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RACKING UP PROFITS - ONE BALL AT A TIME

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RACKING UP PROFITS -- ONE BALL AT A TIME

Something very unexpected happened one Monday night about a year ago. It was highly unlikely and completely unexpected. No, I didn't win the lottery, get lucky or give birth. There wasn't an eclipse, but one might happen just as often. I won't keep you in suspense. What happened was that I won a pool (9-ball) tournament.

Don't worry, you're not going to see any of my matches on ESPN (or the Playboy Channel -- but the Food Channel is a possibility). This was just a local handicap tournament with about 40 participants of varying skill levels. The lesser players (of which I'm one) are given a spot to help even things out and make the matches competitive. The tournaments are double-elimination - which means you can lose a match without being eliminated. You get a second chance. Then, if you win, you move on to another match, etc.

When, I started playing pool seriously about 2 years ago, I sucked. I had played on those little coin-operated tables found in bars on occasion. Being a novice, I might make a ball or two and then miss three or four. In reality, I had no idea what went into being a skilled pool player and not just a recreational player.

I started watching players who knew what they were doing. Playing on professional 9-foot tables, they made it seem so simple -- making shot after shot. It seemed to come as easily to them as did breathing. The majority of their shots were all 18 inches to two feet in length.

When practicing, I might make a ball or two, but the first one was two feet away and the next may have been four feet away. But the likelihood of me consistently making four-foot shots is the same as Carmen Electra showing up at my front door with "yes-yes" in her eyes. How did the "real" pool players manage to have most of their shots be two-feet (or less) shots?

The secret (and it's certainly not classified information) is that, while making one ball, they are manipulating the cue ball into position to make the next ball. There's a degree of skill in hitting a ball into a pocket, but simultaneously sending the cue ball on a predetermined path to simplify the next shot is a skill (and art) unto itself.

I decided to take the game seriously. Pool is a wonderful sport in that almost anyone can play - fat or thin, old or young, pretty or pretty ugly. To improve, however, you have to be able to assimilate information, add some common sense and be able to put it together and act.

I took some lessons from a professional. He began at square one - taking any preconceived ideas I may have had about the game and throwing them out the window -- my stance, my stroke, my aiming, my thinking - everything! Then, he proceeded to build me back up, one step at a time. Establishing a solid foundation of fundamentals is essential. From there, you can build, learn strategies, and become a "real" pool player instead of a "recreational" player. I've been practicing ever since - and improving, albeit a little at a time. That fateful day, about a year ago, when I won the tournament gave me a feeling of such accomplishment greater than any trade I could have made. I have been to the mountain top and I have seen the pool player's promised land. I can get there -- and it's going to be an enjoyable journey.

Notice any similarities to option trading? Reread everything above. Don't the same basic steps apply to the development of trading skills? Almost anyone can play. Amateurs buy and sell options arbitrarily - winning a few and losing a lot more. Then, hopefully, the decision is made to learn the "right" way to trade. It takes time. It takes a lot of practice. And, it takes a professional's guidance.

Well, you're here at my Couch Potato Trading Institute, and that's encouraging. You have to select a professional who teaches, not only the basics, but a style of playing (trading) with which you are comfortable. It will likely require you to abandon other things you "think you know" and embrace some new ideas. Envision the learning process as a boot camp setting -- where they break you down and then build you back up with know-how, discipline, and, ultimately, ready for action.

Accomplished pool players have learned how to position themselves (with the cue ball) for consistent success. The same holds true for trading. If you position yourself for success, you've increased your chances exponentially (big word, huh?).

I'm particularly proud of the many CPTI readers who have been with us for quite some time. They've learned -- sometimes the hard way. They've practiced and learned lessons -- sometimes expensive ones. And now they're spending all those "hypothetical" profits and smiling all the way to the bank. They've learned a skill and have increased their chances for success exponentially (I couldn't resist. Hey, it's five syllables).

Will I ever win another pool tournament? Who knows? But I know that, as I improve, I'll be winning countless smaller victories. And those "smaller" victories certainly do add up. So do our small victories in the options market. A word of warning to the pool players and option traders of the world - HERE WE COME!

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MAY CPTI POSITIONS
May CPTI Position #1 - SPX Iron Condor - 1143.22
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 - 194.82
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 For $2,280 Loss
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.

May CPTI Position #4 - GOOG Iron Condor - $219.45
We sold 12 GOOG May 160 puts and bought 12 GOOG May 150 puts. We also sold 12 GOOG May 220 calls and bought 12 GOOG May 230 calls. Our total net credit and profit potential is $1.40 ($1,680). Our maximum profit range is $160 to $220. Maintenance is $12,000.

May CPTI Position #5 - SPX Iron Condor - 1143.22
We sold 20 SPX May 1210 calls and bought 20 SPX May 1220 calls for a credit of about $.45 ($900). Then we sold 20 SPX May 1105 puts and bought 20 SPX May 1095 puts for a credit of about $.60 ($1,200). Our total net credit and profit potential is $1.05 ($2,100). Maximum profit range is 1105 to 1210. Maintenance: $20,000.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - May Iron Condor Position - SPX - 1143.22
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.

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.

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 - $34.75
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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ONLY 4 SPOTS LEFT FOR MAY SEMINAR IN IRVINE!!! DON'T BE LEFT OUT!!

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

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

WANT TO ACHIEVE SUCCESS WITHOUT STRESS WITH CPTI WEALTH-BUILDING TECHNIQUES? OF COURSE YOU DO!!

There are only four spots left for the May IRVINE, CA 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!

You should really try and make one of these seminars, if you can. With what you learn, you'll see a substantial increase in your trading results. If you've already signed up, I'll see you there. If you haven't signed up, what are you waiting for?

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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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