Once upon a time there was a directional trader named Louis Surr. A hard-working fellow, Louis was relatively new to trading, but he knew that Warren Buffet wasn't an all-you-can eat Chinese restaurant. What else did he have to know? He had been watching infomercials that talked about trading options being the answer. He bought some expensive software, paid for a data service, subscribed to a few newsletters and placed his bets. "This doesn't seem so tough," thought Louis.
Louis had saved his hard earned money for years. He put in countless hours of overtime, sacrificing time with his family for the dream of future financial independence. He took the newsletter's advice and was trading deep in the money naked puts and praying for a bounce. He was delusional. Well, before he could say, "directional trading," Louis lost half of his life savings. His friends called him, "Lou Surr, Lou Surr, Lou Surr." And he WAS a "loser" -- until he realized that, in order to be successful, he better stop trading until he had a better grasp of options, how the puts and calls worked -- independently and together. He better learn strategies and how to select his own positions.
It's likely that you'll see the transformation of a Lou Surr into a Win-Ner. It's not easy. There's no holy grail. Success is a product of hard work -- focused in the proper direction. I'm proud to say that there are many Lou Surrs out there who have found their way to the Couch Potato Trading Institute. They're learning the strategies. They're dramatically increasing their probability of success. And they're becoming winners -- slowly but surely.
March CPTI Position #1 -- MSH Iron Condor - 466.32
The Morgan Stanley High Tech Index has bounced around a bit, but it has some pretty well defined support and resistance levels. The market seems to have settled back into a trading range. Let's hope it behaves.
Sell 10 March MSH 430 puts
Buy 10 March MSH 420 puts
Credit of about: $.90 ($900)
Sell 10 March MSH 510 calls
Buy 10 March MSH 520 calls
Credit of about $.35 ($350)
Total approximate credit and potential gain of $1.25 ($1,250). We've established a maximum profit range of 430 to 510. The maintenance is $10,000. The actual exposure is $8,750 ($10,000 less the $1,250 premium received).
March CPTI Position #2 -- SPX Iron Condor - 1189.89
Sell 15 March SPX 1120 puts
Buy 15 March SPX 1110 puts
Credit of about: $.50 ($750)
Sell 12 March SPX 1240 calls
Buy 12 March SPX 1250 calls
Credit of about: $.70 ($1,050)
Total appx. credit and potential gain of $1.20 ($1,800). We've established a maximum profit range of 1120 to 1240. The maintenance is $15,000. The actual exposure is $13,200 ($15,000 less the $1,800 premium received).
Jacksonville -- The First Stop
This weekend the eyes of America will be focused on Jacksonville, FL. The New England Patriots will be slugging it out with the Philadelphia Eagles at the Superbowl. In mid March, the eyes of America will again be focused on Jacksonville. Why? Because that's the location of the first of three Spring Mike Parnos CPTI seminars. Jacksonville will be the first stop of the CPTI Profit Train.
Since I announced the three seminar dates last week, I've been inundated with over 50 responses by folks who want to reserve spots. I'm going to take a leap of faith and assume you are serious options traders or you wouldn't be reading my CPTI newsletter. You want to learn how to position yourself to take advantage of all those directional traders who lose their money betting on whims or the recommendations of others.
Options are marvelous tools -- but you have to know how to use them. There's more to consistently making money than a coin flip and a mouse click. For less than the profit on one Iron Condor trade, you can learn how to put the percentages in your favor. It's knowledge that will last you a lifetime. Join me at one of my CPTI seminars. The dates and locations are:
March 19/20 - Jacksonville, FL
April 16/17 - Chicago, IL
May 14/15 - Irvine, CA
Send me an email at firstname.lastname@example.org and I'll forward you all the details. The spots are filling up fast. Don't put it off!!
What's The Catch?
A market maker was sitting in his office one night, when the Devil appeared before him. The Devil told the market maker, "I have a proposition for you. You can make an extra nickel on every trade for the rest of your life. Your clients will adore you, your colleagues will stand in awe of you, and you will make incredible sums of money.
"All I want in exchange is your soul, your wife's soul, your children's souls, the souls of your parents, grandparents, and parents-in-law, and the souls of all of your friends."
The market maker thought about it for a moment, then asked, "So, what's the catch?"
February Position #1 - SPX Iron Condor - 1189.89
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 - 568.21
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 - 466.32
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 - 1189.89
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 - 1189.89
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 - $37.15
We own 10 January 2007 $42 puts and 10 January 2007 $32 calls at a total cost of $14,600. Only $4,600 is at risk as the other $10,000 of intrinsic value will always be there. We then sold the March $36 puts and $38 calls, taking in a total of $1.10 ($1,100). If all goes well, the QQQQs will close somewhere between $36 and $38. We will then sell the April near term options, etc. etc. The objective is to sell premium every month for the next 22 months. When all is said and done, we should be able to show a very nice profit.
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.