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LARGE RANGES TO THE RESCUE

HAVING TROUBLE PRINTING?
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Big max profit ranges -- they're beautiful to behold -- especially if they be holdin' our indexes inside. And, it appears that our April positions are going to survive this silly downdraft of the last few days. Remember the song "The Limbo Rock," when Chubby Checker asked, "how low can you go?" Well, we'll find out just how low the market is going to go. It's already sold off substantially. The bargain hunters are likely ready to come out of the woodwork and make their presence felt. I'm going to hold off putting on more May positions until the market settles down.

In the meantime, while we wait for the bargain hunters, we can prepare to chalk up profitable month number 28 out of 29. We're exposed for tomorrow's (Friday's) opening settlement prices on the SPX and MSH (European style options), but we should be OK. CME also has to survive another day, but that has a nice cushion and should survive. It's going to be fun to add up this month's profits.

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Looking Back At The OSX Calendar Spread
I just looked at OSX and am really glad we took profits last week on the calendar spread. That was a perfect example of applying a little common sense and not being greedy. Oil stocks may rebound, but, had we held the position, we would have had to make up a lot of ground before we could become profitable again.

Right now, OSX is trading at $132.90. Even though the price of oil went up today, the index was dragged down by the market by over $1.00. If we were still in the OSX calendar spread, we'd now be holding the Sept. $150 call (current value about $4.00). The April $150 call will have expired worthless. Our original cost to enter the trade was $5.95. That means we would be looking at a $1.95 loss. (In real life, astute traders with good money management skills would have closed out the position when the loss was about $1.00. You have to have a predetermined exit point on your trades).

Let's assume for a moment that someone is still, for some ungodly reason, still holding the long OSX position. If he anticipates a rebound in oil stocks, he could now sell the May $140 call for about $2.00. So, the new position would be long the Sept. $150 calls and short the May $140 calls. His new cost basis is now $3.95 ($5.95 less $2.00). By selling the May $140 calls, positioned positioned himself to make money as OSX moves from $132.90 up to $140. That's the good news.

Whenever you make an adjustment in a position, there's always a compromise -- and we hate to compromise. Originally, we put on a horizontal calendar spread in which the short near term $150 (April) call was protected by the long $150 September call. The strike prices were the same. The adjusted position is long the Sept. $150 calls and short the May $140 calls. Our long Sept. $150 call does not protect us from $140 to $150. We are now exposed for a potential loss of that $10. It has become a credit spread and the brokerage firm will require $1,000 of maintenance per contract.

Not only is there a maintenance requirement, but the position will require more monitoring. Everything will be fine -- unless OSX moves up too fast. You have to keep an eye on the deltas. Don't let yourself get into a position where the value of the May $140 calls is going up more rapidly than the Sept. $150 calls.

The bottom line is that one should have closed the OSX trade a long time ago. If you hold on too long, you're faced with doing something out of desperation. Take your loss like a man. Remember, they aren't really losses. They are simply a cost of doing business. It's wise money management. Also, keep in mind that, if you take a loss, you don't have to make it back on the same stock or index. People have a tendency to hold grudges. They want to get revenge. That's childish. Put your ego aside. Grow up and use some common sense. Take the emotion out of it. It's critical to your success as a trader.

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Welcome New Subscribers!
I have it from a good authority that our CPTI family of students is growing. The word of our success is getting around. The more the merrier. What you will learn at the Couch Potato Trading Institute is something no-one can take away from you. You'll have it for the rest of your life. Education is a wonderful thing. It pays you back a hundred fold.

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You Gotta Have Heart :-)
A man who was having heart trouble went to the doctor to see what his options were. Naturally, the doctor recommended a heart transplant. The man reluctantly agreed, and asked if there were any hearts immediately available, considering that money was no object.

"I do have three hearts," said the doctor. "The first is from an 18-year old kid, non-smoker, athletic, swimmer, with a great diet. He hit his head on the swimming pool and died. It's $100,000. The second is from a marathon runner, 24 years old, great condition, very strong. He got hit by a bus. It's $150,000. The third is from a heavy drinker, cigar smoker, and a steak lover. It's $500,000."

"Hey, why is that heart so expensive? He lived a terrible life!"

"Yeah, but it's from a lawyer and never been used."

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NEW SUMMER SEMINAR DATE: JULY 16 & 17 -- PHILADELPHIA, PA

WE'VE HAD 27 OUT OF 28 PROFITABLE MONTHS -- WITH NO END IN SIGHT.

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

The CHICAGO Mike Parnos CPTI seminar is sold out. However, there are still spots left for the May IRVINE, CA seminar, and now, of course for the new PHILADELPHIA, PA seminar. They probably won't last long, so be proactive! That means GOYA. Contact me at mparnos@optioninvestor.com and I'll reserve a spot for you. He who hesitates may be SOL.

The dates and locations are:
April 16/17 - Chicago, IL - SOLD OUT!!!
May 14/15 - Irvine, CA
July 16/17 - Philadelphia, PA

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!

This weekend is the sold out Chicago seminar. If you signed up, I'll see you there. If you didn't sign up, you probably should have.

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CPTI APRIL POSITIONS
April CPTI Position #1 -- MSH Iron Condor - 439.03
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.
Maximum profit range is 420 to 510 and the maintenance is $15,000.

April CPTI Position #2 - OSX Calendar Spread -- Closed for $1,500 Profit.
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. On Tuesday we closed out this position for a profit of $1,500.

April CPTI Position #3 - CME Iron Condor - 178.99
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 - Closed for $1,270 Profit
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). On Wednesday we closed our position for a profit of $1,270.

April CPTI Position #5 - SPX Iron Condor - 1162.05
We sold 15 SPX April 1125 puts and bought 15 SPX April 1115 puts for a credit of about $.50 ($750). Then 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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MAY CPTI NEW POSITIONS
May CPTI Position #1 - SPX Iron Condor - 1162.05
We sold 15 SPX May 1100 puts and bought 15 SPX May 1090 puts for a credit of $.60. Then we sold 15 SPX May 1235 calls and bought 15 SPX May 1245 calls for a credit of $.75. Our total net credit is $1.35 ($2,025). We have a maximum profit range of 1100 to 1235. The bigger the better!! Maintenance is $15,000.

May CPTI Position #2 - CME Iron Condor - 178.99
We sold 15 CME May 155 puts and bought 15 CME May 145 puts for a credit of $.65. Then we sold 15 CME May 230 calls and bought 15 CME May 240 calls for a credit of $.40. Our total net credit and profit potential is $1.05 ($1,575). Our maximum profit range is 155 to 230. The maintenance is $15,000.

May CPTI Position #3 - MID Iron Condor - 638.41
We haven't used MID in the past, so it should be interesting. Due to the fact that it consists of midcap stocks, it should offer us another degree of diversification.
We sold 12 May MID 620 puts and bought 12 May MID 610 puts for a credit of $.65 ($780). Then we sold 12 May MID 700 calls and bought 12 May MID 710 calls for a credit of about $.45 ($540). Our total net credit and profit potential of $1.10 ($1,320). Maximum profit range of 620 to 700. Maintenance is $12,000.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - March Iron Condor Position - SOX - 395.71
Profit: $1,800.
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 - Expired worthless-Profit: $1,800.

New Cash Position: $26,000 + $1,800 = $27,800.

New April Zero Plus Position: We sold 20 of the SOX April 450 calls and bought 20 of the SOX April 460 calls for a credit of $.55 ($1,100). Then we sold 20 SOX April 380 puts and bought 20 of the SOX April 370 puts for $.30 ($600). Our total net credit was $.85 ($1,700). It's a nice wide range with support on the bottom and resistance on the top.

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QQQ ITM Strangle - $35.55
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.

We rolled out our short April options to the May $36 puts and $37 calls and took in another $950. Add that to our previous cash total of $2,100 and we now have generated a total of $3,050.

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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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