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THE “FEAR FACTOR” IN TRADING

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THE "FEAR FACTOR" IN TRADING

At the Couch Potato Trading Institute we advocate a laid back trading style. Many traders are used to being considerably more active. The transition from active to laid back has created a strange phenomenon - the passive aggressive couch potato.

Be careful how you channel this aggression. CPTI students, who strive to trade for a living, have to have a certain temperament to be successful. Type "A" personalities typically don't do well as traders. They're better off having a career holding a leaf-blower in one hand and a weed-whacker in the other. Then, they can freely take out their aggressions on their lawn, dandelions, or on anyone within range of their extension cord - and get paid for it to boot!

The "Fear Factor"
During the life of a trade, there will be times that the underlying stock or index moves against us. That's enough to piss off anyone. So, what do we do?

Many traders simply freeze. They pretend (and pray) it will just go away. Well, in many situations, it's true. If you freeze, a big chunk of YOUR MONEY will go away. At the CPTI, we advocate and preach that you must maintain of your composure.

Basically, if you're worried, that means you don't have a plan -- unless you're naturally paranoid. That means you probably worry about everything -- the sun coming up, the sun going down, SARS, alien abductions, what's in hot dogs, body odor, tooth decay, being too loud, being too quiet, wearing white after Labor Day, long sleeves or short sleeves, your cholesterol level and what you're going to have for lunch three days from now. You fill your gas tank even though it's half full. You worry about the ozone layer, the temperature in your refrigerator, and running out of toilet paper. In other words, you're a mess and shouldn't be allowed by yourself on any street let alone Wall Street.

Plans are nice. They provide peace of mind. At the Couch Potato Trading Institute (CPTI) we have contingency plans. We know that we're going to have our share of losses. We try to keep them reasonable. We shouldn't enter trades if we don't know what to do if it goes wrong. That's what paper-trading is for - to learn how to react (or not) to any given situation.

In trading, you can't be afraid to go out on a limb, because that's where the fruit is. You just have to choose your limbs carefully and you have to know how high the limb is from the ground.

Some of our readers have been experiencing the "fear factor." That well known philosopher "anon" once said, "those who fear the future are destined to fumble the present." Ain't it the truth?

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Countdown To San Francisco - June 17/18
Hey Mike -- I almost always laugh when I read your newsletters. I have learned a lot since I sat - so very green - in your class, and learned so much. I have been making a living these last 2 1/2 months trading. Thanks for your continued coaching. I plan to review your class sometime this summer. Doug B.

Mike -- Just wanted to let you know that one of the things I got the most value out of from the seminar was how to negotiate with the market makers. Based on the extra premium I made on a couple condors this past month, I made almost enough to pay for the class. J.R.

There are a lot more testamonials where these came from. It's always a challenge for me when I have a roomful of bright people who are excited about learning and who have a great sense of humor. We go over everything imaginable - from the non-directional strategies to the psychology of trading. We cover a lot more than the mechanics of putting on a trade. Inquiring minds want to know the whens and the whys. That way, they're prepared for the best and the worst - and know how to handle either situation. There are still spots open for San Francisco. Don't be shy. Contact me and I'LL CALL YOU with all the details.

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On The Road Again
Tomorrow I leave for my fifth (and hopefully final) trip to the Philippines in less than nine months. In addition to another 32,000 frequent flyer miles, I'll be bringing home Lydia, the future Mrs. Couch Potato. There were a lot of immigration hoops to jump through to get her visa. (And imagine, they're just strolling across the border in Mexico). Trading has taught me the value of focusing on details and keeping accurate records. That proved real helpful when it came to collecting what seems like volumes of documentation.

Never fear, I'll be monitoring the market activity. The internet is a wonderful thing. I'll only be an email away.

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CPTI CURRENT MAY POSITIONS
CPTI May Position #1 - RUT Iron Condor - 781.83
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 - 1325.76
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).

CPTI May Position #3 - SPX Bull Put Spread - 1325.76
On 4/17, with the SPX trading at about 1290, we sold 12 SPX May 1215 puts and bought 12 SPX May 1200 puts for a credit of about $.55 ($660). Maintenance is $18,000.

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CPTI CURRENT JUNE POSITIONS
CPTI June Position #1 - RUT Iron Condor - 781.83

On 5/1, we sold 15 June RUT 690 puts and bought 15 June RUT 680 puts for a credit of $.55 ($825). Then, we sold 15 June RUT 830 calls and bought 15 June RUT 840 calls for a credit of $.55 ($825). Our total credit and profit potential is $1.10 ($1,650). Maximum profit range is 690 to 840 (140 points!). We'll be exposed for about seven weeks. Maintenance is $15,000 - IF you have the right broker.

CPTI June Position #2 - SPX Bull Put Spread - 1325.76

On 5/3, we sold 12 June SPX 1230 puts and bought 15 June SPX 1215 puts for a credit of $.60 ($720). Maintenance is $18,000.

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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 - 781.83
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 DATE:
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 call you with all the pertinent information. The price is a bargain - 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 Newark CPTI Seminar was a great success (no surprise, they all are). There are now 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!

38 OUT OF 41 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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