Option Investor
Updates

OPTIONS ON THE BRAIN

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These days, studies are done on virtually everything. So, it was only a matter of time before they took a long look at what part of the brain influences trading decisions.

According to a recent Bloomberg article, "a person's choice to make financially risky decisions appears to be influenced by a part of the brain that has been linked to sex drive and drug addiction." Well, that's right up our alley, isn't it? Sex, drugs, the only thing that's missing is a Long Island Iced Tea.

Using a magnetic resonance imaging machine to monitor brain activity, researches found that "an area of the brain called the nucleus accumbens showed increased activity before the subjects made a financially risky decision." Apparently, the accumbens are located near where the brain connects to the spinal cord. It's been linked (in animal studies) to motivation for sex and drug use.

"Activation in this region seems to be related to thinking something good is going to happen and getting excited about it," says Brian Knutson, a psychologist at Stanford University. Findings suggest that "when casinos surround their guests with potential rewards (such as free liquor and inexpensive food), they are stimulating the accumbens, thereby encouraging customers toward taking financial risks. Directional traders, are you paying attention??

The study found that "a brain region called the anterior insula showed similar activity before the subjects made an unnecessarily conservative investment decision." Apparently, we CPTI loyalists have our "anterior insulas" working overtime, because our trades are conservative in nature. We're taking advantage of the overactive accumbens of those foolish directional traders.

So, now, according to the results of this study, we know what parts of your brain get all worked up before you make trading decisions. When their accumbens are raging, directional traders, whom we know are wrong most of the time, are better off having sex or sniffing glue than trading. When sex or glue isn't readily available, it's off to the computer they go to buy stocks or options (bless their heart).

The CPTI and our anterior insula RULES!! Was there ever any doubt?

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October Position Update
The market has been pulling back recently. A quick review of our October positions shows that the indexes are trading comfortably near the middle of our huge ranges. One week, of the five weeks in the October cycle, is almost over -- and we're in good shape. But, let's not get complacent. The market is sneaky and takes no prisoners -- as we have learned. We still need to keep an eye on our positions.

I'm going to keep my eyes open for possibly a fourth October position. We've already used up $48,000 in maintenance dollars. With the profits we've made in the past, there is still money in our war chest. Remember, we don't want to use it all. We need to keep some powder dry for potential adjustments or upcoming November positions.

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CPTI CURRENT OCTOBER POSITIONS
CPTI October Position #1 - SPX Iron Condor - 1214.62
We sold 15 SPX October 1280 calls and bought 15 SPX October 1290 calls for a credit of about $.60 ($900). On Friday we sold 15 SPX October 1160 puts and bought 15 SPX October 1150 puts for a credit of about $.60 ($900). We have a complete Iron Condor with a trading range of 1160 to 1280. Our total potential profit is $1,800. Our maintenance requirement is $15,000.

CPTI October Position #2 - OEX Iron Condor - 562.85
With the OEX at about 559, we sold 15 OEX October 590 calls and bought 15 OEX October 600 calls for a credit of about $.55 ($825). Then we sold 15 OEX October 525 puts and bought 15 OEX October 515 puts for a credit of about $.75 ($1,125). Our credit and potential profit is $1,950. Maximum profit range is 525 to 590. Maintenance is $15,000.

CPTI October Position #3 - SPX Iron Condor - 1214.62
With the SPX at about 1230, we sold 12 October SPX 1285 calls and bought 12 October SPX 1300 calls and received a credit of $.80 ($960). We had asked for $.75, but, our broker came back with an $.80 fill (bless his heart). Then, we sold 12 October SPX 1155 puts and bought 12 October SPX 1140 puts for a credit of $.65 ($780). Our total profit potential is $1,740. We have a maximum profit range of 1155 to 1285. Maintenance is $18,000.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - September SPX Iron Condor - 1214.62
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.

Our new cash position is: $33,000 + $1,700 (September Profit) = $34,700

For October we duplicated the CPTI portfolio position by selling 20 October SPX 1155 puts and bought 20 1140 puts for a credit of $.65 ($1,300). We also put on the bear call spread for our September Iron Condor. We sold 20 Sept. 1285 calls and bought 20 Sept. 1300 calls for a credit of $.80 ($1,600). Our total potential profit is $2,900. Our maximum profit range is now 1155 to 1285. Our maintenance is $30,000 (15-point spread X 20 contracts).

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QQQ ITM Strangle - $38.64
We originally bought 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).

For the October expiration cycle, we're going to have another low premium month while we take in about $200 while we patiently wait for the QQQQs to come back down. Remember, this strategy requires a belief that the QQQQs will regress to the "mean" area of about $36 to $38. The success of this strategy is an average of premium taken in over an long period of time.

Based on these figures, the new total of generated premium is about $5,100 ($4,900 plus the $200).

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DENVER CPTI SEMINAR DATE APPROACHES!

CPTI SEMINAR DATE -- DENVER, CO - OCT. 15/16
There are only three weeks, and a limited number of spots remaining. 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, Colorado.

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 -- $995.00 -- about half of one profitable Iron Condor trade -- and you'll have a two-day experience that you'll remember, and profit from, for a lifetime.

Our latest Philadelphia CPTI Seminar was a great success (actually, they all are). There are now 25 more 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!

31 OUT OF 34 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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