ways.
20) . . to make sure the people I love know it - often (should have 
been #1).

What About You?
Looking back on 2004, I know you've been both naughty and nice.  
Have you done things you might want to have done a little 
differently?  Here is your chance to purge.  Let it all hang out.  
Send me your list of resolutions -- good or bad.  It can be two or 
twenty.  I promise I won't publish your name or blackmail you.
_________________________________________________________________

JANUARY CPTI POSITIONS:
January CPTI Position #1 - SPX Iron Condor (Part 1) - 1210.13
We sold 20 January SPX 1125 puts and bought 20 January SPX 1110 
puts for a credit of about $.50 ($1,000).  Profit potential $1,000.  
Maintenance: $30,000.  I know I said I prefer not to use anything 
larger than five or ten-point spreads, but this is almost 80 points 
out of the money that I'm going to make an exception.  This seems 
incredibly safe, but then we thought that before, didn't we?

January CPTI Position #2 - SPX Sure Thing Credit Spread - 1210.13
We're still in an up-trend and we might as well try to take 
advantage of it.  Our "sure thing" spread worked to perfection for 
the December cycle.  So, until the market tells us otherwise, we're 
going to continue with the strategy.  Again, remember that this 
strategy is for only those who have a lot of maintenance dollars 
available, because you may need them.  Eventually, we'll be right, 
but you may need that staying power (money, financial Viagra). You 
have to be able to withstand being whipsawed back and forth.

In last Thursday's column I suggested initiating the "hypothetical" 
position by placing the January 1195/1170 bull put spread for a 
credit of $6.30.  However, on Friday, the SPX headed down in the 
morning.   When it leveled out, we put on a two contract SPX 
1190/1165 bull put spread instead and we were able to take in 
$$6.80 ($1,360).

We are still mildly bullish for the next month, but we couldn't 
pass up an opportunity to lower our short strike to 1090 -- plus 
get a little more premium.  Maintenance (initially): $5,000.

January CPTI Position #3 - MSH Iron Condor (Part 1) - 503.43
This is the Morgan Stanley High Tech Index.  We haven't traded it 
before, so now is as good a time as any.  Maybe it will turn out to 
be a usable replacement for the RUT.  We're going to continue to be 
conservative.
We sold 15 MSH January 450 puts and bought 15 MSH January 440 puts 
for a credit and potential profit of about $.55 ($825). 
Maintenance: $15,000.

January CPTI Position #4 -- SPX Iron Condor  (Part 1) - 1210.13
Put on weeks ago -- and a wise choice it was (so far).  I've become 
very conservative -- even more so after our unpleasant experience 
in the November cycle.  I saw an opportunity to put some serious 
distance between a bull put spread and where the SPX was trading.   
With the SPX at 1179, I noticed the January 1100/1090 bull put 
spread would yield about $.70.  Being still somewhat bullish for 
the next few months, I was willing to go out to January.  I like 
that almost 80-point (now over 100 points) cushion and I'm willing 
to wait the eight weeks.  When the opportunity presents itself, we 
can always add the other side of the condor.

We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 
puts for a credit of about $.70 ($1,050).  Maintenance: $15,000
_______________________________________________________________
ONGOING POSITIONS
QQQ ITM Strangle - Ongoing Long Term -- $39.75
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts of 
the 2005 QQQ $29 calls for a total debit of $14,300. We make money 
by selling near term puts and calls every month. Here's what we've 
done so far: Oct. $33 puts and Oct. $34 calls - credit of $1,900. 
Nov. $34 puts and calls - credit of $1,150. Dec. $34 puts and calls 
- credit of $1,500. Jan. $34 puts and calls - credit of $850. Feb. 
$34 calls and $36 puts - credit of $750. Mar. $34 calls and $37 
puts - credit of $1,150. Apr. $34 calls and $37 puts - credit of 
$750. May $34 calls and $37 puts - credit of $800. June $34 calls 
and $37 puts -- total net credit of $750. We rolled out to the July 
$34 calls ($.20 credit) and $37 puts ($.60 credit) and took in a 
credit of $.80 ($800). We rolled to the August $34 calls and $37 
puts, taking in a credit of $900. We rolled to the Sept. $34 calls 
and $37 puts, yielding $.45 or $450 for the cycle. For October we 
took in $.45 ($450) rollout. We rolled to the November. $34 calls 
and $37 puts for $.70 ($700).  Last week we rolled in the December 
$34 calls and $37 puts for a total of $.50 ($500).  New total: 
$13,400.  
We rolled out the Dec. $34 calls at break even and then sold the 
January $40 puts for $.80 ($800).  Our new total premium is about 
$14,200.
Note: We haven't included the proceeds from this long term QQQ ITM 
Strangle in our profit calculations. It's a bonus! And it's a good 
conservative cash flow generating strategy. 
ZERO-PLUS Strategy. OEX - 576.06
In my Feb. 8th column, I outlined a strategy based on an initial 
investment of $100,000. $74,000 was spent on zero coupon bonds 
maturing in about seven years at a value of $100,000. The principal 
$100,000 investment is guaranteed. We're trading the remaining 
$26,000 to generate a "risk free" return on the original 
investment. We own 3 OEX December 2006 540 calls @ $81 (x 300 = 
$24,300). Our cash position as of August expiration was $8,390. In 
September we added another $975 for a total of $9,365. In October 
we added $650 for a new total of $10,675. 
Zero-Plus Position Adjustment
Prior to expiration, we bought back our Nov. 555 calls and rolled 
it to six contracts of the January 580 calls for a credit of about 
$100.  We also put on five contracts of a December 540/530 bull-put 
spread for an $.80 credit ($400).  New cash total: $11,175.
The December bull put spread expired worthless.  We put on a five 
contract OEX 545/535 bull put spread for a credit of $.70.  If all 
goes well, we can, at January expiration, add another $350 to our 
cash total.
 
Happy Trading! 
Remember the CPTI credo: May our remote batteries and self-
discipline last forever, but mierde happens. Be prepared! In 
trading, as in life, it's not the cards we're dealt. It's how we 
play them. 
Mike Parnos, Your Options Therapist and CPTI Master Strategist 
 
Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the 
numbers represented here may have been achieved or beaten by our 
readers, we make no representation that any individual investor 
achieved these exact results. The tracking for the plays listed in 
this section uses closing prices for the day the newsletter is 
published and it is not meant to imply that any reader actually 
received those prices or participated in these recommendations 
(even though many do). The portfolio represented here is 
hypothetical and for investment education purposes only. It is only 
an illustration of what type of gains a knowledgeable trader might 
receive utilizing these strategies.  If you don't get close to 
these results, it ain't the fault of the strategies.

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