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THINKING OUT OF THE BOX

HAVING TROUBLE PRINTING?
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On Friday, we initiated our first September position. I sent out a post at about 10:40 a.m. At the time, the SPX was trading at about 1240, down about 4 points for the day. I suggested that we sell 12 SPX Sept. 1175 puts and buy 12 SPX Sept. puts for a credit limit of about $.80.

As the post hit your mailboxes, I watched the volume of the 1175 and 1160 strikes as they increased in 12 contract chunks for the next half hour. Being filled at $.80 credit was most common. The SPX drifted a little lower and some traders were being filled at $.85. I was getting emails from happy CPTI students.

Then, there was a bit of a lull as the SPX worked its way back up to 1240. Towards the end of the trading day, the SPX turned back down. Not all CPTI students are plastered to their computer all day. On the contrary, out style of investing is a "hands-off" style. So, many of you weren't aware of the new position suggestion until you checked in later in the day.

Why is this important? Well, as the SPX came down, here was an opportunity for traders to think a little bit out of the box. The trade, as recommended, could be filled at $.85 or $.90. That's all well and good, but creative thinkers were able to take it a step further.

You know that I am a proponent of safety. Now, I believe that the 1175 level is a pretty safe level -- or I wouldn't have suggested the position. But, wouldn't a 1170/1155 bull put spread be safer? Or, how about 1165/1150?

In the past few months, with the market trending upward, we've had to take a few losses. And, when we take losses, they're not usually small ones. So, the safety of our positions is crucial. Is it worth having an additional ten points of cushion for our bull put spread if you have to sacrifice $.10 of premium? What do you think?

The high point of my day was when I received an email from Mark, a CPTI seminar graduate, who proudly announced he was filled for 20 contracts -- not for a 1175/1160 bull put spread. He received a $.65 credit on the 1160/1145. That's a great "sleep soundly at night" level -- especially since we now have to put on positions seven weeks ahead of time. Here is someone who understands how to take advantage of market movement. Not blinded by an extra $.20 of premium, he opted for safety.

That's what smart trading is all about -- putting safety first. It's highly likely that all of us who were filled on our bull put spread orders will do just fine. But Mark will sleep a little more soundly than others for the next seven weeks. Is that peace of mind worth $.15-$.20 of premium to you? That's a choice you have to make.

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ZERO PLUS POSITION ALERT
As the market opens on Monday, I'll be looking to put on a spread for our Zero Plus strategy. I will be looking at spreads similar to those discussed in the article above. We didn't put on anything for August. But, remember, we don't have to be in the market all of the time.

Two more days of time premium will have eroded away. That has to be taken into account. The option chain you're looking at this weekend does not reflect the two days of time erosion. If the market opens lower, CPTI seminar graduates will try to negotiate a reasonable premium at a safe level.

If the market opens higher, we will adjust our sights. I'm still reluctant to put on bear call spreads at this point. I believe that Friday's pullback was just some profit taking and that the sellers will come back relatively soon -- but what the hell do I know? I'm just guessing like anyone else -- and making sure that I have as large a cushion as possible on any trade I put on. Other people will tell you that they can pick the direction, but we all know they are FOS (Full Of Speculation).

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ANSWERS TO THOSE TIMELESS QUESTIONS
Why do men chase women they have no intention of marrying?
For the same reason dogs chase cars they have no intention of driving.

How many mice does it take to screw in a light bulb? Two. That's all that will fit.

Why does it take 1 million sperm to fertilize one egg? They don't stop and ask for directions.

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AUGUST POSITIONS
CPTI AUGUST Position #1 - SPX Iron Condor - 1234.18
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 - 474.44
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 - 1234.18
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 - 679.75
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 - $39.57
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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TWO NEW CPTI SEMINAR DATES!!
SIGN UP SOON!! DON'T PROCRASTINATE!!

NEW CPTI SEMINAR DATE #1 -- DENVER, CO - OCT. 15/16
NEW CPTI SEMINAR DATE #2 -- DETROIT, MI - NOV. 5/6

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. Then, the next will be in Detroit on November 5th & 6th.

Our CPTI seminars are limited to ONLY 25 ATTENDEES. If you're a serious options trader and you want to learn the nuances of our advanced non-directional trading strategies and hone your trading skills, contact me ASAP at mparnos@optioninvestor.com. I'll send you ALL the pertinent information. The price is right -- only $995.00 -- less than one profitable Iron Condor trade -- and you'll have a two-day experience that you'll remember, and profit from, for a lifetime.

Our recent Philadelphia CPTI Seminar was a great success (they all are). There are now 25 newly 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!

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. Contact me at mparnos@optioninvestor.com. 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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