Updates, Thursday, 01/27/2005 09:48:47 PM ET
HAVING TROUBLE PRINTING?
For Those Who Deserve Their Profits
We work very hard making our money. Shifting from cushion to cushion on the couch, replacing remote batteries, calling for carry-out. It's draining! Add to that the occasional pressing of a mouse button, those painful keystrokes and those trips to the refrigerator. It's no wonder we're exhausted at the end of the day.
On the other side of the ledger, when all is said and done, we usually have a nice chunk of money to show for all that painstaking work. Do you realize how unappreciated we are? People don't appreciate our skill and efficiency of movement. The question is: Where does that extra money go? I'll never tell.
On the subject of money, did you know that people who make a lot of money are not happier than those that don't? Well, that's what some psychologicl studies say, but I don't believe it for a minute. It's simple. People who have less money have fewer options (no pun intended). I suppose life is somewhat simpler for those who have to make fewer decisions. It's probably all the decision-making that a lot of people can handle. I'll take my chances with the extra money and the responsibility of making a few extra decisions.
I recently read that psychologists say that, after achieving a certain earnings level, extra money hardly affects happiness. I know when I pay a lot of taxes to Uncle Sam, I do it with a big grin on my face. That means I have made a LOT of money. It's sweet.
Also, people in rich countries are supposedly not happier than those in poorer ones. An Illinois psychologist compared the overall well-being of billionaires and millionaires on the Forbes 400 list of the richest Americans and Masai herdsmen in East Africa. He found no significant difference. I don't know who the hell this guy was talking to. I don't know many herdsmen, but they're happy if they have indoor plumbing. Get serious. Millionaires probably set the bar a little higher. They have indoor plumbing -- with gold plated faucets.
Look at the multimillion-dollar lottery winners. So many of them end up as alcoholics, addicted to drugs, divorced, and often worse off financially than they were before they won the money. Psychologists say there's a temporary rush they get from winning. That wears off quickly and "stupid" takes over. (I added the "stupid" part. It's a psychological term that's reserved for special situations and people).
What Sets CPTI Traders Apart
How does our option trading put us in a different category? Because it is a combination of knowledge and street smarts that enable us to generate our money. We didn't buy a lottery ticket and light a candle. Each of us is running a business. Our positions are our inventories. We know their value of each position and we know what to expect. We're ready for any occurrence. We know there will be mostly good months, but occasionally we're going to lose money. We take the macro view. Our minds are open, active and we're calculating. But all that doesn't mean we can't enjoy a Gilligan's Island rerun every once in awhile. We've earned the right to some mindless entertainment. It's the segment of the population that watches Gilligan's Island every night because they find it stimulating that we have to worry about.
Things are looking good, but don't spend the profits quite yet. We're only a week into the option cycle. Our cushions are intact -- couch and position. Readers have asked why we haven't put on a "sure thing" spread position this month. Because it seems the market has stopped trending and has settled into a range. We only have an advantage, with that strategy, if the market is trending.
CPTI Seminar Update
Check out Wednesday's (yesterday's) column for upcoming CPTI seminar dates. Reserve your spots soon. They're going fast.
February Position #1 - SPX Iron Condor - 1174.55
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 - 562.36
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 - 470.03
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 - 1174.55
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.
In my Feb. 8, 2004 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.
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 - SPX - 1174.55
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
Watch Sunday's column for a new ITM Strangle.
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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