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TRADING MECHANICS ISSUE

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A MATTER OF TRADE MECHANICS

There's always something. When I suggested the trade on Tuesday, I didn't anticipate the confusion that resulted. So, let's deal with it.

Here is the trade I posted on Tuesday:
"With the RUT at about 708, we sold 20 October RUT 610 puts and bought 20 October RUT 600 puts for a credit of about $.50 ($1,000). Then we sold 15 October RUT 790 calls and bought 15 October RUT 800 calls for a credit of about $.60 ($900). Our total net credit and profit potential is $1.10 ($1,900). Maximum profit range of 610 to 790 -- 180 points!! Maintenance is $20,000 -- IF you have the right broker."

I did the same trade on our ongoing Zero Plus strategy, but doubled the number of contracts.

Notice how I'm using only 15 contracts for the bear call spread. Why? Because I wanted a little less exposure because it looks like the market might be moving up in the near term. This trade seemed to confuse some traders. Let's talk about it, and clear it up, so it will go more smoothly the next time. Here is the basic question I received.

Hi Mike -- I saw your email today (Tuesday) and tried to get the trade online under the condor heading...but...I was rudely told that they would automatically put in 20 contracts on the third leg (RUTJR) to make it a condor. I tried to put it in again with the same results and the market closed. Is this considered a real condor or should I just try putting on a bull put spread and separately the bear call spread at different times? These brokers are getting whacko!

PS - thanks for the explanation on having the same position in two separate trades. I am getting my other account setup to do spreads. -- Dave

So, the problem here, for some, is that the number of contracts for the bull put spread (20) was larger than the number of contracts (15) for the bear call spread. The reason was, as I stated in the original posting, is that the market looked like it might bounce up for a third leg of this bullish move. Using 15, instead of 20, contracts, would give us a little less exposure on the bear call side of the trade.

The problem it creates is primarily for those who try to put on the entire iron condor in a single trade for one credit limit. When the number of contracts in the two spreads are not identical, it can't be done. The broker's (even the best broker's) software can't be expected to recognize the discrepancy and make the adjustments.

Here was my answer to Dave:
Hi Dave -- It's definitely an Iron Condor trade -- at least it is for the first 15 contracts. The additional 5 contracts are extra bull put spreads. You can try and do it either way. Put on a 20 bull put spreads and then put on 15 bear call spreads. Or, you can try and put on 15 contracts of a complete iron condor and then add another five contracts of the bull put spread.

In this case, the brokers are right. Even if the trading platform will allow a single order for Iron Condors, it won't allow different contract amounts for the two spreads. They have to be equal. If you put the spreads on separately, then you won't have that problem. Just recognize that the maintenance held will be the amount for the larger number (20) of contracts.

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NEW SEMINAR DATE - Nov. 11/12 - Ft. Lauderdale
The Couch Potato Trader has a great following in Florida. We had an excellent seminar in Jacksonville last year and now I have finalized the arrangements for another visit to the Sunshine State - this time to Ft. Lauderdale. So, adjust your schedules and plan to attend. Contact me. I will personally call you to go over the details and answer all of your questions.

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SEPTEMBER CPTI PORTFOLIO POSITIONS
CPTI September Position #1 - SPX - Bull Put Spread - 1296.06
On Monday, August 7th, with the SPX at about 1280, we sold 12 SPX September 1190 puts and bought 12 SPX September 1175 puts for a credit of $.70 ($840). Maintenance is $18,000. I'll be looking for an opportunity to put on a bear call spread to complete the Iron Condor.

CPTI September Position #2 - RUT - Iron Condor - 698.72
On Thursday, August 10th, with the RUT at about 686, we sold 15 RUT September 590 puts and bought 15 RUT September 580 puts for a credit of $.55 ($825). Then we sold 15 September RUT 750 calls and bought 15 September 760 calls for a credit of $.50 ($750). Net credit and profit potential of $1.05 ($1,575). Maximum profit range is 590 to 750. Maintenance is $15,000.

CPTI September Position #3 - RUT - Iron Condor - 698.72
On Thursday, August 17th, with the RUT at about 708, we sold 15 September RUT 640 puts and bought 15 September RUT 630 puts for a credit of $.45 ($675). Then we sold 15 September RUT 760 calls and bought 15 September RUT calls for a credit limit of $.80 ($1,200). Net credit and profit potential of $1.25 ($1,875). Maximum profit range is 640 to 760. Maintenance is $15,000.

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CPTI October Position #1 - RUT - Iron Condor - 698.72
With the RUT at about 708, we sold 20 October RUT 610 puts and bought 20 October RUT 600 puts for a credit of about $.50 ($1,000). Then we sold 15 October RUT 790 calls and bought 15 October RUT 800 calls for a credit of about $.60 ($900). Our total net credit and profit potential is $1.10 ($1,900). Maximum profit range of 610 to 790 -- 180 points!! Maintenance is $20,000 -- IF you have the right broker.

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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 August RUT Iron Condor position expired worthless - according to plan. We can now officially add another $2,300 of premium to our cash stash. We have now generated $47,250 ($44,950 + $2,300).

October Zero Plus Position: RUT Iron Condor - 698.72
With the RUT at about 708, we sold 40 October RUT 610 puts and bought 40 October RUT 600 puts for a credit of about $.50 ($2,000). Then we sold 30 October RUT 790 calls and bought 30 October RUT 800 calls for a credit of about $.60 ($1,800). Our total net credit and profit potential is $1.10 ($3,800). Maximum profit range of 610 to 790 -- 180 points!! Maintenance is $40,000 -- IF you have the right broker.


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CPTI SUMMER SEMINAR!
NOVEMBER 11/12 - FT. LAUDERDALE

Don't put off making your reservation. Airline tickets get more costly the closer you get to the event. If you really want to take your trading from a "hobby" to a potentially profitable "business," you'll want the information you'll learn at my CPTI seminar. You'll learn more than the "how to's" of trading our strategies. You'll learn a new lifestyle - and a nice lifestyle - one that can last a lifetime.

DO YOU HAVE THE PROFIT-ABILITY?
It's always a challenge (and a pleasure) for me when I have a roomful of bright people who have a passion for, and are excited about, 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 Ft. Lauderdale. 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. Remember, if you attend one of my CPTI seminars, you are entitled to RETAKE the seminar a SECOND TIME at NO CHARGE!

42 OUT OF 45 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 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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