Option Investor
Updates

IT AIN'T OVER TILL IT'S OVER -- BUT THE FAT LADY'S GETTIN' READY TO SING

HAVING TROUBLE PRINTING?
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As veteran CPTI students know, this is our favorite time of the month. Based on today's closing prices, it looks like we're going to have another 100% profitable month. We are, however, still exposed (though not like Michael Jackson) for tomorrow morning's opening settlement figures. All of our strike prices are a comfortable distance from where the indexes are trading. I like our chances for a clean sweep with the CPTI profit broom.

We'll wrap up all the March positions and profit figures in Sunday's column. That's always fun. I also think that the positions we've established for April are pretty good. We had to put them on a little earlier than usual to capture a reasonable premium. The support and resistance levels still look good. The market looks like it wants to move down. Well, we can be sure (or sort of sure) that there are bargain hunters out there to swoop in and buy the stocks at those appropriate bargain support levels. I sure hope so, anyhow.

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GOIN SOUTH TO MEET WITH FRIENDS

Tomorrow morning (Friday), I'll be on a plane to Jacksonville to meet with a roomful of serious CPTI students for two full days. I'm looking forward to it. It's always a joy to meet with friends who have been following my column for months or years. I'll get to put faces to names and voices -- and they'll get to see that I'm just as nuts in person as I am in this column. We'll share information, education and laughs -- and it just doesn't get any better than that.

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A QUESTION

Hi Mike -- I'm signed up for your seminar in Irvine. I would like some feed back from you because I am totally frustrated. I get hammered too often in the market (selling premium, mostly naked), so the non-directional trading system certainly has my interest. However, when you publish your examples/suggestions, I never see the kind of premium you are acknowledging. I know there is a delay in transmittal, but for example, today as soon as you published the SPX April Iron Condor, I looked it up and couldn't get the premium that would make it work. I would have had to buy the 1110 put to make it work. So, I'm wondering if in reality (not theory) does this system work?

I would like to find a system that will work for me where I can make money on a consistent basis. I'm not trying to "get rich quick". Do you personally know of anyone who is making a living by trading options? I have spent a huge amount of time and energy into this over the years and I'm wondering if I'm just chasing straws. - S.T.

Hi S.T., -- I understand that you are frustrated, but I hope it's only temporary. When I put on these positions, I look at the bid and ask prices. On the surface, the premium may not be there. However, I know that we can generate premium from negotiating with the market maker. When you see a $.50 bid/ask spread, there's a good chance we can get $.15. An $.80 bid/ask will often yield $.30. A $.30 bid/ask spread will often yield $.10.

Also, you can't be shy about putting orders out. It doesn't cost anything to put an order out there and you'd be surprised how often they get filled -- even if they don't seem to make sense on the surface.

In Thursday's example, the SPX went down shortly after I sent out the post. Well, that simply meant that the bull put spread could have been filled more easily, but the bear call spread would be difficult. Some traders simply moved the strikes down slightly -- from 1250/1260 to 1245/1255. You may want to put in the spreads separately instead of both spreads at the same time.

You have to be flexible and to be able to recognize opportunities. That's one of the many things we'll go over at the seminar. Many of the people who have been following my column for years are making from $2,000 to $10,000 per month using these strategies. But, they don't rely on my posted trades. They're taking the concepts and applying them to other indexes (and stocks). They are not (as far as I know) trading directionally. They have honed their trading skills and are using sound money management skills. They have the right broker and are making the most efficient use of their trading capital.

There is no holy grail. There is only education, perseverance and self-discipline. The secrets are in opportunity recognition and in damage control.

Keep the faith. It can happen, but it's a process. It's not like Minute Rice. Take care and I look forward to seeing you at my Irvine seminar.

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COUNTDOWN TO PROFITS!
The Education Begins This Weekend in Jacksonville! Coming up -- Chicago & Irvine.

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 ($995.00), 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 remaining seminar dates and locations are:
April 16/17 - Chicago, IL (only two spots left)
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!

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MARCH CPTI POSITIONS
March CPTI Position #1 -- MSH Iron Condor - 462.09
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 - 1190.21
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 - 462.09
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 - 417.80
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.

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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.

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.

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QQQ ITM Strangle - $36.71
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.

We rolled out our short positions to April. We bought back the March $37 puts and sold the April $36 puts for no credit or debit. It was an even exchange. Then we sold the April $37 calls for $.60 ($600). We had purchased back the March $38 puts last week for $.05. Our net credit for April (at least to begin with) is $550. Add that to our previous cash total of $1,600 and we now have generated a total of $2,100. Now, if the market cooperates . . .

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CPTI APRIL POSITIONS
April CPTI Position #1 -- MSH Iron Condor - 462.09
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 - 137.51
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 - 193.80
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.

April CPTI Position #4 - SPX "Sure Thing" Credit Spread -- 1190.21
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.

We sold 2 SPX April 1215 Calls and bought 2 SPX April 1240 Calls for a 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. Our initial maintenance is only $5,000 (25 points x 2 contracts).

April CPTI Position #5 - SPX Iron Condor - 1190.21
We sold 15 SPX April 1125 puts and bought 15 SPX April 1115 puts for a credit of about $.50 ($750). Tlhen we sold 15 SPX April 1250 calls and bought 15 SPX April 1260 calls for a credit of about $.50 ($750). Our total net credit is $1.00 ($1,500). Max profit range: 1125 to 1250. Maintenance: $15,000.

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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

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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, guess what? It isn't the fault of the strategies.

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