Option Investor
Updates

WELCOME NEW CPTI STUDENTS

HAVING TROUBLE PRINTING?
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& SUBSCRIBERS

The legions of CPTI students are growing at a rapid pace recently. How do I know this? Through brilliant deductive reasoning - along with some tell-tale email questions. I thought it would be a good time to go over some of these common questions. It's been awhile since we covered this material.

Mike - I recently joined your service and have been reading all of your past logs trying to better understand your trading methodology and determine the risk to my trading account using your suggested trades. I do not quite understand the risk I am subjecting my account to using your trading methodology of selling options. It appears that you do diversify across multiple stock indexes but I am wondering what would be the consequences if the market would rally significantly in a short period of time because of some event, such as the Fed finally saying they are no longer raising interest rates or Osama has been captured. What would be the consequences and risk to my account? Could I loose everything invested if an event like that occurred? Thank you.

Response -- Each position has a defined risk. A 10-point spread would have a risk of $10 less the amount of premium taken in on the entire iron condor. If you took in $1.25, then your out of pocket risk is $8.75 -- $875 per contract or $8,750 for 10 contracts. If there is a catastrophic event, then that is your maximum risk. However, there is usually a rubber band effect after such an event. Usually, within a matter of days or a week, the index will likely bounce back and retrace a large portion of its loss (or gain).

I don't advocate using one's entire portfolio for positions. I recommend that one use only about 2/3rds of it. But, you must recognize that, even though our non-directional strategies have a very high probability of success, there is still risk. If you're going to obsess over "possible" catastrophic events, you might be better off not trading. There's ALWAYS going to be that risk. As they say, if you can't stand the heat, stay out of the kitchen. I know that sounds harsh, but my style of trading is one that is supposed to dramatically reduce stress most of the time. I can't imagine walking around with that cloud hovering over me. I would not have a clear head for trading. If you learn the strategies, put on decent positions and keep an eye on your account, in the long run you should be well ahead of the game.

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Mike - I'm a new subscriber. Do you have a page on your site where you post your track record for the past year or so?

Response -- In order to access past columns, you need to go to Couch Potato Trader on the website. Then, scroll down to the bottom of the pages and click on "next" (in the lower right hand corner). It will take you to the next most recent columns. Then you repeat the process. The wrap-up columns and a tracking update are published on the Sunday following each month's Friday options expiration.

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Mike - what is recommended account size for the "COUCH POTATO TRADER' service?

Response - Ideally, it would be nice to start with at least $50,000. Don't worry, it's not all at risk. If the account size is smaller, one can scale down the number of contracts. If it's larger, obviously, the contract size can be increased accordingly. I don't suggest you use more than about 2/3rds of the account size at any one time -- in case an adjustment is needed or an opportunity presents itself.

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Mike - I need some information on how do we actually go about placing the trades for creating an iron condor. Do we just buy and sell at the market or place a limit order? If we place a limit order what happens if one of our orders does not get filled? Appreciate your help on this matter.

Response - The orders are generally placed as spreads with a net credit limit. You almost NEVER want to place a market order using options. If you have a quality broker, you can place the bull put spread and the bear call spread simultaneously for a total net credit. If your broker doesn't do that, you should be able to place the spread orders separately.

Forgive me, but your question leads me to believe that you don't have much experience trading options. Please be careful. Make sure you understand the strategy and what you're doing before you risk your money.

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FYI (For Your Information)
S&P Resistance Points
S&P 500: Closed at 1300.25. Resistance:
1315 is the May and May 2001 peaks
1324 to 1329 from the October 2000 lows.
1358 to 1362 mark a series of peaks from April 1999 to August 1999 high
and the February 2002 low at 1360.
1371 to 1373 is the December 2000 peak and the January 2001 peak

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Quotable Quotes
"Every farmer knows that you can't sow and reap on the same day. There is
a timetable for your harvest that requires both working and waiting. Patience
is a small price to pay for what you will receive." -- Neil Eskelin (good quote,
but never heard of this guy)

"The difference between stupidity and genius is that genius has its limits"

"Work like you don't need the money. Love like you've never been hurt. 
Dance like nobody is watching." -- Mark Twain

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CPTI CURRENT APRIL POSITIONS
CPTI April Position #1 - RUT Iron Condor - 762.59
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 - 1300.25
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.

CPTI April Position #3 - RUT Iron Condor - 762.59
On Friday, March 3rd, with the RUT trading at about 740, we put on our second RUT Iron Condor for April. We sold 12 April RUT 670 puts and bought 12 April RUT 660 puts for a credit of about $.55 ($660). Then we sold 12 April RUT 800 calls and bought 12 April RUT 810 calls for a credit of about $.55 ($660). Our total net credit and profit potential is $1.10 ($1,320). Our maximum profit range is 670 to 800 and our maintenance is $12,000.

CPTI April Position #3 (Formerly March Position) - SPX "Sure Thing" Credit Spread - 1300.25
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 $1,460 with new maintenance of $35,000 ($2,500 x 14). Our current position is the 14 contracts of the April 1295/1270 bull put spread.

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CPTI CURRENT MAY POSITIONS
CPTI May Position #1 - RUT Iron Condor - 762.59
On 3/22, with the RUT trading from 733 to 745, we sold 15 May RUT 650 puts and bought 15 May 640 puts for a credit of $.55 ($825). Then, RUT moved up and we sold 15 May RUT 810 calls and bought 15 May RUT 820 calls for a credit of $.55 ($825). Total net credit and profit potential of $1.10 ($1,650). Maximum profit range is 650 to 810. Maintenance is $15,000 (IF you have the right broker).

CPTI May Position #2 - SPX Iron Condor - 1300.25
On 3/23, with the SPX trading from 1298 to 1304, we sold 12 May SPX 1225 puts and bought 12 May SPX 1210 puts for a credit of $.70 ($840). Then we sold 12 May SPX 1375 calls and bough 12 May SPX 1390 calls for a credit of $.75 ($900). Our total net credit is $1.45 ($1,740). Our maximum profit range is 1225 to 1375 - 150 points!! Maintenance is $18,000 (IF you have the right broker).

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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. We are not compounding our profits by dramatically increasing the number of contracts we trade. Just think of how well we would be doing if we had increased the number of contracts, even a little.

Our March SPX Iron Condor position expired worthless - according to plan. We can now officially add the $2,100 of premium to our cash stash - to take us well over the $40,000 mark. We have now generated $40,550 ($38,450 + $2,100).

Current Zero Plus Position: RUT Iron Condor - 762.59
When we put on the RUT Iron Condor as a CPTI position a few days ago (see May CPTI Position #1), we put on the same position for our Zero Plus Strategy, with one exception. Instead of 15 contracts, we put on 20 contracts. Our total net credit was $1.10 and our potential profit is $2,100.

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QQQ ITM Strangle - Closed Out Previous QQQ ITM Strangle Position
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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CPTI SPRING SEMINAR DATES:
APRIL 29 & 30 - NEWARK, NEW JERSEY
JUNE 17 & 18 - 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 sold out and 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!

37 OUT OF 40 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, 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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