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WHEN IT’S TIME TO “HIT THE ROAD, JACK”

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WHEN IT'S TIME TO "HIT THE ROAD, JACK"

At the recent Las Vegas seminar, a student came up with a very interesting plan to control a trade that has gone bad. I'm going to explain it to you. I think you might like it. As you know, there are many ways of exiting and/or adjusting a trade. Different traders take different approaches.

This exit strategy is based on points from the short strike price. The dollar amounts don't matter. The numbers can be large or small, depending on when it happens during the option cycle.

Here are the rules. You get out when:
1. When the underlying gets within ten points of the short strike price and there are more than two weeks left to expiration.

2. When the underlying gets within five points of the short strike price and there is less than one week left to expiration.

3. When there are just a few days left before expiration, get out when the underlying gets within ten points of the underlying.

If you are using these guidelines, there are absolutely no exceptions. These rules are etched in stone.

There is no immediate plan B for this exit strategy - no place to roll to or no other strategy to roll into. It's basically a place where to GTFO (Get The Funds Out) and live to trade another day.

Support levels, resistance levels, moving averages, trend lines and other spaghetti indicators are not taken into consideration using this method.

Example A: Our RUT short bear call spread is 770/780. The RUT trades above 760 with more than two weeks left. GET OUT!!!!! Unwind the 770/780 bear call spread.

Example B: There is less than a week to expiration and the RUT trades below 765. GET OUT!!!! Unwind the 770/780 bear call spread.

Example C: It's near the close on Tuesday of expiration week. The RUT has just moved below 770. GET OUT!!!! Unwind the 770/780 bear call spread.

What about the bull put spread? If you need the maintenance dollars for something else, then close the bull put spread. It should relatively little to close it. If you don't need the maintenance dollars, then use your discretion.

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APRIL POSITIONS
We put on a few new positions on Friday. The market bounced around a bit. Looking at the volume on the RUT 650/640 bull put spread, it appears about 250+ contracts traded. Based on the significantly lower volume of other nearby strikes, we can assume that most of those contracts were CPTI students. The same holds true for the 800/810 bear call spread.

Earlier this week, I discussed the possible SPX 1205/1195 bull spread. Though it was unofficial, I know a number of CPTI students got into it for about $.50. As the market moved up, we threw out for consideration the April SPX 1195/1180 bull put spread. It appears that only a few were able to get fills - although Friday's closing prices lead one to believe that $.60 is still a possibility.

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ON THE ROAD AGAIN . . .
I'll be on the road again for the next few weeks - back to the Philippines. I heard there was a coup going on, but things seem to have calmed down a bit. How does that song go? "Ain't no mountain high enough, ain't no valley low enough, ain't no river wide enough. . . . ."

We're going to keep a close watch on our positions -- and to possibly find a bear call spread to complete a potential SPX Iron Condor.

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CPTI CURRENT MARCH POSITIONS
CPTI March Position #1 - SPX Iron Condor - 1289.43
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 - 736.60
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 - 1289.43
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 - 1289.43
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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CPTI CURRENT APRIL POSITIONS
CPTI April Position #1 - RUT Iron Condor
With the RUT trading at 732.45:
We sold 10 April RUT 650 puts and bought 10 April RUT 640 puts for a net credit of $.50 ($500). Then we sold 10 April RUT 800 calls and bought 10 April RUT 810 calls for a credit of about $.45 ($450). Our total net credit and profit potential of $.95 ($950). Maximum profit range 650 to 800. Maintenance is $10,000 (IF you have the right broker).

CPTI April CPTI Position #2 - SPX Bull Put Spread
With the SPX trading at 1287.79, we put on one half of a possible Iron Condor. We sold 10 April SPX 1195 puts and bought 10 April SPX 1180 puts for a credit of $.60 ($600). Our credit and profit potential is $.60 ($600). We have an 82 point cushion. That's a good sleeping cushion. We'll wait on the bear call spread to see if the market is going to break out to the upside. Then we'll make a decision about what strikes to use for the bear call spread, if any.

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ONGOING STRATEGIES
ZERO-PLUS Strategy -
A few years ago$, 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 - 1289.43
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 - Goodbye For Now
We owned 10 January 2007 $42 puts and 10 January 2007 $32 calls at a total cost of $14,600. Only $4,600 was at risk as the other $10,000 of intrinsic value would always be there.

ADJUSTMENT: Closed Out QQQ ITM Strangle Position
This week, with the QQQQs trading at about $40.55, we bought back the short February $37 call for $3.60 ($3,600). Then we sold the Jan. 2007 $32 calls for $10.20 ($10,200). We also sold our Jan. 2007 $42 puts for $2.90 ($2,900). Our net credit for these transactions was $9,500.

It originally cost us $14,600 to initiate the position. We collected, over the life of the trade, $5,950 in premium. We had $9,500 plus the $5,950 premium for a total of $15,450. Subtracting our initial cost of $14,600 leaves us with a profit of $850. It's not that much considering all the effort we put forth, but a profit is still a profit. Now, the funds that were tied up are free for use in a better opportunity. Our return on the $4,600 risk was about 18.5%.

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NEW CPTI SEMINAR DATES:
APRIL 29/30 - NEWARK, NEW JERSEY
MAY 13/14 - SAN FRANCISCO, CA

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 Las Vegas CPTI Seminar was a great success (no surprise, they all are). There are now many 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!

The Las Vegas seminar sold out early. There were at least six inquiries that were turned away. Don't wait too long. Reserve your spot today!!

36 OUT OF 39 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 my 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, Options Therapist, CPTI Master Strategist & MasterTater

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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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