It seems like old times. With four positions all 100% profitable, our tushes are, once again, firmly planted on the CPTI profit train. The profit train bears an uncanny resemblance to a couch. It runs on money and goes from your house to the bank -- hopefully about 12 times a year -- stopping only occasionally at the refrigerator and the pizza place (for sustenance, of course)!
Below is a summary of the January positions. A profit of $4,475 feels r-e-a-l g-o-o-d! It brought us back to positive territory for the year. Through three months in tracking year number three, we're now $2,990 to the positive. We're going to continue to be conservative and to trade smart. The profits will follow.
January Trade Summary
SPX - 1125/1110 Bull Put Spread - Profit: $1,000
SPX - 1100/1090 Bull Put Spread - Profit: $1,050
MSH - 450/440 Bull Put Spread - Profit: $825
SPX - 1190/1215 Sure Thing Credit Spread - Profit: $1,600
TOTAL JANUARY RESULTS: Profit: $4,475
February Position #1 - SPX Iron Condor - 1167.87
We sold 10 SPX Feb. 1255 calls and bought 10 SPX Feb. 1265 calls for a credit of about: $.50 ($500). Then we sold 10 SPX Feb. 1140 puts and bought 10 SPX Feb. 1130 puts for a credit of about: $1.00 ($1,000). Our total net credit was $1.50 ($1,500). Maintenance of $10,000. We've created a maximum profit range of 1140 to 1255 -- that's 115 points. If everything works out as planned, our return on risk will be 17.6%. We're still conservative and defensive minded. That's why we're limiting our spread size to 10 points or less.
February Position #2 - OEX Bull Put Spread - 557.32
We sold 15 OEX Feb 530 puts and bought 15 OEX Feb 520 puts for a credit of about $.50 ($750). Our net credit and potential profit is $750. Maintenance of $15,000. We're going to be content to put on the bull put spread for now. If/when the time is right, we'll put on the bear call spread to complete the Iron Condor.
February Position #3 - MSH Iron Condor - 464.28
We sold 10 MSH February 430 puts and bought 10 MSH February 420 puts for a credit of about $.60 ($600). Then we sold 10 MSH February 510 calls and bought 10 MSH February 520 calls for a credit of about $.55 ($550). We have a net credit and profit potential of about $1.15 ($1,150). Our maximum profit range is 430 to 510. 510 looks like solid resistance and 430 is comfortably below other support levels. Maintenance is $10,000.
February Position #4 - SPX Iron Condor - 1167.87
We sold 10 SPX February 1230 calls and bought 10 SPX February 1240 calls for a credit of about $.40 ($400). Then we sold 10 SPX February 1120 puts and bought 10 SPX February 1110 puts for a credit of about $.65 ($650). Our total credit and potential profit is$1.05 ($1,050.) We've created a maximum profit range of 1120 to 1230. Maintenance of $10,000.
RECAP OF JANUARY POSITIONS
January Position #1 - SPX Iron Condor Bull Put Spread - 1167.87
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. Expired worthless with a profit of $1,000.
January Position #2 - SPX Sure Thing Credit Spread - 1167.87
We originally put on the "hypothetical" position by placing the January 1195/1170 bull put spread for a credit of $1,360. The market trend reversed, so we closed out our two contracts of the 1190/1165 bull put spread for $13.90 ($2,780). We then put on five contracts of the January 1190/1215 bear call spread for $6.15 ($3,050). The new potential profit was $1,600. Expired worthless for a profit of $1,600.
January Position #3 - MSH Bull Put Spread - 464.28
We sold 15 MSH January 450 puts and bought 15 MSH January 440 puts for a credit and potential profit of about $.55 ($825). Expired worthless for a profit of $825.
January Position #4 -- SPX Bull Put Spread - 1167.87
We sold 15 SPX January 1100 puts and bought 15 SPX January 1090 puts for a credit of about $.70 ($1,050). Expired worthless for a profit of $1,050.
ZERO-PLUS Strategy. OEX - 561.19
In last year's position, we used the $26,000 to buy 3 OEX December 2006 540 calls and then use the remainder for maintenance on some small credit spreads. We generated a total of $11,525 in cash from our little credit spreads.
For this year, we're going to use the entire $26,000 of extra cash as maintenance for some Iron Condors. That should enable us to generate substantially more profit on this "no risk" strategy.
February Zero Plus Iron Condor Position
We'll start with our February position #4. However, we're going to sell 20 contracts of the SPX 1120/1110 bull put spread and buy 20 contracts of the SPX 1230/1240 bear call spread for a net credit $1.05 -- giving us a potential profit of $2,100.
QQQ ITM Strangle
We closed out our QQQ ITM Strangle position at Friday's January expiration. Below is the breakdown. Remember, there was $5,200 at risk. All the rest of the money was intrinsic value.
Bought back January $34 calls @ $3.00
Bought back January $40 puts @ $2.90
Total of $5.90 x 10 contracts = $5,900
Premium decay of Jan. 2005 LEAPS = $5,200
Total give back: $5,900 + $5,200 = $11,100
Premium taken in: $14,200 (in 16 months).
Profit of $3,100 ($14,200 - $11,100)
Return on the actual $5,200 risked = 60% -- in only 16 months!
Return on the total $15,200 invested = 20.4%
These results are pretty good considering I did not always roll out the monthly short positions particularly well. We'll likely establish another QQQ ITM Strangle strategy soon. Watch for the discussion in Thursday's newsletter (or possibly sooner).
Mike Parnos, Your Options Therapist and CPTI Master Strategist
Couch Potato Trading Institute Disclaimer