Option Investor
Updates

INSURANCE PUTS VS. STOP LOSSES

HAVING TROUBLE PRINTING?
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Imagine waking up each morning, walking from the bedroom to the kitchen, and there's someone watching you. No, it's not your 22-year-old Hooter's girl wife (come on, you're still dreaming, wake up!). It's the intense glaze of Alan Greenspan watching your every step. You are the one who just paid over $150,000 on an Ebay auction for a farewell painting of Greenspan.

If you missed the auction, and have an uncontrollable (and unfathomable) urge, never fear. Go to Ebay, search for "Greenspan." You'll find multiple active auctions. You can have Alan hanging around your house in watching every basis point of your personal inflation or deflation.

When you pay $150,000 for a painting, you HAVE to find a place to hang it and the bathroom wall is too small. Hmmmm . . maybe the garage. Well, some folks have an extra $150,000 lying around. It wasn't a total loss. I understand that the money went to charity. Sure doesn't raise MY interest rate, though.

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Stop Losses vs. Puts
At almost every CPTI seminar, I get the question: "Why should I buy a protective put when I can just use a stop loss order?"

It's a relatively simple answer, but it warrants review. Why? Because it can save you a fortune!

Here's the premise. You own 1,000 shares of XYZ stock and your cost is $47.00/share. Why do you own a stock? God only knows, but that a subject for another column. For whatever reason, you own 1,000 shares and you now have $47,000 (the full price of the stock) at risk. The question now becomes, how do you protect that investment? There are a few alternatives.

Choice #1 -- Protect my investment? Gee, XYZ is going up, why do I have to protect it?

Well, I have some swamp land I'd like to sell this guy. He's one bad announcement away from eating his next Christmas meal at a soup kitchen.

Choice #2 -- Gee, I'll just put in a stop order on XYZ at $44. That way, the most I can lose is $3/share or $3,000.

Wanna bet? What would happen if Al Queda terrorists kidnap Bill & Hillary? Hmmm . . . bad example. The market might go up. What if there was an announcement that the XYZ CEO cooked the books? The next morning, XYZ could open at $35 and you'd be staring at a potential loss of $12,000.

Here is how a stop loss order works. As soon as XYZ trades at, or below, $44, the order becomes a market order. The order fills immediately at the current ask. That's fine if XYZ moves down in an orderly fashion. However, if XYZ gaps open at $35, the order gets filled at $35, and you can kiss $12,000 goodbye.

Choice #3 -- Let's buy a five-month $45 insurance put for $4.00. Now, for the next five months, your $47,000 investment in XYZ is protected from $45 all the way down to zero. You can look at the difference between $47 (your cost basis for XYZ) and $45 (put strike price) as your deductible. The cost for your catastrophic loss protection is about $.80 per month.

So, there it is. Do you want to buy some swamp land? Would you rather have an almost unlimited downside risk? Or would you like to protect such a substantial investment? Since you decided to buy stock and become a directional trader, I don't really expect a rational answer, but there IS a "right" way to do it.

By the way, this same concept also applies to those who buy deep in the money LEAPS as a substitute for stock. Your total exposure might be less, but the investment still needs to be protected.

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Three Vampires Walk Into a Bar
Three vampires walk into a bar and sit down at a table. The waitress comes over and asks the first vampire what he would like. The first vampire responds, "I vood like some blood."

The waitress turns to the second vampire and asks what he would like. The vampire responds, "I vood like some blood."

The waitress turns to the third vampire and asks what he would like. The vampire responds, "I vood like some plasma."

The waitress looks up and says, "Let me see if I have this order correct. You want two bloods and a blood light?"

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VEGAS SEMINAR = SOLD OUT!!!

1 WEEK TO LAS VEGAS
That Extra Bit Of Knowledge Can Make A Huge Difference!!

There are profits waiting for you out there. But you have to make the effort. 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. WATCH FOR THE ANNOUNCEMENT OF NEW CPTI SPRING SEMINAR DATES.

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 of upcoming seminars and contact you to go over your questions. The seminars are both fun and informative. Contact me today: Contact Support.

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CPTI CURRENT FEBRUARY POSITIONS
CPTI February Position #1 - SPX Iron Condor - 1266.99
We sold 10 February SPX 1175 puts and bought 10 February SPX 1160 puts for a credit of $.80 ($800). Then we sold 10 February SPX 1325 calls and bought 10 February SPX 1340 calls for a credit of about $.65 ($650). Our total net credit and profit potential of about $1.45 ($1,450). Maximum profit range is 1175 to 1320 = 150 points. Maintenance requirement is $15,000 (IF you have the right broker).

CPTI February Position #2 - RUT Iron Condor - 717.13
We sold 15 February RUT 640 puts and bought 15 February RUT 630 puts for a credit of $.50 ($750). Then we sold 15 February RUT 750 calls and bought 15 February RUT 760 calls for a credit of $.50 ($750). Our total net credit and profit potential of $1.00 ($1,500). Maximum profit range is 640 to 750 = 110 points. Maintenance requirement is $15,000 (IF you have the right broker).

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CPTI CURRENT MARCH POSITIONS
CPTI March Position #1 - SPX Iron Condor - 1266.99
We sold 10 SPX March 1340 calls and bought 10 SPX March 1355 calls for a credit of $.85 ($850). Then we sold 10 contracts of SPX March 1190 puts and bought 10 contracts of SPX March 1175 puts for a credit of $.90 ($900)

Our total net credit and profit potential is $1.75 ($1,750). Our maximum profit range is 1190 all the way up to 1340 (150 Points!!). The maintenance is $15,000 (IF you have the right broker).

CPTI March Position #2 - RUT Iron Condor - 717.13
On Wednesday 2/1, we sold 15 March RUT 660 puts and bought 15 March RUT 650 puts for a credit of about: $.40 ($600). Then we sold 15 March RUT 790 calls and bought 15 March RUT 800 calls for a credit of about: $.50 ($750).

Total net credit and profit potential of $.90 ($1,350). Maintenance is $15,000 (IF you have the right broker). Maximum profit range is 660 to 790.

CPTI March Position #3 - SPX Iron Condor - 1266.99
With the SPX at about 1265 we sold 10 March SPX 1190 puts and bought 10 March SPX 1175 puts for a credit of $.75 ($750). Then, a few days later on a bounce, we sold 10 SPX March 1320 calls and bought 10 March SPX 1335 calls for a credit of $.80 ($800).

Our total net credit is $1.55 ($1,550). Our maximum profit range is 1190 to 1320 - a 140 point range. The maintenance is $15,000 (IF you have the right broker).

CPTI March Position #4 (Formerly Feb. Position) - SPX "Sure Thing" Credit Spread - 1263.78
We originally sold 2 February SPX 1275 calls and bought 2 February 1300 calls for a net credit of about $7.40 ($1,480). The initial maintenance requirement was $5,000. Our profit potential was $1,480. We reversed our position and put on four contracts of the 1280/1255 bull put spread. Our current adjusted profit potential is $1,420 with new maintenance of $10,000. We had to reverse again. Our new position is a 1280/1305 bear call spread with a profit potential of $1,600. We now want the SPX to close below 1280.

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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.

With the successful RUT position generating $2,200, our new cash position is $38,450 ($36,250 + $2,200).

Current Zero Plus Position: March SPX Iron Condor - 1266.99
On Friday, we entered the same SPX Iron Condor for our Zero Plus position that we put on in our first CPTI March portfolio position. However, we did an extra few contracts.

We sold 12 SPX March 1340 calls and bought 12 SPX March 1355 calls for a credit of $.85 ($1,020). Then we sold 12 contracts of SPX March 1190 puts and bought 12 contracts of SPX March 1175 puts for a credit of $.90 ($1,080)

Our total net credit and profit potential is $1.75 ($2,100). The maintenance is $18,000.

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QQQ ITM Strangle - $40.96
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 January expiration, with the QQQQs, we rolled our short January $37 calls to the short February $37 calls. The total of generated premium (through the January cycle) is still $5,950. We currently are short the February $37 calls. We have no short put position at this time.

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UPCOMING CPTI 2-DAY
ADVANCED SEMINAR -
February 18 & 19 - Las Vegas, NV
(SOLD OUT)

Our next CPTI seminar will be on 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 - ONLY $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!

35 OUT OF 38 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 (though many often do) 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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