Option Investor
Updates

INTRODUCING QUICKIES TO THE REST OF THE WORLD

HAVING TROUBLE PRINTING?
Printer friendly version

Do you think the rest of the world is ready for our quickies? Well, the CBOE seems to think so. A member of our CPTI tribe noticed an article in Barron's and sent it to me. I should probably be pissed. They're going to call these short-term options "quickies" -- and they didn't even consult me. Of all the nerve!!!

Here is a little bit of the article: "The Chicago Board Options Exchange plans to introduce options of a type so fleeting in duration that they are dubbed 'quickies.' Most listed stock-market options today trade for months and years before they eventually expire. Quickies, however, will cease to exist a week after they come into being, and could give traders a more accessible tool for making short-term bets on stocks."

"Under the CBOE's proposed pilot program, one-week options will begin trading on a Friday and expire the following Friday afternoon. For a start, about five cash-settled options will be listed-likely those tied to broad-market benchmarks or very liquid stocks. Each option will feature only a very small number of near-the-money strike prices to keep things simple, and to avoid spawning so much quote traffic as to strain capacity."

"As it is, trading activity and volume tend to be heaviest in front-month options, since market participants often concentrate most ardently on the near term. While one-week options may carry less time premium, they also feature accelerated time decay, as each passing day brings them much closer to expiration."

What Can We Do With These New "Quickies?"

A lot will depend on the formula they use to determine the premiums in these "quickies." If it's the same as how we play the last week prior to expiration, we may be able to have some real fun.

We may be able to trade baby calendar spreads by selling one-week options against monthly options. Traders may be able to sell weekly covered calls against stock they hold (yes, people do still own stock - they don't know any better). We may be able to do one-week condors each week (like our typical quickie plays).

Can you imagine how crazy the quote screens will become with all the new symbols? We're going to have to be very careful placing the orders. Apparently, this is going to be an experiment that will last about a year - to see how the options work and to see if there is sufficient demand to make it all worthwhile. I think there will be. Where there are options, the gamblers will magically appear. And, as usual, we'll be glad to take their money. Should be an interesting experiment, to say the least.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NEW APRIL CPTI POSITION

April CPTI Position #4 - SPX "Sure Thing" Credit Spread

The "sure thing" credit spread is used primarily with a trending market. The market appears to have changed direction and has no real reason to go up. With rising oil prices and other economic problems, it looks like the market may take a rest and may drift lower for awhile. Let's hope that "awhile" is at least five weeks.

Sell 2 SPX April 1215 Calls

Buy 2 SPX April 1240 Calls

Credit of about $7.00 ($1,400)

This strategy is only for traders who have a very large account and have excess maintenance dollars handy. Why? Because, if the market changes direction, we may have to close out our bear call spread. Then, we would open a bull put spread, using additional contracts. It could get hairy if we get whipsawed back and forth. So, unless you've got some bucks or usable maintenance dollars, you should pass on this strategy. Our initial maintenance is only $5,000 (25 points x 2 contracts).

P.S. Who knows, maybe we'll be able to do this with the new "quickies" at some time in the near future.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

March Quickie Note

Those market makers at the RUT don't seem to want our business. We know they are tough to deal with, but many CPTI students reported to me that they weren't able to get filled while only trying to negotiate a nickel. Well, to hell with them. If they're going to be that independent, they can do it without our money.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

COUNTDOWN TO PROFITS! Only 7 Days Left To Jacksonville Seminar! (There are a few spots left)

LEARN TO ACHIEVE SUCCESS WITHOUT STRESS WITH CPTI WEALTH-BUILDING TECHNIQUES

Do you have a job and can't monitor your trades all day long? These "hands-off" trading strategies are for you.

Do you want to learn how to consistently pocket profits that are out there for the taking?

Do you want to define and minimize your risks?
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?

OF COURSE YOU DO!

We've been profitable 26 out of the last 27 months and I can help you learn the secrets. Actually, they're really not secrets. But, until you learn what to look for, not knowing the methods is likely costing you money.

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 mparnos@optioninvestor.com and I'll forward you all the details. Don't be left out! The spots are filling up fast. It'll be a weekend you'll never forget! Serious option traders only! Directional trader converts welcome!

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

MARCH CPTI POSITIONS
March CPTI Position #1 -- MSH Iron Condor - 469.11

The Morgan Stanley High Tech Index has some pretty well defined support and resistance levels. 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 credit and potential gain is $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 - 1200.08
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 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 - 469.11
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).

March CPTI Position #4 - SOX Iron Condor - 427.88
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.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

ONGOING STRATEGIES
ZERO-PLUS Strategy - February Iron Condor Position - SPX - 1200.08
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 - $37.17
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.

On Wednesday we closed the March $36 put for $.10. and on Thursday (today) we sold the March $36.625 put for $.35 -- taking in an additional $250 on our 10 contract position.

We put another $250 in our pockets in our QQQ ITM Strangle trade. We sold 10 of the March $37 puts. Earlier this week, we bought back the 10 March $36.625 puts for a dime and, on Thursday, sold the March $37 puts for $.35 ($350). Going into expiration week, our short positions are now the $37 puts and $38 calls. We now have accumulated a cash total of $1,600 ($1,100 + $250 + $250). A good start.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CPTI APRIL POSITIONS
April CPTI Position #1 -- MSH Iron Condor - 469.11
With MSH trading at about 471, we sold 15 MSH 510 April calls and bought 15 MSH 520 April calls for a credit of $.75. Then we sold 15 MSH 420 April puts and bought 15 MSH 410 April puts for a credit of $.45. Our total net credit is $1.20 with a potential profit of $1,800.

I took advantage of the time factor (and a little extra premium) to lower the bull put spread to 420/410 rather than the 430/420 that we have on as a March position. Does that balance out the additional time exposure? Not entirely, but it is a little safer. Maximum profit range is 420 to 510 and the maintenance is $15,000.

April CPTI Position #2 - OSX Calendar Spread - $136.75
We bought 10 OSX September $150 calls @ $8.30 and sold 10 OSX April $150 calls @ $2.35. Our out of pocket cost is about $5.95 ($5,950).

Our price target for the next six weeks is about $150. If we're right, we should make a nice chunk of change. Even if OSX goes nowhere, we will not have risked a great deal. The $2.25 we took in from the short April call will erode away and will help to offset any premium erosion from our long Sept. $150 calls.

We may hold this position only until April expiration, or we may roll it out further. It depends on how it all unfolds. It may evolve into an ongoing position. Why did I select the Sept. $150 calls? Because September is the furthest month out that OSX options are available.

April CPTI Position #3 - CME Iron Condor - 197.30
It's the Chicago Mercantile Exchange-you know, the exchange where people trade futures on grains, gasoline and pork bellies.

We sold 10 CME April 230 calls and bought 10 CME April 240 calls for a credit of about $.60 ($600). Then we sold 10 CME April 165 puts and bought 10 CME April 155 puts for a credit of about $.60 ($600). Our total net credit and profit potential is about $1.20 ($1,200). Our maximum profit range is 165 to 230. Maintenance is $10,000.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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 sure as hell isn't the fault of the strategies.

Couch Potato Trader Updates Archives