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THIS LITTLE PIGGY WENT TO MARKET

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Facts You Probably Didn't Know . . .
- Banging your head against a wall uses 150 calories an hour. (A great new fad diet idea, but it leaves an ugly dent in the wall).
- A cockroach will live nine days without its head before it starves to death. (A couch potato can only last five days)
- The male praying mantis cannot copulate while its head is attached to its body. The female initiates sex by ripping the male's head off. (I can identify with that)

I thought I'd start tonight's column with a little humor, because we're probably going to need a hell-of-a sense of humor before this month is over.

The market is fickle. Volatility is back, even though it's not necessarily represented in premium availability. Look at today. The damn market went up over 200 points (DOW), the NASDAQ was up almost 50 points and our SPX was up over 22 points. That's massive. That's volatile. But the VIX was down over 2.50 points. Go figure.

Hang on. It looks like we're in for quite a roller-coaster ride this month. Remember, if you don't want to go for the ride, you should seriously consider exiting positions you feel are at risk.

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Reviewing This Week's CPTI Activity
1. MID - Friday's severe downdraft in the market took the index down to about 627. With five weeks left to expiration, it didn't seem prudent to sit with a position so close to our short strike price (620) for so long. The decision was made to close out the May 620/610 bull put spread. Friday's closing numbers would allow a closeout at $3.60. However, on Monday, the market bounced and we were able to close out the position for $3.00. We had taken in $1.10 on our 12-contract position. Therefore, we accepted a $1.90 loss or a total of $2,280.

2. GOOG - Tuesday, there was an opportunity to establish a new CPTI position in Google. It was trading at about $190. We put in a 12-contract Iron Condor order, asking for a total net credit of $1.30. We, along with a number of CPTI students, were pleasantly surprised when we were filled at $1.40. Our profit potential on this GOOG position is now $1,680. If the position works out, it will make up a large portion of the loss we took when MID came dangerously close to our short strike.

I'm well aware of the GOOG earnings announcement. As I write this, GOOG is trading at about $220. Personally, I'm going to hold onto our $220/$230 bear call spread because I believe that GOOG will come back down significantly. I believe the market over-reacts to everything. This earnings announcement is probably no different. I will re-evaluate as time goes on. I very well may regret this decision.

If you are concerned about GOOG price levels, you would be well advised to consider closing out the bear call spread. It's your money and it's your call.

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From The "There's One Born Every Minute" File (and it's a large file)
I just had to share this with you. Here is an email I received recently -- in its original unadulterated form.

i played your quickies this month and was appalled by the lack of instructions from you concerning limiting losses and closing out positions (as found in the Monthly Cash machine for example)

i played half the "recommended" i contract amounts and got wacked for about 10k

i didn't see anything in your positng about you not personally playing the quickies...only that one shouldn't "play with beer and pizza money"

i think you should be more fothcoming with admittance of your bad advise, not just patting yourself on the back when recommendations work out

My Response
Using every ounce of self-restraint I could muster, I responded:

Dear ___________ ,
You shouldn't be trading these strategies unless you know what you're doing. Don't try and blame me for your shortcomings. If you've been reading my columns over the years, you would have known what to do. If you had any questions, I'm very accessible. I didn't get any emails from you -- whoever you are (you didn't even sign your email).

I say on many occasions that these trades are for aggressive traders only -- ones that know what they're doing. I have also said often that I don't trade these myself. That's the reason why I don't include the results of the quickies in the CPTI portfolio.
Good luck.
Mike

Taking Responsibility
Did you ever notice how so few people are willing to take responsibility for their own actions? When things go wrong in their life, the first thing they look for is someone else to blame.

People tend to repeat patterns in their life. Take another look at the above email. This guy takes no time and pays no attention to detail in something as simple as an email. Are you surprised that he takes a similar haphazard approach to his trading? I'm not. Forget about punctuation, grammar, and spelling. He got whacked for $10,000, but can't even spell "whacked."

This guy doesn't have the sense to look both ways before crossing the street. As a child he must have stood on street corners for days waiting for a crossing guard to show up. He shouldn't even be allowed to take a shower without adult supervision. I understand that Michael Jackson has some time after court. For this guy, maybe Michael would wave the age requirement.

He doesn't have a clue. He should just suck it up and profit from the experience. It was an expensive lesson. Do you think he learned something from it? I doubt it.

OK, I guess that's enough. I'm far from perfect, but sometimes I just can't help myself. I hate to hear people whine. Even couch potatoes have limits. One thing that this little episode has accomplished -- it has reinforced my appreciation for YOU -- the huge majority of CPTI students who are intelligent, creative, motivated, astute, and have an appetite for knowledge (and pizza, of course).

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Fighting The Good Fight
Many of you will remember last year when a few of our favorite brokerages changed their maintenance policy in the middle of an option cycle. Originally, we were able to put on our Iron Condors with uneven size spreads and different numbers of contracts and still have the maintenance for one side waived. For instance, in the past we could:

10 contracts of SPX 1130/1120 bull put spread (10 X $1,000 = $10,000)
20 contracts of SPX 1220/1225 bear call spread (20 X $500 = $10,000)

The maintenance requirement on both is $10,000. In the past, that was no problem and maintenance on one side was waived. When the policy was changed, we had to match up the size spreads and number of contracts to get them to waive the maintenance on one side.

In the past it was also true that we could do spreads with uneven maintenance requirements and the spread with the higher requirement was the one that was held. For instance, we could:

12 contracts of SPX 1130/1120 bull put spread (12 X $1,000 = $12,000)
10 contracts of SPX 1210/1225 bear call spread (10 X $1,500 = $15,000)

The maintenance, back then, would have been $15,000 on the bear call spread while the maintenance on the bull put spread ($12,000) would have been waved.

Again, when the policy was changed, we had to match up the size spreads and number of contracts to get them to waive the maintenance on one side. But it just doesn't make any sense. I have received encouragement from my broker to resume the appeal to the common sense of the clearing corporation. Perhaps, I can, once again, show them that their exposure is the same regardless of the policy (previous or current). Maybe we can convince them to re-establish the old policy. They will end up with more business in the long run.

On the surface it may not seem that big of a deal. However, it will give us a lot more flexibility when trying to create spreads on the SPX. Almost every month we're faced with the limitation of available strike prices on the SPX. Sometimes we're forced to abandon a bear call or a bull put spread because strike prices at those optimal levels have not yet been opened.

Whether we'll have success has yet to be determined. But, I now have my broker as an ally in the fight. So, I'll carry the torch and do what I can with the goal of making our trading more flexible and possibly even more profitable. I'll keep you posted.

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MAY CPTI POSITIONS
May CPTI Position #1 - SPX Iron Condor - 1159.95
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 - 169.96
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 - Closed
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). Closed for $2,280 loss.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - May Iron Condor Position - SPX
Zero-Plus is 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.

In April, we placed a SOX 450/460 and 380/370 Iron with a total net credit was $.85 ($1,700). It expired worthless and our profit was the entire $1,700. Our new cash position is: $27,800 + $1,700 = $29,500.

New May Zero Plus Position: SPX Iron Condor - 1159.95
Sold 20 SPX May 1210 calls and bought 20 SPX May 1220 calls for a credit of $.45 ($900). Then sold 20 SPX May 1090 puts and bought 20 SPX May 1080 puts for $.55 ($1,100). Our total net credit is $1.00 ($2,000).

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QQQ ITM Strangle - $35.62
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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NEW SUMMER SEMINAR DATE: JULY 16 & 17 -- PHILADELPHIA, PA

WE'VE HAD 28 OUT OF 29 PROFITABLE MONTHS -- WITH NO END IN SIGHT.

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

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:
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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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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