Option Investor
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HANG ON TO YOUR PROFITS

HAVING TROUBLE PRINTING?
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I receive a lot of tax questions. Uncle Sam is not one of my favorite people. He and I don't often agree on how the tax dollars are spent. Since my only real input is voting every few years, my mission is to make sure I don't give Uncle Same any more of my hard earned money than is absolutely necessary.

Even though our CPTI strategies are largely "hands off," we do contribute our share of blood, sweat, and tears in generating our consistent yearly profits. Let's try and keep as many of those dollars in our pockets as possible.

Unfortunately, I only know enough about taxes to be dangerous. But, there are people out there who specialize in preparing taxes for traders. If you Google "accounting for traders" or "taxes for traders," you'll find a number of links to companies that would love to do your taxes -- for a fee, of course. These guys specialize in taxes for traders. It may cost a few bucks, but it could be well worthwhile in the long run. If you contact them, at the very least, they're usually willing to answer any tax questions you may have. If you're considering using one of these companies, compare the pricing. Explain the kind of trading we do. Ask about follow-up services. Be selective. Ask questions. Anytime someone is going to be handling your money, you need to be extra attentive to the details.

Today, let's look at educational expenses. Can you deduct the cost of attending the CPTI seminar? Can you deduct your Couch Potato Trader subscription? Yes you certainly can. I gathered some information that will give you some guidance and food for thought on the subject. Don't take the information below as gospel. Confirm it with a tax professional.

There does, however, seem to be a common denominator requirement that's necessary to take full advantage of all these deductions -- you need to be trading in some kind of business entity. If you qualify, it's great to be able to deduct your cable TV bill, your cable modem bill, your newspapers, your computer purchases, maintenance, etc. The list goes on and on -- and it really adds up. If you trade in a separate entity, you don't have to personally qualify (in the eyes of the IRS) as a "trader."

So, provided here verbatim, here's what I found. It's a start.

Self-Employed Taxpayers -- should consider their options carefully when it comes to applying tax benefits for their own education tuition and expenses. Tax law provides multiple ways to benefit from the educational expenses and one may provide more benefit to you than another based on your particular set of circumstances. In addition, your tuition may qualify for one tax benefit while other education expenses qualify for another.

As a Business Expense - Generally, if the education qualifies, it is better to take the cost as a business expense since as a business expense it will offset both income taxes and self-employment tax. The expenses can include tuition, books, supplies, and allowable travel to and from the education. To qualify as a business expense, the education must either be to maintain or improve your skills or be required in your business. You may, however, not wish to use the education's costs as a business expense when doing so limits your net profit and consequently limits your pension plan contribution (if you've set up a pension plan in your business). Another situation when you may not want to claim the education costs as a business expense is when your Schedule C only has a very small profit or shows a loss for the year.

As an Adjustment to Income - If the education expense is tuition at an institution of higher education and you are under the AGI phase-out limit for this deduction, you have the option to deduct up to $4,000 as an adjustment to overall income for the year. You can take this deduction whether or not the education maintains or improves your skills required in your business. Other expenses related to this education such as books, supplies, and travel can still be deducted on your Schedule C as long as the education maintains or improves your skills required in your business. The deduction is a maximum of $4,000 if AGI does not exceed $65,000 ($130,000 for married couples filing jointly) or a maximum of $2,000 if AGI doesn't exceed $80,000 ($160,000 for married joint filers). 2005 is the last year this deduction is available.

As a Tax Credit - As with the adjustment to income above, if the education expense is tuition at an institution of higher education, you might qualify for the lifetime learning credit. It may be more beneficial than the business expense or AGI adjust-ment for the tuition portion of the expenses, especially if you are in a lower tax bracket or the business profits are low. The lifetime learning credit allows you a credit of 20% of the cost of your tuition (up to $10,000 of costs) as a tax credit. It, too, has an AGI phase-out limitation. For 2005, the credit for single taxpayers phases out between $43,000 and $53,000 and $87,000 to $107,000 for joint filers. Please note that beginning in 2006, this credit will not be allowed if you are taxed by the Alternative Minimum Tax (AMT).

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GIVE YOURSELF THE GIFT OF KNOWLEDGE!!
TWO NEW CPTI 2-DAY ADVANCED SEMINAR DATES ANNOUNCED

It's that time of year. Don't give yourself a wallet. Give yourself the gift that will teach you how to fill your wallet. It's a gift that will last a lifetime. Attend a CPTI seminar and learn strategies that work -- over and over and over again!! I'll teach you how making money can be boring -- and profitable. I'm booking reservations every day. Don't wait too long!

Email me for information -- but only if you're a SERIOUS trader who wants to learn. I'm here for you. I'll be glad to send you all the details and personally call you to go over your questions. The seminars are both fun and informative. Contact me today: mparnos@optioninvestor.com.

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CPTI CURRENT DECEMBER POSITIONS
CPTI December Position #1 - SPX Iron Condor - 1259.37
We sold 12 December SPX 1150 puts and bought 12 Dec. SPX 1135 puts for a credit of $.80 ($960). Then we sold 12 December SPX 1285 calls and bought 12 Dec. SPX 1300 calls for a credit of $.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 - 688.77
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 $.60 ($900). Then we sold 15 Dec. RUT 720 calls and bought 15 Dec. RUT 730 calls for a credit of $.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 Iron Condor - 688.77
We sold 15 Jan. RUT 620 puts and bought 15 Jan. RUT 610 puts for a credit of $.65 ($900). Then we sold 15 January RUT 740 calls and bought 15 RUT January 750 calls for a credit of $.55 ($825). Total premium and profit potential is $1,725. Our maintenance is $15,000.

CPTI January Position #2 - OEX Bull Put Spread - 574.63
We sold 15 OEX January 545 puts and bought 15 OEX January 535 puts for a credit of $.50 ($750). Maintenance is $15,000.

We're going to be waiting for an 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.

CPTI January Position #3 -- SPX Iron Condor - 1259.37
We sold 15 SPX January 1200 puts and bought 15 SPX January 1190 puts for a credit of $.60 ($900). Then we sold 15 SPX January 1320 calls and bought 15 SPX January 1330 calls for $.65 ($975). Total premium and profit potential of $1,875. Maintenance is $15,000.

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ONGOING STRATEGIES
ZERO-PLUS Strategy - January RUT Iron Condor - 688.77
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.

Current 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 - $41.72
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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NEW DATES FOR
CPTI 2-DAY ADVANCED SEMINARS -
February 4 & 5 - Atlanta, GA
February 18 & 19 - Las Vegas, NV

Our next CPTI seminars will be on Saturday & Sunday, February 4th & 5th in Atlanta and Saturday & Sunday, February 18th & 19th in Las Vegas.

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 -- less than the profit from one Iron Condor trade -- and you'll have a two-day experience that you'll remember, and profit from, for a lifetime.

The recent Denver CPTI Seminar was a great success (no surprise, 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!

33 OUT OF 36 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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