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NEW “WEEKLYS” OPTIONS SET TO OPEN

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NEW "WEEKLYS" OPTIONS SET TO OPEN

Hello from the other side of the world. I'm back in the Philippines where they still don't have traffic lights. So, the drivers don't have definite parameters on when they should stop. But, they've learned, from years of driving, and likely a few mishaps along the way, just how far and how fast they can go without having an accident and experiencing the corresponding pain. Trading options is similar. It requires the same self-discipline to put on the brakes (eat a small frog) to avoid a larger crash (eating a large frog). They've learned to be survivors here in Davao City in the Philippines. I wish we could say the same for ourselves in trading options. There are many lessons we need to learn and, when to put on the brakes is at the top of the priority list.

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Tomorrow is Quickie Day
I'll be very interested to see the form that the new CBOE "Weeklys" will take when they open tomorrow. We've had a few months of success under our belt with our Quickie trades. The question is, whether or not our strategies will translate to the new Weeklys. For those of you who missed the announcement a few months ago, below is most of the CBOE press release on the subject.

CHICAGO - October 24, 2005 -- The Chicago Board Options Exchange (CBOE) announced it will launch a new type of option, "WeeklysSM," on Friday, October 28, 2005.There will be two initial Weekly contracts-one based on the Standard & Poor's 500 Index (SPX) and one based on the Standard & Poor's 100 Index (OEX). Weeklys were created by CBOE to provide investors with an efficient means to trade options around specific time periods or certain news or events -- such as economic data announcements. CBOE's one-week options will be listed on a Friday and expire the following Friday, as opposed to traditional options which have a life of months or years.

In general, Weeklys will have the same contract specifications as standard options, except for the time to expiration. The first SPX and OEX Weeklys will open on Friday, October 28th, and will expire on Friday, November 4th.

Both SPX and OEX Weeklys are cash-settled contracts and will offer the same continuous, two-sided quotes as standard options.SPX Weeklys will be European-style exercise with Friday A.M. settlement (last day of trading is Thursday), and OEX Weeklys will be American-style exercise with Friday P.M. settlement (last day of trading is Friday).

New series will be listed each Friday, expiring the following Friday, except that no Weeklys will be listed that would expire during the expiration week for standard options (the third Friday of each month).Ticker symbols for Weeklys will differ from the traditional options contract symbols, with letters identifying the Weekly cycle. There are no position or exercise limits; however, reporting requirements apply.

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PROTECTING YOUR POSITION - AFTER THE FACT
I recently received an email from an unfortunate soul who had shorted Google stock prior to last week's earnings announcement. The problem is that the email arrived just as GOOG was racing full speed upwards and was hovering at about $350. "How can I protect myself?" the emailer asked. "Can I put a collar on a short stock?" -- Another instance of trying to close the barn door AFTER the horses were gone. The collar doesn't belong on the stock. It belongs on the trader.

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CPTI CURRENT NOVEMBER POSITIONS

CPTI November Position #1 - SPX Iron Condor - 1178.90
With the SPX trading at about 1215, we sold 12 SPX November 1140 puts and bought 12 SPX November 1130 puts for a credit of about $.80 ($960). Then, we sold 12 SPX November 1280 calls and bought 12 SPX November 1290 calls for a credit of about $60 ($720). Our total credit and profit potential is $1.40 ($1,680). Maintenance is $12,000 (if you have the right broker). Maximum profit range is 1140 to 1280.

CPTI November Position #2 - RUT Iron Condor - 624.03
With the RUT trading at about 665, we sold 12 November RUT 610 puts and bought 12 November 600 RUT puts for a credit of about $.60 ($720). Then, we sold 12 RUT November 720 calls and bought 12 RUT November 730 calls for a credit of $.65 ($780). Our total credit and profit potential is $1.25 ($1,500). Maintenance is $12,000 (IF you have the right broker). Maximum profit range is 610 to 720.

CPTI November Position #3 - SPX Iron Condor - 1178.90
With the SPX trading at about 1180 on expiration Friday, we sold 15 November SPX 1120 puts and bought 15 November SPX 1110 puts for a credit of $.70 ($1,050). Then, we sold 15 SPX November 1235 calls and sold 15 SPX November 1245 calls for $.55 ($825). Our total credit and profit potential is $1.25 ($1,875). Maintenance is $15,000 (IF you have the right broker).

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ONGOING STRATEGIES
ZERO-PLUS Strategy - September SPX Iron Condor - 1178.90
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: $34,700 + $2,900 (October Profit) = $37,600

For November we put on the same SPX Iron Condor as we did in the CPTI portfolio. With the SPX trading at about 1180 on expiration Friday, we sold 15 November SPX 1120 puts and bought 15 November SPX 1110 puts for a credit of $.70 ($1,050). Then, we sold 15 SPX November 1235 calls and sold 15 SPX November 1245 calls for $.55 ($825). Our total credit and profit potential is $1.25 ($1,875). Maintenance is $15,000.

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QQQ ITM Strangle - $38.03
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.

Near October expiration, with the QQQQs trading near $38, we rolled our short October $37 puts and calls to the short November $37 puts and calls for a net credit of $600.

Based on these figures, the new total of generated premium (through the November cycle) is $5,950 ($5,350 plus the $600).

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CPTI 2-DAY ADVANCED SEMINARS -
WATCH THIS SPACE FOR NEW DATES -- TO BE ANNOUNCED SOON!

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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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