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ANOTHER DAY AT THE OFFICE - CHAOS

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ANOTHER DAY OF MARKET CHAOS

The market is bouncing like Pamela Anderson running to catch a bus. But, that's the way we like it. Up and down. As long as it stays in our range. Hell, even Pam Anderson stops bouncing sooner or later. I still think the market looks pretty strong here. That's why I'm still hesitant to put the top on our remaining August bull put spreads. That, and the fact that there's still not much premium available. We'll still keep our eyes open for opportunities.

Google came out with earnings and was trading about 20 points lower after the close. See, we were right, but just one earnings announcement too soon. Oh well. That's old news. It seems China is trying to figure out what to do with their currency and there are still bad things going on in London. Every day, the news makes the markets an adventure.

The good news is that our SPX 1265/1280 bear call spread looks a little safer today. There are still four full weeks left in the August cycle. That's a lot of time. Anything can happen. But, we'll be ready.

We now have the first new CPTI seminar date for the fall. See the article below.

I received an email asking a question I know is on the minds of many CPTI readers. The words "assignment" and "exercise" send chills up and down the spines of traders everywhere. Let's take a closer look at what to do. I know the word "exercise" has been a four-letter word for me -- ever since I fell in love with my couch. What can I say? It was destiny.

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The Letter
Mike, I am a new subscriber reviewing old comments and attempting to understand some of your methods. Isn't there a danger of being called out on the ongoing QQQ ITM Strangle? -- Thanks, Don L.

Hi Don -- Good to hear from you and welcome to the CPTI family!
Option exercising and assignments happen from time to time, but they are not as scary as they seem. It's all part of the game. The QQQQ ITM Strangle is a very long term strategy that will, over time, average a very respectable return on the money at risk.

There is a danger of being called out when an option is deep in the money. But, having an option exercised is not a big deal. For example, we have the $37 calls and the QQQQs are trading at $39. The next morning, we check our account (which should be done every morning), we see that the $37 call has been exercised. We are now short 1,000 shares of the QQQQs that were purchased from us at $37. But notice that we also have $37,000 in cash in our account from the purchase.

We take the $37,000 and simply purchase 1,000 shares of the QQQQs on the open market at $39. Then, we sell the $37 call for the next month (replacing our $2.00 loss on the stock sale) and get a little extra time premium. Then, we have to be patient and wait for the market to come back to us.

Our exposure on this stock exercise is the possible movement between the time the $37 call was exercised to the next morning when we are aware that we are actually short the shares. The market may move a bit in either direction. If the market moves down, then you can purchase the shares at less then $39 (which is nice). If the market has moved up, you'll have to purchase the shares slightly higher than $39. But, either way, when you sell the $37 call for the next month, you will bring in proportionately more or less, depending on the market movement, that will make up for most of the difference.

Remember, in the QQQQ ITM Strangle strategy, we must have the belief that, eventually, the QQQQs will revert to the mean (the mid-high $30s).

The situation would be similar on the put side. For example, we're short the $37 put and the QQQQs are trading at $35. We find out in the morning that our $37 put has been exercised and we've been assigned 1,000 shares of the QQQQs. We simply turn around and sell the shares on the open market for $35. Then, we sell the $37 put for the next month, replenishing the difference between the assignment price and what we were able to sell the stock for.

Again, you will be exposed for the potential overnight movement in the QQQQs, but that can go either way and is not likely to be significant.

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NEW CPTI SEMINAR DATE #1 -- DENVER, CO - OCT. 15/16
We have liftoff, folks. I received an enthusiastic response from the good people in the Denver area. I'm pleased to announce the next CPTI seminar will take place on Saturday & Sunday, October 15th & 16th in Denver.

Now, remember, our seminars are limited to 25 attendees. If you're a serious options trader and you want to learn the nuances of our advanced non-directional trading strategies, to hone your trading skills, and find that "hidden" premium, contact me ASAP at mparnos@optioninvestor.com. I'll send you all the pertinent information. The price is right -- less than one Iron Condor trade -- and you'll have a two-day experience that you'll remember, and profit from, for a lifetime.

Last weekend's Philadelphia CPTI Seminar was a great success (they all are). There are now 25 new enlightened minds, with smiles attached, ready to generate a healthy annual return using our CPTI strategies. Remember, if you attend one of my CPTI seminars, you are entitled to retake the seminar a second time at NO CHARGE!

WE'VE HAD 30 OUT OF 32 PROFITABLE MONTHS!
WANT TO ACHIEVE SUCCESS WITHOUT STRESS? OF COURSE YOU DO!! USE OUR CPTI WEALTH-BUILDING TECHNIQUES!

I'm looking at additional potential locations for the next series of CPTI seminar. Let me know if you would like a seminar near you. Cities currently under consideration are Detroit, Atlanta, and Dallas. Contact me at mparnos@optioninvestor.com and let me know your thoughts.

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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AUGUST POSITIONS
CPTI AUGUST Position #1 - SPX Iron Condor - 1227.04
On Thursday, June 23 with the SPX trading near 1200, 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.

Then, on June 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 $18,000.

CPTI AUGUST Position #2 - SOX Iron Condor - 468.94
On Friday, July 01, with the SOX trading near 420, we put on an Iron Condor.
We sold 12 SOX August 380 puts and bought 12 SOX August 370 puts for a credit of $.60 ($720). Then we sold 12 SOX August 465 calls and bought 12 SOX August 475 calls for a credit of about $.60 ($720). Our total net credit and profit potential of about $1.20 ($1,440). Our maximum profit range is 380 to 465. Our maintenance is $12,000.

On 7/19 we closed the SOX Iron Condor for $500/contract = $6,000. Our loss is $6,000 - $1,440 (premium received) = $4,860.

CPTI AUGUST Position #3 - SPX Bull Put Spread - 1227.04
On July 8th, we sold 12 SPX August 1145 puts and bought 12 SPX August 1130 puts for a credit of $.90 ($1,080). We will watch for an opportunity to put on a bear call spread. But we won't compromise safety for premium. Maintenance is $12,000.

CPTI AUGUST Position #4 - RUT Bull Put Spread - 667.10
On July 14th, with the RUT trading near 667, we sold 12 RUT August 620 puts and bought 12 RUT August 610 puts for a credit of $.55 ($660). Again, we will watch for an opportunity to put on a bear call spread to complete an Iron Condor, but we won't compromise safety for premium. Maintenance is $12,000

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ONGOING STRATEGIES
ZERO-PLUS Strategy - 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 July, we placed an SPX Iron Condor with a total net credit was 1,500. It expired worthless. Our new cash position is: $31,500 + $1,500 (July Profit) = $33,000

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QQQ ITM Strangle - $39.47
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 July $37 calls and July $37 puts to the August $37 calls and August 37 puts. We took in a total of $.50 ($500). Our current short positions are the August $37 puts and August $37 calls. Our new total of generated premium is $4,900 ($4,400 + $500).

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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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