Updates, Sunday, 02/20/2005 12:05:44 AM ET
HAVING TROUBLE PRINTING?
What can I say? And we're sizzling again. In our CPTI portfolio, it doesn't get any better than four-for-four. That's batting 1,000. It was a rather tame February option cycle, as our short positions were never really threatened -- just like in the script. Don't we just love happy endings? YBYA.
Below is a summary of the February CPTI positions. Through four months in tracking year number three, we're now $7,440 to the positive. We're going to continue to be conservative and to trade smart. The profits will follow.
February Trade Summary
SPX - Iron Condor - Profit: $1,500
OEX - Bull Put Spread - Profit: $750
MSH - Iron Condor - Profit: $1,150
SPX - Iron Condor - Profit: $1,050
TOTAL FEBRUARY RESULTS: Profit: $4,450
See a recap of the specifics of the closed February CPTI positions below.
Putting It All On The Line
I've had some people ask me how they're supposed to put on March positions before their February positions have expired. They were using almost the entire value of their account as margin on their February trades. Not a good idea. You need to keep some dollars in reserve for a few different reasons: 1) In case an opportunity presents itself to initiate a new position, and; 2) In case you need to make an adjustment on a current position that may require some additional margin capital. If you don't have the financial flexibility to make a trade adjustment, you run the risk of losing a big chunk on a specific trade. Our trades work out most of the time, but when they don't it can get ugly (remember November?). Don't get greedy. It'll come back to bite you in the ass every time.
I suggest that you use about two-thirds of your available margin on current trades and hold the rest in reserve. Also, remember that stocks, bonds, CDs, etc. in your brokerage accounts can be used as a source of margin. It doesn't all have to be cash.
Where Has Your Margin Gone?
It's interesting that, among all the people I talk to, less than half of them have their brokerage accounts at firms that only hold maintenance on one side of an Iron Condor trade. That's a waste of money -- an inefficient use of money. The reasons I hear are laughable.
1) "I've been with Fidelity for years."
2) "Joe has been my family's broker and he watches out for us."
3) "I have my IRA with Schwab and it's better to have all my accounts in one place."
1) I know that change is uncomfortable, but some people are just plain stubborn. Fidelity will survive just fine without you. Their margin requirements and trading commissions are right out of the dark ages.
2) Joe might be an old family friend, but (since you've been reading my column) there's a very good chance that you know more about options than he does. I'm sure Joe's a great guy, but it's not your mission in life to put food on his table. You need to put it on YOUR table. If you want to give to charity, there's always the Salvation Army or the NADT (National Association of Directional Traders).
3) Most brokerage firms do not allow the trading of credit spreads and Iron Condors. There are some more progressive firms that DO ALLOW Iron Condors in IRA accounts. It doesn't make any sense to remain with firms that limit what you can do with your own money.
I don't mean to pick on Schwab and Fidelity. There are dozens of other brokers and financial advisors, etc. out there and you can insert their names in silly reasons 1, 2 & 3 -- and the reasons are just as feeble.
If you have what it takes to move forward and want to know which brokerage firms will enable you make best use of your assets, drop me an email. By the way, change is not as painful as you may think. However, as in life, there's a right way and a wrong way. BTW, this is also a topic I go over in depth at my seminars (see below).
ADDING UP OUR QUICKIE PROFITS = $10,296
OEX Iron Condor -
with 570/580 max profit range & $2,250 credit -- closed at 575.41 -- Profit: $2,250
SPX Iron Condor -
with 1190/1205 max profit range & $5,800 credit -- settled at 1201.79 -- Profit: $5,800
RUT Iron Condor -
with 620/630 max profit range & $6,250 credit -- settled at 634.04 -- Profit: $2,246 ($6,250 - $4,004). ________________________________________________________________________________
Did You Make $4,450 This Month?
Our Quickies Made Another $10,296.
Do you know how to negotiate with market makers?
Do you know how to read between the lines of an option chain?
Do you know how to capture premium where there seems to be none?
Those are just a few of the valuable skills I teach and can help you develop when you attend my seminar. If you're a serious trader, why limit yourself?
Learn how to position yourself to take advantage of those silly directional traders who lose their money betting on whims or the recommendations of others? It's relatively easy pickins -- if you have what it takes to harvest the crop. It's not brain surgery -- IF you know what to do.
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 email@example.com and I'll forward you all the details. The spots are filling up fast. Don't be left out! It'll be a weekend you'll never forget! Serious option traders only! Directional trader converts welcome!__________________________________________________________________________
SUMMARY OF CLOSED FEBRUARY CPTI POSITIONS
February Position #1 - SPX Iron Condor - 1201.58
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. Maximum profit range of 1140 to 1255. Profit: $1,500.00.
February Position #2 - OEX Bull Put Spread - 575.41
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. Profit: $750.00
February Position #3 - MSH Iron Condor - 467.53
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. Profit: $1,150.00.
February Position #4 - SPX Iron Condor - 1201.58
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.). Maximum profit range of 1120 to 1230. Profit: $1,050.
NEW MARCH CPTI POSITIONS
March CPTI Position #1 -- MSH Iron Condor - 467.53
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.
We sold 10 March MSH 430 puts and bought 10 March MSH 420 puts for a credit of about: $.90 ($900). Then we sold 10 March MSH 510 calls and bought 10 March MSH 520 calls for a credit of about $.35 ($350). Our total approximate credit and potential gain of $1.25 ($1,250). Maximum profit range is 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 - 1200.75
We sold 15 March SPX 1120 puts and bought 15 March SPX 1110 puts for a credit of about: $.50 ($750). Then, we sold 15 March SPX 1240 calls and bought 15 March SPX 1250 calls for a credit of about: $.70 ($1,050). Our total approximate credit and potential gain is $1.20 ($1,200). 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).
March CPTI Position #3 - MSH Bull Put Spread - 467.53
It also gave us the opportunity to add to our MSH bull put spread position. We already put on 15 contracts of the 430/420 bull put spread. The support level is still valid -- plus, there isn't much premium to be found elsewhere. We sold 10 March MSH 430 puts and bought 10 March MSH 420 puts for a credit of $.50 ($500).
This is the bull put spread of what we hope will be an Iron Condor position. We'll have to wait for MSH to pop back up before there is any premium in the 510/520 bear call spread
March CPTI Position #4 - SOX Iron Condor - 427.73
The SOX is an old friend we haven't visited for awhile. There are some pretty well defined support and resistance levels and there is still a little premium left for us.
We sold 10 March SOX 380 puts and bought 10 March SOX 370 puts for a credit of about: $.55 ($550). Then we sold 10 March SOX 470 calls and bought 10 March SOX 480 calls for a credit of about: $70 ($700). Our total net credit and potential profit is about $1.25 ($1,250). Our maximum profit range is 380 to 470. The maintenance is $10,000.
ZERO-PLUS Strategy - February Iron Condor Position - SPX - 1200.75 - Profit: $2,100.
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.
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.
New March Zero Plus Position:
March SPX Iron Condor - 20 contracts of 1150/1140 bull put spread @ $.45 ($900) & 20 contracts of 1240/1250 bear call spread @ $.45 ($900). Total = $.90 ($1,800). Maximum profit range is 1150 to 1240. Maintenance is $20,000.
QQQ ITM Strangle - $37.35
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.