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NEW HEDGING ALTERNATIVES

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I'm in the process of putting together a book I'm probably going to call "Directional Traders Are Crazy - The Legend Of A Non-Directional Couch Potato." It is a sure fire bestseller. I'm going to schedule my Larry King interview. Next interview I'll grant will be with Katy Couric (she's got some miles on her, but she's still cute as hell). I'm going to tell the world that people are crazy to own stocks.

CPTI students know all about non-directional trading, but it's one of the world's best kept secrets. Though they won't admit it to me, I know that some CPTI students still have stocks and mutual funds tucked away in an inconspicuous brokerage account.

It's for these sneaky equity owners that I present the below information. At our CPTI seminars we go into detail on how to protect stocks using married puts and/or collars, etc. Well, I recently read an article that will add a little flexibility to your hedging choices.

The American Stock Exchange [AMEX] recently created options for eight new exchange-traded funds [ETFs] called PowerShares. There are now 19 of these PowerShares that match up with various indexes, mutual funds, or sectors. If you have a small cap growth mutual fund, now there are PowerShares that are based on those specific kinds of stocks -- and they supposedly have options.

A new breed of exchange-traded funds has recently moved onto the trading season. In March of this year, the AMEX started trading PowerShares. The launch of these ETFs marked an important first step toward actively traded ETFs. To be specific, each PowerShare is created around specific "style" boxes that are designed to beat the market over time.

Here is a partial list:
PowerShares Large Cap Growth (PWB)
PowerShares Large Cap Value (PWV)
PowerShares Mid Cap Growth (PWJ)
PowerShares Mid Cap Value (PWP)
PowerShares Small Cap Growth (PWT)
PowerShares Small Cap Value (PWY)
PowerShares Pharmaceutical (PJP)
PowerShares Food & Beverage (PBJ) - not peanut butter & jelly
PowerShares Leisure & Entertainment (PEJ)
PowerShares Media Portfoilio (PBS)
PowerShares Biotech & Genome (PBE)
PowerShares Semiconductor (PSI)
PowerShares Software (PSJ)

According to the American Stock Exchange, "The new PowerShares funds are designed to replicate as closely as possible, the price and yield of the Industry Group Intellidex Indexes on which they are based. These Indexes are modified equal dollar weighted indexes designed to objectively identify and select stocks from a particular market segment that have greater capital appreciation potential."

These are traded like stocks, but also have options. The options can be used to protect the mutual funds. Make sure to go to www.amex.com where a more complete explanation of these new offerings should be able to be found. I don't know yet if these index and sector ETFs will be appropriate for out style of trading, but at least they can serve the hedging purpose for now. They're new, so there probably won't be much volume on the options. That will take some time and some education of the masses.

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JULY POSITIONS

CPTI JULY Position #1 - RUT Iron Condor - 630.41
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 - 559.91
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) - 1191.57

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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AUGUST POSITIONS
CPTI AUGUST Position #1 - SPX Bull Put Spread (1/2 of Iron Condor) - 1191.57
We sold 12 Sell 12 SPX August 1140 puts and then bought 12 SPX August 1125 puts for a credit of $1.30 ($1,320). The market moved down in the morning and we were able to get filled at $1.30. Some CPTI traders who were late to the dance got even more.

This position was suggested on Thursday, June 23 with the SPX trading near 1200.

Then, on July 28th, we sold 12 SPX August 1265 calls and bought 12 SPX August 1280 calls and actually got filled at $.70 ($840), although we placed the order for $.65. That is not an unusual occurrence when you have the right broker.

Our total net credit for the Iron Condor is $2,160. Our maximum profit range is 1140 to 1265. That's pretty comfortable, but we have to wait for another seven-plus weeks. Maintenance is only $18,000 - if you have the right broker.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - July SPX Iron Condor - 1191.57
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 sold 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 - $36.97
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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COUNTDOWN TO PHILADELPHIA -- 15 DAYS -- ONLY A FEW SPOTS REMAIN!!!

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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