Option Investor
Updates

2006 - A GREAT YEAR FOR OPTIONS

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Here at the Couch Potato Trading Institute, we've been fighting for profits in the options markets for over four and one-half years - and pretty successfully, too. We have found, and developed, our own little niche - and we're still a work in progress - learning new variations and tweaking things here and there.

As our knowledge base has grown, so has the popularity of options. According to an article on The Street.com, the Options Clearing Corporation recently released the year-end tally of option volume. Last year (2006) was an incredible year with total options volume hitting a record 2.02 billion contracts. That represents a 35% increase over 2005, and marks the fourth consecutive year of 30%-plus volume. Thank you, Wade, wherever you are.

According to the article, "the big drivers include the increasing role of hedge funds, which now make up nearly 25% of trading volume in both equities and options, and the adoption by traditional mutual funds of options as a tool for generating income and reducing risk."

And, though we know that covered calls are as dangerous as naked puts, there has been tremendous growth of "covered-call and buy-write funds, which have raised some $100 billion over the past two years."

Unforunately, there is still a stigma attached to option trading. Just suggest to someone that they should trade options and the constipation sets in. The fear that comes from ignorance generates facial expressions only seen in audiences of "Friday the 13th."

The good news is that a few more minds are opening and taking a closer look at options. Once they pass there directional trading - lose their cojones phase, some are actually exploring other aspects of option trading like portfolio hedging and income generation. Those who devote the time and energy it takes to learn, discover that trading options makes sense - and money. Just ask my seminar grads!

Even some stodgy old brokers have recognized how much revenue they are losing by not taking a realistic view of options. New option trading firms are popping up out of the woodwork. The more firms competing for your commission dollars, the lower the commissions become. Note: Low commissions don't necessarily mean the best broker. Plus, the more progressive brokers are allowing our style of trading in IRA accounts -- a previously unheard of practice.

There are more option exchanges than ever before. You would think that the competition between these exchanges for our business would result in better fills. That's not necessarily the case. As a matter of fact, it even tends to confuse the situation.

On most data providers, when we look at an option chain, we are shown composite bid and ask prices. That means we are seeing the best bid price available and the best ask price available. The problem is that, if that underlying is traded on multiple exchanges, the best bid might be on the CBOE while the best ask may be on the AMEX or the ISE, or the PHLX, or the BOX, etc. Get the point? Then we compound the problem when we trade a spread (bull put or bear call, etc.). Then, we calculate the credit limit for our spread based on this information. It may seem that we're asking for a reasonable credit limit when, in reality, we've based our numbers on prices from two separate exchanges - exchanges that rarely talk to each other.

How do we know which exchange has the best price? Well, on some data providers (like eSignal) you can configure their streaming option quotes to show that information. Or, you can call your broker. But, by the time you reach the broker and he pulls up the information, the numbers, and exchanges, may well have changed.

That's just one of the reasons we limit our trading to indexes. Some indexes are only traded on one specific exchange while others trade on as many as three. Stock options, however, can trade on as many as six or seven exchanges - with more coming. So, when it comes to our style of trading, sometimes less is more -- at least when it comes to option exchanges.

This year, they'll be again fighting for their piece of the pie -- their share of the over 2-billion options that will trade. Can't blame them, but it sure doesn't make it any easier for us.

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One More For February
Since the market came down nicely on Friday - after some seemingly good news - maybe it's time to look at bear call spreads for our RUT & SPX spreads. Notice I said - maybe! At the beginning of the week, after a drop the previous Friday, there's often an initial optimistic pop up. It may only last for an hour. That might be a good place to look. There is more likelihood of a spread being available on the RUT than on the SPX. On Monday, I'll be watching too.

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Prize Winning Roosters
John the farmer was in the fertilized egg business. He had several hundred young layers (hens), called "pullets", and ten roosters, whose job it was to fertilize the eggs (for you city folks).

The farmer kept records and any rooster that didn't perform went into the soup pot and was replaced. That took an awful lot of his time, so he bought a set of tiny bells and attached them to his roosters. Each bell had a different tone so John could tell from a distance, which rooster was performing. Now he could sit on the porch and fill out an efficiency report simply by listening to the bells.

The farmer's favorite rooster was old Butch, and a very fine specimen he was, too. But on this particular morning, John noticed old Butch's bell hadn't rung at all! John went to investigate.

The other roosters were chasing pullets, bells-a-ringing. The pullets, hearing the roosters coming, would run for cover. But to Farmer John's amazement, old Butch had his bell in his beak, so it couldn't ring. He would sneak up on a pullet, do his job and walk on to the next one. John was so proud of old Butch, he entered him in the Renfrew County Fair and he became an overnight sensation among the judges.

The result? The judges not only awarded old Butch the No Bell Piece Prize but they also awarded him the Pulletsurprise as well.

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EARLY BIRD SPECIAL - Only 10 Days Left To SAVE $100
For traders interested in attending both the Dallas seminar on March 10th & 11th or Washington, DC seminar, I offer you an "Early Bird Special." If you reserve your spot prior to January 15th, you will SAVE $100. There's nothing to compare to the one-on-one instruction, the passion, the camaraderie, and the entire experience of my seminars.

So far, over 22 CPTI students have taken advantage of the "Early Bird Special." There are still spots left in both seminars. Don't wait too long. Seminar grad, Ed, will be attending the Dallas seminar. It will be his fourth time. He already understands the strategies. He keeps coming back for the experience.

Note to former CPTI seminar graduates: There are NO free retake spots remaining for Dallas and only two free retake spots remaining for Washington, DC. He who hesitates . . .

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CURRENT JANUARY CPTI PORTFOLIO POSITIONS
CPTI January Position #1 - RUT - Bull Put Spread - 775.87
We sold 20 January RUT 690 puts and bought 20 January RUT 680 puts for a credit of $.50 ($1,000). Our net credit and profit potential is $.50 ($1,000). Maintenance is $20,000. If the market stops trending, we'll look for a bear call spread to complete our Iron Condor.

CPTI January Position #2 - SPX - Iron Condor - 1409.71
We sold 12 January SPX 1300 puts and bought 12 January SPX 1285 puts for a credit of $.70 ($840). Our net credit is $.70 ($840). We also sold 12 SPX January 1470 calls and bought 12 SPX January 1485 calls for a credit of $.60 ($720). Total net credit and profit potential of $1.30 ($1,560). Maintenance is $18,000. Maximum profit range is 1300 to 1470.

CPTI January Position #3 - OEX - Bull Put Spread - 657.50
We sold 20 January OEX 615 puts and bought 20 January 605 puts for a credit of $.40 ($800). Maintenance is $20,000. We'll keep watch for an appropriate bear call spread to complete our potential Iron Condor.

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CURRENT FEBRUARY CPTI PORTFOLIO POSITIONS
CPTI February Position #1 - RUT - Bull Put Spread - 775.87
We sold 20 February RUT 690 puts and bought 20 February RUT 680 puts for a credit of $.55 ($1,000). Our net credit and profit potential is $.55 ($1,100). Maintenance is $20,000. If the market stops trending, we'll look for a bear call spread to complete our Iron Condor.

CPTI February Position #1 - SPX - Bull Put Spread - 1409.71
We sold 12 February SPX 1325 puts and bought 12 February SPX 1310 puts for a credit of $.70 ($840). Our net credit and profit potential is $.70 ($840). Maintenance is $18,000. If the market stops trending, we'll look for a bear call spread to complete our Iron Condor.

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ONGOING STRATEGY - THE ZERO-PLUS Strategy
In the past, I outlined a strategy based on an initial investment of $100,000. At that time, $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. We have now generated $51,050 ($47,250 + $3,800).

NEW ZERO PLUS POSITION -

Zero Plus - February Position - RUT - Bull Put Spread - 775.87
We sold 25 February RUT 690 puts and bought 20 February RUT 680 puts for a credit of $.55 ($1,375). Our net credit and profit potential is $.55 ($1,375). Maintenance is $25,000. If the market stops trending, we'll look for a bear call spread to complete our Iron Condor.

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CPTI SEMINAR SCHEDULE!
Dallas, TX - March 10 & 11
Washington, DC - April 21 & 22

If you really want to take your trading from a "hobby" to a potentially profitable "business," you need 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 - one that can last a lifetime.

DO YOU HAVE 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. Contact me and I'll personally 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!

46 OUT OF 49 PROFITABLE MONTHS!!
WANT TO ACHIEVE SUCCESS WITHOUT STRESS?
OF COURSE YOU DO!!
USE OUR CPTI WEALTH-BUILDING TECHNIQUES!

You should definitely attend 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: 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 somewhat hypothetical. The numbers represented here may have been achieved or beaten by our readers (we certainly hope so). We make no representation that any individual investor achieved these exact results. Some have received less. The tracking for the plays listed in this column 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 for investment education purposes only - and many actually learn. 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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