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ANOTHER IRON CONDOR HEDGING OPTION

HAVING TROUBLE PRINTING?
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Today we continue our search for hedging alternatives for our Iron Condor positions. Many thanks to CPTI seminar grad Dan who offered this suggestion on a recent trade.

Hi Mike -- I did something I've done in the past to limit my exposure in our non-directional strategies that I want to share.

As the Russell broke to new highs this afternoon (and the 799.30 resistance level), I sold the 840/830 bull put spread 10X for an $8.00 credit. My maximum downside risk is $2,000, but I collected $8,000 in credit just in case the RUT continues higher. The end result is that I've collected a total of $6,500.00 on the Iron Condor (a 50 lot), risking $2,000.00 of that to knock $8,000 off my risk to the upside in the event I have to GTFO at 845. I'm considering doing the same thing on the SPX 1490/1505 bull call spreads I sold at 80 cents.
The big downside is that, IF we crash and my bull put spreads get stopped, I'm out more than I should have. I do consider that highly unlikely that we drop 108 pts. on the SPX and 100 pts. on the RUT in the next 43 days though.

What do you think about doing these types of trades? Stupid waste of money or a good way to cover my ass if we get "caught" on one of our legs?

One other thing, if the market reverses back down, I will be able to buy that spread back for
more than the $2000 risk. That's just the total at expiration if I did nothing.

Let's go through a few "what if?" scenarios and calculate the values of the two positions. That's the best way to evaluate any strategy, adjustment or hedging strategy.

1. If RUT settles at 833 at March expiration . . .
a) The original 850/860 expires worthless. You keep the initial $1.10 credit.
b) The 840 put has a value of $7. So, $7 of the $8 (taken in for the hedge) will be deducted from the account. The 830 put will expire worthless. Additional profit of $1.00.
c) Net profit of $2.10 ($1.10 + $1.00)

2. If RUT settles at 868 at March expiration . . .
a) The original 850/860 spread loses $10 less the $1.10 credit ($8.90)
b) The 840/830 bull put spread expires worthless for a profit of $8.00.
c) Net loss of $.90 ($8.00 - $8.90)

3. If RUT settles anywhere between 840 & 850 at March expiration . . .
a) The original 850/860 bear call spread expires worthless. You keep the initial $1.10.
b) The 840/830 bull put spread expires worthless. You keep the entire $8.00
c) Net profit of $9.10 ($1.10 + $8.00)

4. If RUT settles at 821 at March expiration . . .
a) The original 850/860 expires worthless. You keep the initial $1.10 credit.
b) Both puts are in the money and the 840/830 bull put spread loses $2.00.
c) Net loss of $.90 ($1.10 - $2.00)

Keep in mind that if time goes by and the Russell stalls instead of continuing its upward move, you can likely close the new 840/830 bull put spread and retain a bit of the $8 profit. That would be if you believe the RUT will not continue up to threaten the 850/860.

Where is the break-even point? It would be 838.90. The 840 put would have a value of $1.10 -- which is equal to the original credit taken in.

Put in some numbers and do the math. Have fun with it and see if this hedging strategy is appropriate for you. The new 840/830 bull put spread would require only an additional $2,000 of maintenance (on 10 contracts). Remember, it's a 10 point spread, but you will have taken in $8,000.

This seems like a good hedging strategy. However, to make these numbers work, this strategy was applied when there is still a 40 point cushion between where the RUT is trading and our short call position.

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A Little Resistance & A Lot Of Support for the SPXS&P 500: Closed at 1448.39
Resistance:
1475 from peaks in December 1999 and January 2000

Support:
1444 from February 2000
1440 is the July up trendline
1432 is the December 2006 high
The 18 day EMA at 1430
1425 is an interim high from November 1999
The 50 day EMA at 1415
1408 is the November high
1401 is a low from April 2000
1390 is the October high.
1389 is a low from November 1999
1378 is a low from May 2000

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CURRENT FEBRUARY CPTI PORTFOLIO POSITIONS
CPTI February Position #1 - RUT - Bull Put Spread - 809.42
We sold 20 February RUT 690 puts and bought 20 February RUT 680 puts for a credit of $.55 ($1,100). 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 - Iron Condor - 1448.39
We sold 12 February SPX 1325 puts and bought 12 February SPX 1310 puts for a credit of $.70 ($840). On Jan. 8, we also sold 12 February SPX 1475 calls and bought 12 February 1490 SPX calls for a credit of $.75 ($900). Our net credit and profit potential is $1.45 ($1,740). Maintenance is $18,000.

CPTI February Position #3 - OEX - Bull Put Spread - 669.59
We sold 20 February OEX 615 puts and bought 20 February 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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Food For Thought
"Life is like a roll of toilet paper. The closer it gets to the end, the faster is goes."

Obviously, I'm not real picky about my analogies. However, the same holds true with my seminars. Don't wait until the toilet paper runs out. The longer you wait to reserve your spot, the fewer spots will be available. Currently, only two spots remain for Washington and five for Dallas. It's an experience you'll not forget and the knowledge will last a lifetime.

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CURRENT MARCH CPTI PORTFOLIO POSITIONS
CPTI March Position #1 - RUT - Iron Condor - 809.42
We sold 20 March RUT 700 puts and bought 20 March RUT 690 puts for a credit of $.65 ($1,300). Then, on 1/25, we sold 20 March RUT 850 calls and bought 20 RUT 860 calls for a net credit of $.45 ($900). Our net credit and profit potential is $1.10 ($2,200).

CPTI March Position #2 - OEX - Bull Put Spread - 669.59
We sold 20 March OEX 620 puts and bought 20 March 610 puts for a credit of $.45 ($900). Maintenance is $20,000. We'll keep watch for an appropriate bear call spread to complete our potential Iron Condor.

CPTI March Position #3 - SPX - Iron Condor - 1448.39
We sold 12 March SPX 1335 puts and bought 12 March 1320 puts for a credit of $.65 ($780). Then we sold 10 March 1490 calls and bought 10 March 1505 calls for a credit of $.80 ($800). Total net credit is $1,580. Maintenance is $18,000 - IF you have the right broker.

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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.

ZERO PLUS POSITION -
Zero Plus - February Position - RUT - Bull Put Spread - 809.42
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

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!

47 OUT OF 50 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?

Note to the hundreds of former CPTI seminar graduates: There are no free retake spots remaining for Dallas or for Washington, DC. He who hesitates . . . is SOL.

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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 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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