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LIGHTS, CAMERA, ACTION!

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You're out there. I know you are. As much as I harp on the dangers of owning individual stocks, it's tough for many to resist. We have witnessed what a catastrophic event can do to a stock.

What does it take for a $40 stock to open up the next morning at $28? Well, there are analyst downgrades, bad earnings announcements, unfavorable forward guidance, accounting scandals, terrorist activities, or a picture on CNBC of the company's CEO coming out of the No-Tell Motel, hand in hand with Michael Jackson and a chimpanzee.

Take your pick. Any of the above will do it. And, if you're an unsuspecting (and uneducated) stockholder, all you can do is watch. When there are problems announced at a company, it's more than likely only the beginning. Many of you have heard of the "Cockroach Theory." When you see a cockroach in your house, you can be quite sure he isn't on a two-mile jog. There are plenty more where he came from and it's time to call the exterminator (like John Goodman in "Arachnaphobia").

This week, a movie was released that chronicles the unfortunate demise of Enron. It's called, "ENRON: THE SMARTEST GUYS IN THE ROOM." I'm looking forward to it. It should be both educational and entertaining. The producers of the film have issued the following letter:

"Dear Film Club,
Even though the story of Enron is a great human tragedy, I hope it makes you laugh. The fact is that, from a distant perspective, the events are funny. An executive addicted to strippers, accountants making up the numbers, our most prestigious banks handing out deals to criminals that they would never consider giving to honest working people, a body-builder taking charge of California - the world's 7th largest economy - because his political allies shut the lights off all over the state. There are skits - skits! - by Enron execs about the scams they pulled. And while the company is going down the tubes, the CEO stresses over fabric swatches for the G5 jet.

Yet, as the music makes clear, this is a black comedy, where every laugh has an undertow of moral outrage. As Tom Waits sings in the final song: "Who are the ones we kept in charge? Killers, thieves and lawyers. God's away...God's away...God's away... on business!"

At the end of the day, I hope that watching the film makes you as angry as it made me when I was making it. This is the cinema viriti version of the Titanic: a few people sailed off in gilt-edged lifeboats while everyone else drowned. (Again, Tom Waits - and his co-writer Kathleen Brennan: "There's a leak, there's a leak in the boiler room...") But unlike the Titanic, the fault for Enron's collapse is not limited to a few executives. As the film shows, our major investment banks, our accounting firms, our lawyers - indeed the very government that is supposed to protect us - all aided and abetted Enron in doing what it did.

Enron's slogan on its surrealistic ads was "Ask Why." It was supposed to suggest that Enron was an innovative company because it questioned conventional wisdom. Looking back, I think "ask why" was one of those clues that master criminals leave for detectives. "Ask why," Enron's earnings were so good when so little cash was coming in the door.

But now, way beyond that, we should all "ask why" such a thing could have happened. I hope you enjoy the film. I hope you laugh and I hope it makes you mad as hell.
Alex Gibney"

Hopefully, if you see this movie, you'll become angry. But, even more important, it will reinforce to you how crucial it is to insure, hedge and protect your investments. Unfortunate Enron employees may be eating government cheese well into retirement, but, with a little knowledge, you can prevent the same thing from happening to you.

I'm going to see the movie this week and I'll report back to you. Also, in Thursday's column, I will go into the mechanics of how, if you must own a stock, you can prevent yourself. You can't prevent the tragedy, but you can protect your tush in case one comes sneaking up on you from behind.

(You can watch the movie trailer at http://www.enronmovie.com)

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STARTING YOUNG
A city boy, Kenny, moved to the country and bought a donkey from an old farmer for $100.00. The farmer agreed to deliver the donkey the next day. The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died."
Kenny replied, "Well then, just give me my money back."
The farmer said, "Can't do that. I went and spent it already."
Kenny said, "OK then, just unload the donkey."
The farmer asked, "What ya gonna do with him?"
Kenny: "I'm going to raffle him off."
Farmer: "You can't raffle off a dead donkey!"
Kenny, "Sure I can. Watch me. I just won't tell anybody he is dead."
A month later the farmer met up with Kenny and asked, "What happened with that dead donkey?"
Kenny: "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $898.00."
Farmer: "Didn't anyone complain?"
Kenny: "Just the guy who won. So I gave him his two dollars back."
Kenny grew up and eventually became the chairman of Enron.

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QQQQ ITM Strangle Order Gets Filled
We took advantage of the downdraft of the market to buy back our May $37 calls for $.05. The order was there as a GTC (good till cancel) order since the original May rollout. The market spiked down and it got filled.

Now, we will look for an opportunity, on a bounce, to sell another May option and take in an extra bit of premium. Since we would have purchased back the May $37 calls prior to May expiration, this has cost us nothing and has put us in a position to potentially make a little extra money.

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STILL SOME PREMIUM
If you're looking for a three-week play to take in some additional premium, check out the May SPX puts. Based on Friday's closing prices, there seems to be an opportunity with an 1110/1100 bull put spread. Also, look at the 1105/1095 bull put spread. Currently, there's nothing interesting on the call side.

These are not recommended CPTI positions, just some ideas on where to look. Something else I noticed on the SPX option chain is that the bid/ask spreads have narrowed to about $.20. I don't know if they will remain small when the market opens on Monday, but just be aware that $.20 bid/ask spreads do not leave much room for negotiation. I suspect they will widen once the market opens. I don't think the market makers will be satisfied with $.20 on a transaction.

Another reminder. If a trade meets your criteria and looks appealing to you, don't hesitate to throw an order out there. It doesn't cost you a thing to place an order. Occasionally, you will be pleasantly surprised and get a fill. Don't put orders out there indiscriminately. Have realistic expectations -- and don't be disappointed if it doesn't get filled. The thing to remember here is a famous slogan -- 'You can't make any shots you don't take."

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MAY CPTI POSITIONS
May CPTI Position #1 - SPX Iron Condor - 1156.85
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 - 195.52
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 - $220.00
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 - 1156.85
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 - 1156.85
Profit: $2,000.
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 - 1156.85
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 - $34.98
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.

We took advantage of the downdraft of the market to buy back our $37 calls for $.05. The order was there as a GTC (good till cancel) order since the original May rollout. The market spiked down and it got filled. Now, we will look for an opportunity, on a bounce, to sell another May option and take in an extra bit of premium.

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ONLY 2 (T-W-O) 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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