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JUNE QUICKIE

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QUICKIE TRADE & QUICKIE QUESTION

There may be a few quickie traders who have some money left, so I'm going to throw out a few quickie trades for you to consider. The last two months have been treacherous for our quickie trades -- that's why I don't do them. But there are some diehard traders out there who are a glutton for punishment. It is for them that I present this quickie idea. I looked and this was the only "reasonable" one I could find. Maybe you'll have better luck in your research.

Quickie #1 - SPX Iron Condor - 1200.93
Sell 10 June SPX 1185 puts
Buy 10 June SPX 1175 puts
Credit of about $.85 ($850)

Sell 10 June SPX 1220 calls
Buy 10 June SPX 1230 calls
Credit of about $.55 ($550)

Total net credit and profit potential of about $1.40 ($1,400). Maximum profit range is 1185 to 1220. Maintenance is $10,000.

Important To Remember
This quickie is not an official CPTI portfolio position. It will not be tracked. It's for aggressive, skilled traders only. You need to be able to monitor it yourself and to be able to minimize your loss if/when the situation calls for it. If things go wrong, don't come crying to me. I'll light a candle for you. :-)

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New CPTI Position -- At Least Half Of One
Earlier today we had an opportunity to get into one half of an SPX Iron Condor for July. With the SPX trading at about 1193, we put on a bull put spread. We sold 15 July SPX 1125 puts and bought 15 SPX 1110 puts for a credit of $.60 ($900). Maintenance is $22,500.

Within ten minutes of posting this position, the market began to move up. Stay alert. With a pullback you may be able to get $.55 for the same strikes.

Since the market is moving up, we can start looking for the bear call spread to complete the Iron Condor. Remember, in this position we're dealing with a 15 point spread, as opposed to our typical 10 point spread. We want to get as far away from where the SPX is trading as possible. So, let's keep an eye on the July SPX 1260/1275 bear call spread. That's the farthest away we can get and still have a 15-point spread (with the strike prices that are currently available). If the market pops up, we may be able to get $.50.

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Mike:
I know this guy who does something very unusual with options. He buys very deep in the money debit spreads when he has a directional bias. But because both options are deep in the money, his profit range is very large. And he uses XEOs so that it cannot be exercised until expiration.

For example, if the XEO is at 550, he'll buy 10 July 525 calls and sell 10 July 535 calls. I looked at the P&L Graph and, if I'm understanding this correctly, he just needs for the underlying's price to stay above 535 until expiration. It looks too good to be true. Why?

To me this is somewhat like a Condor. You can essentially arrive at the same technical conclusion that justifies a Condor. But instead of a Condor, you can wait until the XEO is near the bottom of a range and then enter there. But it seems that it has wider zone of profitabilty than a Condor because it can go as high as it wants. Can you tell me what you think? -- Eddie

Hi Eddie,
With the strategy you discussed in the example above, your friend is simply using a debit spread instead of a credit spread. In your example, if he would have sold the 535 puts and bought the 525 puts, he would take in about the same amount of premium (sometimes more) as he would receive on expiration if the XEO closed above 535.

Here are what the differences are:
1) Using a debit bull call spread requires an out of pocket expenditure for the options. You receive your profit (assuming the XEO closes above 535) on the Monday after expiration. Using a bull put spread, you receive the money the business day after you place the trade. It's yours to use for any purpose you choose.

2. When you use a bull put spread, the brokerage firm holds $10,000 maintenance in your account. Even though you can't use that $10,000, it is still in your account earning money market interest. True, money market interest isn't a lot, but it's more than you had before.

3. In a bull put spread, the maintenance can be in the form of cash -- or in the form of marginal securities (like stocks or CDs, etc.). If you're using a marginable security to cover your maintenance requirement, that security is still working for you while you're waiting for your bull put spread position to be resolved.

4. A debit bull call spread can only be purchased with cash. If you have marginable securities in your account, you can use margin from those securities to buy the spread. However, you are actually borrowing money from the brokerage and you will have to pay margin interest on the amount borrowed.

5. Commissions. With a bull put spread, when the options expire worthless, there are no commission charges. With a bull call spread, you either have to close out the position or allow both options to be exercised. Both instances require commissions on the closeout and/or exercising of the options.

The only reason, in your example, that the XEO can go to the sky, is that he only has the equivalent to one side of an Iron Condor.

If he wanted to simulate an Iron Condor (using his methodology), he would also establish a bear put debit spread, perhaps buying the 595 put and selling the 585 put. He would have then established a profit range of 535 to 585 -- similar to our new July position.

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JUNE CPTI POSITIONS
CPTI June Position #2 - SPX Iron Condor - 1200.93
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 is 1110 to 1225. Maintenance is $15,000.

CPTI June Position #1 - CME Iron Condor - $249.00
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). Our new bull put spread is $185/$175. Our new net credit is now $1.35 ($2,025). New maximum profit range is anywhere below $230. Maintenance is still $15,000. Position closed for $3,225 loss.

CPTI June Position - GOOG Iron Condor - $286.31 (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 - July
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

July Zero Plus Position: Coming Soon

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QQQ ITM Strangle - $37.95
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 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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JULY POSITIONS
CPTI JULY Position #1 - RUT Iron Condor - 626.23
We sold 12 RUT July 580 puts and bought 12 RUT July 570 puts for a credit of about $.80 ($960). Then we sold 12 RUT July 670 calls and bought 12 RUT July 680 calls for a credit of about $.50 ($600). Our total appx. credit and profit potential of $1.30 ($1,560). The maximum profit range is 580 to 670. Maintenance requirement: $12,000.

This position was suggested on Thursday, June 2 with the RUT trading near 620.

CPTI JULY Position #2 - OEX Iron Condor - 566.99
We sold
l 15 July OEX 535 puts and bought 15 July OEX 525 puts for a credit of about $.45 ($675). Then we sold 15 July OEX 585 calls and bought 15 July OEX 595 calls for a credit of about $.75 ($1.125). Our total net credit and profit potential of about $.95 ($1,420). Maximum profit range of 535 to 585. Maintenance is $15,000.

This position was suggested on Wednesday, June 8 with the OEX trading near 565.

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

WE'VE HAD 29 OUT OF 30 PROFITABLE MONTHS!

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

Spots are filling up fast. There are still some 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! The price is right and it will be an experience you'll never forget.

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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