Option Investor
Updates

TIS THE SEASON TO BE JOLLY

HAVING TROUBLE PRINTING?
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I'll be looking for more positions early this week. Why? and nothing makes us more jolly that a few good trades. Where will I be looking? To start, I'll be focusing on the SPX January 1165/1150 bull put spread -- or perhaps the 1175/1165 bull put spread.

Look at Friday's closing prices of the January 1325/1335 bear call spread. Looks tempting. The natural is $.60. But the cushion is only about 58 points -- and January expiration is a long ways away. Looking at the January options, we are now faced with a limitation -- that all the strike prices aren't available. There's not really anything we can do about it. But, we have to be careful not to compromise our safety just to get into a position.

A Side Note
I went mall shopping every day this weekend. I expected there to be wall-to-wall people in the malls. Instead, it looked only slightly busier than a typical Saturday and Sunday. Made me wonder. Did any of you have the same experience?

Here's some food for thought. Look at the charts. The retail stocks have run up significantly recently. Will their Christmas numbers come up short? Now, as you know, I'm not a directional trader. And I'm not going to start now. If I was, I might put on a January 170/172.50 bear call spread on the $MVR (Morgan Stanley Retail Index).

$RPY (CBOE Retail Index) has run up as well. A January 82/82.50 bear call spread looks interesting. Or, a 75/70 bear put spread is a possibility.

Don't get carried away, though. This is not permission for CPTI students to go directional. Directional traders are WRONG most of the time. Been there, and done that. It's just food for thought.

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CPTI CURRENT DECEMBER POSITIONS
CPTI December Position #1 - SPX Iron Condor - 1268.25
With the SPX trading between 1217-1222, we sold 12 December SPX 1150 puts and bought 12 Dec. SPX 1135 puts for a credit of about $.80 ($960). Then we sold 12 December SPX 1285 calls and bought 12 Dec. SPX 1300 calls for a credit of about $.60 ($720). Total net credit and profit potential of about $1.40 ($1,680). Maximum profit range is 1150 to 1285. Maintenance is $18,000.

CPTI December Position #2 - RUT Iron Condor - 683.58
With the RUT trading at about 658, we sold 15 Dec. RUT 590 puts and bought 15 Dec. RUT 580 puts for a credit of about $.60 ($900). Then we sold 15 Dec. RUT 720 calls and bought 15 Dec. RUT 730 calls for a credit of about $.55 ($825). Our total credit and profit potential is $1.15 ($1,725). The maximum profit range is 590 to 720. Maintenance is $15,000.

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CPTI CURRENT JANUARY POSITIONS
CPTI January Position #1 - RUT Bull Put Spread - 683.58
With the RUT trading at about 685, we sold 15 Jan. RUT 620 puts and bought 15 Jan. RUT 610 puts for a credit of about $.65 ($900). Our maintenance is $15,000.

We're going to be waiting for a good opportunity to put on the bear call spread to complete the Iron Condor. If we get the opportunity, great! If not, we'll be satisfied with just holding the bull put spread.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - January RUT Iron Condor - 683.58
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.

As we did in our CPTI portfolio account, we closed our 1235/1245 Nov. bear call spreads for a loss of $1,350. We deduct the $1,350 from our previous cash position of $37,600 to establish our new cash position of $36,250.

New Zero Plus Position:
With the RUT trading at about 685, we sold 20 Jan. RUT 620 puts and bought 20 Jan. RUT 610 puts for a credit of about $.65 ($1,300). Then we sold 20 Jan. RUT 750 calls and bought 20 of the Jan. RUT 760 calls for $.45 ($900). Our maintenance is $15,000. Our maximum profit range is 620 to 750. Our net credit and profit potential is $1.10 = $2,200.

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QQQ ITM Strangle - $41.89
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.

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

We currently are short the December $37 calls. We have no short put position at this time.

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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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