Option Investor
Updates

THE "GUARANTEED" INVESTMENT

HAVING TROUBLE PRINTING?
Printer friendly version

With our positions seemingly under control, I thought it would be a good time to review a strategy that is particularly popular with the risk averse traders out there in trading land. At the CPTI, we call it the Zero Plus Strategy.

How many of you have heard ads for those "guaranteed" investment products? They claim you can invest $10,000, have your principal guaranteed and also participate in the appreciation in the stock market over the next seven years.

How can they do that? Who, in their right mind, would guarantee someone's investment? Well, this weekend I was listening to one of Larry McMillan's very interesting seminar CDs and I learned how it can be done. Actually, it's pretty clever.

First, a major financial institution decides to create a new product. They establish a cap limit of, for example, $1,000,000. They assign a share value of $10 to 100,000 shares. Their sales force (representatives) contacts their clients and sell the concept to generate the $1,000,000.

It's a pretty easy concept to sell. Everyone wants security as well as the opportunity to make money. Here it is - all wrapped up in a nice neat little package.

What's Inside The Package?
Now, the institution has $1,000,000. They then go out and purchase $1,000,000 worth of zero coupon bonds that will come due in seven years. With zero coupon Treasury bonds (also called "strips"), the investor buys the bonds at a discount. At maturity, they receive the full face value of the bond. The prevailing interest rate at the time the bonds are purchased determines the price of the bond. The higher the interest rate, the less paid up front for the bond. At current rates, a $1,000 seven-year zero bond will cost about $710.

The institution has now spent $710,000 of the million it raised. With the $290,000 that remains, the institution buys far out calls on the S&P 500 (SPX). The strike price, from which profits will be measured, is where the S&P is trading the date the calls are purchased. This measuring point will remain the same for the entire seven-year duration.

Institutions have their own rules regarding the products they offer. Some offer 100% participation in the S&P gains. Others may only offer 80%. Some products may not be structured on the S&P 500. They may use the QQQs or the Russell 200 Index - the choices are endless - whatever is written into the charter. As individuals, we have no such limitations.

Some institutions will just sit back and let the S&P do its thing, while other products may allow, or encourage, active trading within specified parameters.

Once the product is created, shares can be bought and/or sold on the open market at any time during the seven years. Of course, you're only guaranteed your investment back in full if you hold until maturity. There are complex formulas created to determine the value of the shares along the way - taking into consideration the time remaining until maturity and the trading profits accumulated to that point.

Risks vs. Rewards
By participating in such a program, technically, the upside is unlimited - limited only by the market movement and the trading skills of those responsible. Where's the risk? It's more of an "opportunity" risk than anything else. If the market tanks and no income is generated, you're still guaranteed the return of your initial investment. However, if you put your money in CDs for seven years, you may have more to show for the experience, maybe not.

It was Will Rogers who said "I'm not so much concerned about the return ON my investment as I am about the return OF my investment." Maybe this is a way to get the best of both worlds.

So What's Stopping Us? Nothing!

Can this be done by individuals? Sure! Most CPTI students have modest trading accounts, but I know there are some heavy hitters out there. Plus, some CPTI traders only use a small portion of their assets for option trading because they don't want to risk the bulk of their assets - and justifiably so.

This may potentially, be a solution for conservative traders, who have a longer time horizon and who, for safety reasons, have been reluctant to put their money to work.

In our Couch Potato Trader newsletter, we keep a running tab under "Ongoing Strategies" of a Zero Plus position that was initiated some time ago. Institutions are limited to what they can trade. However, as individuals, we're not limited to what we can do with the extra bucks. In an upcoming column, I'll continue our discussion of the Zero Plus strategy and examine some of the methods that other CPTI seminar grads and I use to generate an exceptional return using this strategy.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

COUNTDOWN TO SAN FRANCISCO - JUNE 17/18
TESTA-MONEY-ALS
Mike -- Just wanted to let you know that one of the things I got the most value out of from your 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.

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.

DO YOU HAVE PROFIT-ABILITY?
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.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CPTI CURRENT JUNE POSITIONS
CPTI June Position #1 - RUT Iron Condor - 737.45
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 830 (130 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 - 1288.22
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.

CPTI June Position #3 - SPX - Iron Condor - 1288.22
On 5/16 with the SPX trading at about 1295, we sold 12 June SPX 1220 puts and bought 12 June SPX 1205 puts for a credit of $.50 ($600). Then we sold 12 June SPX 1350 calls and bought 12 June SPX 1365 calls for a credit of $.70 ($840). Total net credit and profit potential of $1.20 ($1.440). Our maximum profit range is 1220 to 1350. The maintenance is $18,000 -- IF you have the right broker.

CPTI June Position #4 - RUT - Iron Condor - 737.45
On 5/22, we sold 15 June RUT 780 calls and bought 15 June RUT 790 calls for a credit of about $.45 ($675). Then we sold 15 June RUT 640 puts and bought 15 June RUT 630 puts for a credit of about $.50 ($750) for a total net credit and profit potential of about $.95 (1,425). Our maximum profit range is about 140 points - from 640 to 780. Maintenance is $15,000 - IF you have the right broker.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

CPTI July Position #1 - SPX - Bull Put Spread - 1288.22
On Friday, 5/26, we put on our first position for July - a bull put spread 1165/1150 for a credit of $.60. I watched as hundreds and hundreds of the 1165/1150 spreads were filled throughout the day at that credit limit.

CPTI July Position 2 - RUT - Iron Condor - 737.45
On Thursday, 6/1, with the RUT at about 730, we sold 15 RUT July 630 puts and bought 15 RUT July 620 puts for a credit of about $.55 ($825). Then we sold 12 RUT July 800 calls and bought 12 RUT July 810 calls for a credit of about $.55 ($660). Our maximum profit range is 630 to 800 -- that's 170 points!! Maintenance is 15,000 -- IF you have the right broker.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

ONGOING STRATEGIES
ZERO-PLUS Strategy -
In the past, 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 May RUT 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 $42,650 ($40,550 + $2,100).

Current Zero Plus Position: RUT Iron Condor - 737.45
On Monday we put on the identical, June RUT Iron Condor - consisting of 20 contracts of a bear/call spread of 780/790 and a bull put spread of 640/630 for a credit of about $.95. Our potential profit is $1,900. The maintenance is $20,000 -- IF you have the right broker. The profit range is 640 to 780.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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%.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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!

39 OUT OF 42 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?

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

HAPPY TRADING!
Remember the CPTI credo: May our remote batteries and self-discipline should 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

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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.

Couch Potato Trader Updates Archives