Option Investor
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THE LEARNING CURVE

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We've all heard about learning curves. They exist. They're a part of every new learning experience. Everyone has them, but the length of will vary from trader to trader - based on their individual personality, amount of gray matter, and their resistance to common sense.

In the most extreme example, that is an every day occurrence, traders think they can simply jump into a new trading strategy and be immediately profitable. I'm not talking about the mindless function of initiating a directional trade by buying an option and saying a prayer. All you need for that is a brokerage account, money and the ability to fog up a mirror. I'm talking about a more advanced strategy - the kind that we have used successfully here at the CPTI for years - the non-directional kind.

One's first exposure to the CPTI can be a little daunting. A typical first thought is "An Iron What??" But, the more time you dedicate to reading past columns, the clearer things become.

I recently read how the four components of a learning curve - in whatever we're trying to accomplish or learn - are broken down.

1) Unconscious incompetence (where the trader has no idea how much he doesn't 
know about trading)
2) Conscious incompetence (where the trader realizes after initial losses that he 
has a lot to learn)
3) Conscious competence (where the trader has developed and is now doing well 
as long as he works his system and its rules)
4) Unconscious competence (where the trader has mastered the rules and also 
knows when to break the rules as conditions change, in a complete flow with the
markets based on great experience)
When learning a new strategy, new traders are in search of a system that will tell 
them exactly when to get into, and get out of, a position. That's all well and good,
however, but with CPTI's strategies, the individual's exit plan is very personal. It
depends on one's risk tolerance, account size, and where the threatened position is
in relation to support and resistance levels. There is no one-size-fits-all answer.
A new trader's inability to create an exit plan results in confusion and makes it difficult 
to pull the trigger to get out of a bad trade. Emotions take over - and that's dangerous.
They go from being decisive to smoking that addictive drug - HOPIUM. Instead of being
decisive at a specific point, they freeze, do nothing, and HOPE the position will reverse
itself. It can be fatal. They are mired in the "gross incompetence" stage of the learning
curve.
With a plan, the trader can avoid over thinking the position and ego-based decisions.  
This plan takes you from the conscious incompetence stage to the conscious competence
stage - where you know what you will do under all scenarios. There will experience less
stress and can now just focus on the execution aspect of the game.
Change Is Not Like Minute Rice
Traders must start by taking an honest self-assessment of strengths and weaknesses,
prioritize the highest impact areas and then focus on changing one behavior at a time.
It's tough to be objective when trying to measure your own strengths and weaknesses.
If you're going to be a successful trader, you're going to have to change a behavior or two.
Remember, the definition of insanity is "repeating the same behavior over and over, and
expecting a different result."

Change is not like Minute Rice, it takes time. And, you'll probably lose money along the way. Change takes practice - repetition, over and over again. You must develop discipline, though easier said than done. This repetition develops what is called "muscle memory" - which will make the practiced behavior more comfortable to execute when the time comes. That applies in all areas of your life.

Virtual trading is a great idea. Trade our Iron Condors, or come up with your own. Monitor them. When a problem appears, deal with it - swiftly and decisively. Know when to GTFO. It will ultimately save you tens of thousands of dollars. Now, nothing will replace trading with real money, but virtual trading is the next best thing. Unfortunately, beginning traders do not have the patience and are not willing to do the homework necessary.

The first step is education. Without education, and knowing all aspects of a strategy, you are destined to pay a high cost - paying the market a hefty sum.

The problem with our Iron Condor strategy for newcomers is that, even if you're a few sandwiches short of a picnic, you can replicate posted trades and be profitable most of the times. You just won't know what to do if/when the mierde hits the fan - and it will, sooner or later, regardless of how good we are. It's just a fact of life. It's how you handle it that will make all the difference in the world.

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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 retake 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 class 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 where these came from. It's always a challenge for me when I have a roomful of bright people who are excited and have a passion for learning. We go over everything imaginable - from the non-directional strategies to the psychology of trading. We cover a lot more than the mechanics. Inquiring minds want to know the whens and the whys, not just the hows. That way, they're prepared for the best and the worst - and know the best way to handle either situation. There are still spots open for San Francisco. Contact me and I'll call you with all the details.

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CPTI CURRENT MAY POSITIONS
CPTI May Position #1 - RUT Iron Condor - 742.40
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 - 1291.24
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 - 1291.24
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 - 742.40

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 - 1291.24

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 - 742.40
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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