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BROKERS AND ALIENS

HAVING TROUBLE PRINTING?
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I'm pleased to announce that there are now countless new Couch Potato Trader subscribers since the January coup. I've received dozens of emails from new CPTI students asking about old columns. Today, I'd like to share one of my favorites -- and most controversial. Enjoy!

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Once upon a time, what seems like a million years ago, I was living in a much warmer climate and writing a financial column for the local newspaper. As regular readers and CPTI students know, there isn't much of a filter between my brain and my mouth - except when there's a cheeseburger in there. So, occasionally someone will become upset. It's inevitable.

In a column I once asked one simple question. With one simple answer I managed to alienate a large segment of the local literate financial community in South Florida.

The Question:
What do quality full service have in common?
The Answer:
You always hear about them, but no one has ever met one.

I received written threats. I received verbal threats. I even received physical threats in messages on my answering machine. Neither my answering machine nor I can be intimidated. (If Pizza Hut threatened to cut me off, that would be a different story). Letters were written to the newspaper I was writing for. Brokerages even threatened to pull their advertising from the newspaper unless they shut me up. Fortunately, my editors had some brass. Besides, them shutting me up would have been a lot like using a plunger on the Gulf of Mexico.

Why do I feel this way about full service brokers (and financial planners)? Let me pose this question to the universe of OptionInvestor readers. I suspect that, at one time or another, the vast majority of you have dealt with "full service" (and I use the term lightly) brokers or advisors.

The question: Before, or after, you made a stock purchase, has anyone EVER had a financial advisor or a full service broker ask you, "Would you like to insure that investment?" I've asked hundreds of people over the years and I have yet to get a "yes" answer.

Please tell me if you know of a broker who asks, or even suggests as much as a stop loss. If you know of one, I want to talk to him and shout his praises to world.

When medical students become doctors, they have to take the Hippocratic Oath, vowing to heal, preserve life, and to live by a code of ethics. Financial professionals have no such oath. They simply have to pass a Series 7 examination, and perhaps another test or two (depending on the state in which they intend to work). While a poor medical professional can dismember you limb by limb, a poor financial professional can dismember your portfolio dollar by dollar.

Would You Buy "Investment" Insurance?
If someone buys 1,000 shares of a $50 stock, they're risking $50,000. Would anyone (in their right mind) drive a new $50,000 car off the lot without insurance? Would you walk around without health insurance? Would you live without homeowners insurance? Believe me, I cringe a little every time I write a check to an insurance company, but it's a no-brainer. You have to protect yourself against catastrophic events. A financial investment in a stock (or even a mutual fund) is no different.

Why do you suppose brokers and advisors don't go that extra mile (or even the first quarter mile)? They had to study the use of options to pass their Series 7 test. Perhaps they have the brains of a Chia Pet and don't understand the concept of a "married" put or a simple "collar." I truly hope that's not the case, because thousands of unsophisticated investors entrust their life savings to these people. It's a scary thought.

One broker explained to me that he knows the strategy, but doesn't bring them up because of the stigma that's attached to options. "After all, don't people lose all their money trading options? That's what most investors think," he said. He maintained that, if he got a reputation for using options, people would be reluctant to become clients.

An angry broker asked me, "Do you how long it would take to explain those strategies to everyone who wanted to buy stock? Plus, we'd have to get them all approved for option trading. Besides, our brokerage firm discourages option trading."

If Only They Would Have . . .
Can you imagine how different things would have worked out had the employees of Enron, WorldCom, Exodus, etc. known about using puts? Don't you think the administrators of their respective 401K plans know what a put is? Of course they do. Did they bother to, even once, send a note, inside pay envelopes to suggest the employees consider insuring their investments? Long-term puts could have easily been purchased in an outside brokerage account and thousands of lives would have been benefited dramatically.

As you may know, options were originally created as a hedging tool - not a speculative tool.

What triggered my spewing of opinion? I saw an article that estimated investors lost $7.6 trillion in the U.S. stock market since its peak in March, 2002. It said that investors filed 7,704 arbitration claims against brokers in 2002. - a record pace.

I'm wondering if full service brokers or financial advisors, who knowingly do not inform their clients of common sense alternatives, can be held responsible - or negligent. I've made this comparison before, but on "Law and Order," I've seen this same type of negligence called "depraved indifference." That means, they could have helped, but just stood by and allowed a death to occur. Is the death of a portfolio any different?

Let's call Judge Judy. She'll know what to do.

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The Search Continues
To this day, I still ask the same question -- to "full service" brokers, to financial advisors, to 401K administrators who's paths I cross. "Do you ask people if they'd like to insure their investments?" So far, I have heard of only two who are willing to do their jobs. They are willing to take the time and make the effort to inform their clients of crucial information.

Not all informed clients are going to insure their portfolios (or any part thereof), but without the information, they wouldn't even know that they could. Thousands upon thousands of folks watched their retirement savings disappear when the bubble burst. Instead of relaxing comfortably in their retirement, they now have to work to subsidize their social security checks.

The next time you see a senior citizen serving fries at McDonalds or greeting you at Walmart, there's a good chance they either worked at Enron or once had a "full service" broker.

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JUNE CPTI POSITIONS

CPTI June Position #2 - SPX Iron Condor - 1198.78
Our favorite index just keeps on giving. We'll keep on taking.

We sold 15 June SPX 1110 puts and bought 15 June SPX 1100 puts for a credit of $.70 ($1,050). Then we sold 15 June SPX 1225 calls and bought 15 June SPX 1235 calls for a credit of about $.70 ($1,050). Our net credit and profit potential is $140 ($2,100). Maximum profit range of 1110 to 1225. Maintenance is $15,000.

CPTI June Position #1 - CME Iron Condor - $212.80
CME has been good to us over the last few months. We'll give it another chance to be good to us again.

We sold 15 June CME $170 puts and bought 15 June CME $160 puts for a credit of $.60 ($900). Then we sold 15 June CME $230 calls and bought 15 June CME $240 calls for a credit of about $.50 ($750). We made a position adjustment -- see above article for description. Out new bull put spread is $185/$175. Our new net credit and profit potential is now $1.35 ($2,025). New maximum profit range of $185 to $230. Maintenance is still $15,000.

CPTI June Position - GOOG Iron Condor - $266.00 (Formerly May Position)
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.

We bought back the May bear call spread and rolled out to the June $220/$230 bear call spread. We also bought back the May $160 put for a nickel. Our new credit and profit potential is now $2,260.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - June
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 May, we placed an SPX Iron Condor with a total net credit was 2,000. It expired worthless. Our new cash position is: $29,500 + $2,000 (May Profit) = $31,500

June Zero Plus Position: Coming Soon

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QQQ ITM Strangle - $38.21
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 the near term short strike prices.

We rolled out our short May options to June (see details above) and took in a net of $800. Our new total of income generated is $3,850 ($3,050 + $800). We are short the June $37 calls and $36 puts.

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

WE'VE HAD 29 OUT OF 30 PROFITABLE MONTHS -- WITH NO END IN SIGHT!

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

Spots are still left for my July Philadelphia CPTI 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:
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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