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IT'S

The other day I posted a potential Sept. CPTI portfolio position of the 1165/1150 bull put spread for an $.85 credit. What can I say? The market moved up and we weren't able to get filled at $.85 or $.80 or even $.75. It wasn't meant to be. It seemed like a good idea at the time. It's in our search for new positions.

QQQQ ITM Strangle Reminder
We sold the August $37 calls and the August $37 puts for our QQQQ ITM Strangle positions. But, when we sold those positions, we immediately put out GTC (good till cancel) orders to buy them back at $.05. Well, with the market moving up, our buy-back order for the $37 puts was filled.

We would have purchased them back anyway prior to expiration. So, by buying them back now, we have positioned ourselves to take advantage of any market pullbacks -- and we still have three weeks left until August expiration.

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Hi Mike: I'd like to participate in the QQQQ ITM strangle, but am unclear on how to do this since the strategy has been in place for some time. Is it possible to enter at this time? If I do enter, does it make sense to change the ITM strikes? Other new subscribers might be interested in knowing how they can enter as well, so maybe you'll consider a post on this topic. -- Bob D.

Hi Bob. The market seems to be trending now. So, it's not a good time to initiate a new QQQQ ITM Strangle position. It would be better to wait until it returns to the $35 - $36 level before putting it on. Remember, the QQQQ ITM Strangle is based on the belief that the QQQQs will regress to their mean. Right now, the QQQQs are trading close to $40. We would only use different LEAPS strikes if we become convinced that the range has completely changed -- and we're not at that point yet. But now, with the QQQQs trading near the top of its range, is not the time to enter a new position.

One thing that traders have a difficult time with is the understanding that it's OK not to be in the market. Remember, we only want to be in the market under OUR terms. Otherwise, we're taking unnecessary risks. They believe they are missing out on something -- especially when they see some directional trader getting lucky, guessing right, and doubled or tripled his money on an option purchase. They only see the dollar signs. They forget that this same directional trader has lost five times that much as they made since the beginning of the year.

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A Little Compassion
Two elderly ladies meet at the launderette after not seeing one another for some time. After inquiring about each other's health, one asked how the other's husband was doing...
"Oh! Ted died last week. He went out to the garden to dig up a cabbage for dinner, had a heart attack and dropped down dead right there in the middle of the vegetable patch!"
"Oh dear! I'm so very sorry," replied her friend, "What did you do?"
"Opened a can of peas instead."

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AUGUST POSITIONS
CPTI AUGUST Position #1 - SPX Iron Condor - 1243.72
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 - 474.28
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 - 1243.72
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 - 683.04

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 - $39.91
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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