Option Investor
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A LITTLE MAINTENANCE CHAT

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From emails I've received after our recent "Short Guts" discussion, it seems some readers are a little fuzzy about maintenance and approval levels. Let's go over it and hopefully clarify a few things.

Brokers may have different policies on how easily they hand out level 5 (the highest) trading approval levels. Uncovered index options are probably the riskiest of all trades - especially for the brokerage firm. As we know, an uncovered short call has an unlimited risk. Why? Because there is no limit on how high an index (or stock) can go. That's why brokerage firms are reluctant to hand out the level 5 trading levels.

Now, uncovered puts, one would think, would fall into the same category. But, not always. Some firms will allow those with level 4 trading approval to trade naked puts. Why? Because the naked put does have a limit - it can only go down to zero. Considering how expensive some stocks, and most indexes are, I would include the naked put in the level 5. But, I'm not in the broker business - fortunately.

The important thing is that you thoroughly understand the maintenance policies of the broker you are using. Don't be shy about asking. In trading, we don't need any more surprises than we get from the market.

Some brokers require a $100,000 account size to put on uncovered positions. Others want 100 years (a slight exaggeration) of option trading experience. Check it out. Remember that not all brokers are created equal.

Do you every wonder "why" some brokers are so stingy about approval levels? It's pretty simple. They have to cover their butts. If you ever tried to trade options at Merrill Lynch, you'll know what I mean. I asked my representative at Merrill the reason. He told me a story about a client who filled out a form claiming extensive option experience. Then, the client proceeded to lose hundreds of thousands of dollars trading options - not on trades solicited by the broker. The client then sued Merrill Lynch, stating that the full service broker should have explained to him how risky trading options can be. Merrill Lynch lost the suit and had to replace all the money the client lost.

Apparently, this costly scenario occurred more than once - enough so that Merrill Lynch thinks option traders are somehow related to the devil.

My pet peeve about this is my complete disrespect for those people who don't take responsibility for their actions. The jurors (or judge) who made the decision to award the clients their lost money are setting an awful precedent.

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DO THEY WALK THE WALK?
The Couch Potato Trader is a fun column to write. I've been doing it since 2002 and have been pretty successful (and lucky) in the trades that I post. The track record speaks for itself. Our strategies have stood the test of time.

Here, every month, I put out trades for your consideration. There is tremendous responsibility that goes along with posting these trades. Why? Simply because, Couch Potato Trader students will, within minutes of the posting, risk their hard earned dollars on the suggested positions. Hundreds of contracts show up in the volume column on the option chain throughout the day.

I take this responsibility seriously. Seriously to the point where I am willing to put money where my mouth is. I actually trade the suggested trades that I send out in my columns - either in my personal accounts or in accounts that I manage. At my CPTI seminars, I actually show the class my trading account and use that as an example of how to (and occasionally how not to) enter, exit, or monitor a position. But the trades - real trades - are there.

On the internet, there are people tossing out trade recommendations every day. Do you ever wonder about these recommendations? I know I do. Are they backed by Monopoly money? Or do those who put out these trades have the courage of their convictions? Are they on the field with you financially? Or are they sitting in the bleachers, just leading the cheers? When the game is over, cheerleaders may be disappointed, but they haven't really lost anything of substance, have they?

Are those who are making the recommendations you follow walking the walk, or just talking the talk? You deserve to know.

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CPTI CURRENT JULY POSITIONS
CPTI July Position #1 - SPX - Bull Put Spread - 1270.20
On Friday, 5/26, we put on our first position for July - 12 contracts of a bull put spread 1165/1150 for a credit of $.60 ($720). 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 - 724.67
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.

CPTI July Position #3 - SPX Iron Condor - 1270.20
On Friday 6/16, we sold 12 July SPX 1165 puts and bought 12 July SPX 1150 puts for a credit of about $.60 ($720). Then we sold 12 July SPX 1320 calls and bought 12 July SPX 1335 calls for a credit of about $.55 ($660).

Total net credit and profit potential of $1.15 ($1,380). The maximum profit range is 1165 to 1320 - 155 points. Maintenance is $18,000 - IF you have the right broker.

CPTI July Position #4 - RUT Iron Condor - 724.67
On Friday 6/16, we sold 15 July RUT 610 puts and bought 15 July RUT 600 puts for a credit of about $.50 ($750). Then we sold 15 July RUT 770 calls and bought 15 July RUT 780 calls for a credit of about $.55 ($825). Total net credit and profit potential of $1.15 ($1,575). The maximum profit range is 610 to 770 - 160 points. Maintenance is $15,000 - IF you have the right broker.

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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.

New Zero Plus Position: SPX Iron Condor - 1270.20
On Friday 6/16, we sold 20 July SPX 1165 puts and bought 12 July SPX 1150 puts for a credit of about $.60 ($1,200). Then we sold 20 July SPX 1320 calls and bought 12 July SPX 1335 calls for a credit of about $.55 ($1,100).

Total net credit and profit potential of $1.15 ($2,300). The maximum profit range is 1165 to 1320 - 155 points. Maintenance is $30,000 - IF you have the right broker.

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NEW CPTI SUMMER SEMINAR DATE!!
AUGUST 12/13 - CHICAGO
40 Out Of 43 PROFITABLE MONTHS!!

If you missed the CPTI Chicago seminar in April 2005, we're coming back - with more strategies and an even better track record than last year.

DO YOU HAVE PROFIT-ABILITY?
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 Chicago. Contact me and I'll call you with all the details.

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. Our CPTI seminars are limited to ONLY 25 ATTENDEES.

The San Francisco 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!

WANT TO ACHIEVE SUCCESS WITH LESS 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 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

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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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