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LOSE THE MONEY, KEEP THE LESSON

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LOSE THE MONEY, BUT KEEP THE LESSON

I'm not going to dwell on it. We've discussed it at length in previous columns. Suffice it to say I made some mistakes in May and they were expensive ones. Will I remember the lessons I learned from this? Hell yes.

Lessons Learned:
1. Do not use stocks for our Iron Condors.
2. GTFO when I'm supposed to GTFO.

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A Strange SPX Settlement
On Thursday, the June SPX options stopped trading. They are European style options and that's the way it's supposed to happen. The closing price on Thursday was 1210.96.

Our SPX Iron Condor position had the June 1225/1235 bear call spread. That's over 14 points away from the Thursday close. But, remember, the actual settlement price is the Friday morning accumulative opening price. With a 14 point cushion, we were in a pretty comfortable position -- or so we thought.

On Friday morning, the S&P Futures were trading higher. So, we anticipated a higher opening for the S&P 500. That's nothing out of the ordinary. When the market opened, everything seemed fine. The S&P's early prints were up, but not dramatically. What was out of the ordinary showed up when the actual settlement number was released late Friday morning as 1222.68!

What was unusual about that number is that it was 11.72 points above Thursday's close -- and the SPX never traded anywhere close to that number (1222.68). Even as the day went on, the SPX hovered around 1215-1216 -- and even edged up to a high of 1219.55, but still nowhere near 1222.68.

The way they calculate the settlement price is a strange concept to grasp. Basically, it's an accumulation of the opening prices of all 500 stocks in the index. It seems rather simple on the surface, but there's one complication. All the stocks do not open at the same time. They're scheduled to open at 9:30 (ET). Some actually do. But, others may open at 9:31, 9:32, 9:35, etc. And, as you know, a lot of crazy trading can go on at the opening. A stock may gap up a point on the first print of the day and give it back 30 seconds later.

When they calculate the settlement price, it's only the first print that is used. So, it's possible that a number of the 500 stocks gap up on the first print, and then give a portion of it back within a minute or two. Because the stocks open at different times, the minute to minute quotes won't coincide with the settlement calculations. That explains how it's possible to have the settlement price be so different from the SPX trading price.

That being said, I heard that a few folks have asked that the large difference be checked into. I don't know how realistic it is to expect some kind of adjustment, but it's possible. I'm just glad our short was the 1225 and not the 1220.

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TRACKING THE PORTFOLIO
Below is a summary of the June CPTI positions. Through eight months in tracking year number three, we're now $12,565 to the positive. We took a big hit, but we're still nicely positive for the year. Onward and upward. We've still been profitable for 29 out of the last 31 months -- something to be very proud of.

RECAP OF JUNE POSITIONS
SPX Iron Condor - Profit: $2,100
CME Iron Condor - Loss: $3,225
GOOG Iron Condor - Loss: $9,740
TOTAL JUNE LOSS: $10,865 (Boo, Hiss, Hiss)

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Who's The Most . . . .
Sleeping Beauty, Tom Thumb and Quasimodo were walking through the forest when Sleeping Beauty turned and said, "I must be the most beautiful girl in the world." To that, Tom Thumb said, "I must be the smallest." And Quasimodo "I must be the ugliest in the world." With that, Tom Thumb said, "Why don't we go to Guinness and have them certify us in their book of World Records?" So Sleeping Beauty went in and came out, "I am, I am, I'm the most beautiful girl in the world." Next, Tom Thumb came out, "It's official, I'm the smallest in the world." Finally, Quasimodo came out, "Who the hell is Linda Tripp?"

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JUNE CPTI POSITIONS
CPTI June Position #2 - SPX Iron Condor - 1216.96
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. Profit: $2,100.

CPTI June Position #1 - CME Iron Condor - $255.09
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 - $280.30
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. Loss: $9,740 ($12,000 - $2,260)

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ONGOING STRATEGIES
ZERO-PLUS Strategy - July SPX Iron Condor - 1216.96
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: SPX Iron Condor.
We soldl 15 July SPX 1125 puts and bought 15 July SPX 1110 puts for a credit of $.50 ($750). Then we sold 15 July SPX 1255 calls and bought 15 July SPX 1270 calls for a credit of about $.50 ($750). Our total net credit and profit potential is $1.00 ($1,500). Our maximum profit range is 1125 to 1255. Maintenance is $22,500. Remember to adjust the number of contracts to your account size.

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QQQ ITM Strangle - $37.87
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 of the June $37 calls into the July $37 calls and took in a net credit of $.35. We rolled out our June $36 put to the July $37 put for a net credit of $.20. That means we have taken in a total of $.55 ($550). Our current short positions are the July $37 puts and $37 calls. Our new total of generated premium is $4,400 ($3,850 + $550).

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JULY POSITIONS
CPTI JULY Position #1 - RUT Iron Condor - 644.19
We sold 12 RUT July 580 puts and bought 12 RUT July 570 puts for a credit of $.80 ($960). Then we sold 12 RUT July 670 calls and bought 12 RUT July 680 calls for a credit of $.50 ($600). Our total credit and profit potential is $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 - 572.34
We sold 15 July OEX 535 puts and bought 15 July OEX 525 puts for a credit of $.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 is $.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.

CPTI JULY Position #3 - SPX Bull Put Spread (1/2 of Iron Condor) - 1216.96
We sold 15 July SPX 1125 puts and bought 15 July SPX 1110 puts for a credit of $.60 ($900). Our net credit and profit potential for this bull put spread is $900. Maintenance: $22,500. If we have an opportunity to put on a bear call spread, to complete our Iron Condor, at a safe and profitable level, we will. But, we're not going to force anything or compromise our safety.

This position was suggested on Thursday, June 9 with the SPX trading near 1193.

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

WE'VE HAD 29 OUT OF 31 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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