Option Investor
Updates

ANOTHER PROFITABLE MONTH*

HAVING TROUBLE PRINTING?
Printer friendly version
*

May was a bitter-sweet option cycle. Yes, we ended up with a profit. Now, we've been profitable 51 out of 54 months, but this one goes into the record book with an asterisk. This cycle, we had a threatened SPX position that we rolled to June. Now, the new June position is being threatened by this relentless uptrending market.

What Now?
Our June SPX position has a 12.25 point cushion - not very large and even less comforting. It's time to look into our alternatives. Actually, we've seen this coming for some time. We should have already been thinking about our adjustment alternatives. I received emails from a few folks who have already adjusted their 1535/1550. There's a school of thought that says one should adjust when the delta of the short strike (1535) reaches 25. With the SPX at 1522.75, the 1535 strike currently has a delta of 42. The further the SPX moves up, the more quickly the 1535 strike will increase in price - making it more expensive to buy back if/when the time comes.

Gentlemen, Start Your Calculators
Let's take a look at a few alternatives. First, we have to calculate what it will cost to get out of our current June 1535/1550 bear call spread. Based on Friday's closing prices, we should be able to buy to close the 1535s and sell to close the 1550s at a debit of about $7.00 (X 18 contracts = $12,600). We've accumulated premium of $2,060. If we were to simply close the position, we'd accept a $10,540 loss.

The question is: do we want to take the loss now? Or, do we want to roll our bear call spread further up and further out in anticipation that the market will reverse, or at least stop and settle into a trading range reasonably soon?

Before we make that decision, let's look at what it would take to roll out our position. There are a number of choices.

Doing The Math
We could roll out to the July 1585/1600 bear call spread. When rolling out to July we're faced with the fact that all strike prices aren't currently available. If we're going to match up our 15-point bear call spreads, we have a limited number of spread choices from which to choose. Again, based on Friday's closing prices, we'd be able to bring in about $3.00 of premium on the 1585/1600 bear call spread. We would have to trade about 35 ($10,500 divided by $300/contract) contracts to make up the $10,540 loss we're facing. That would tie up $52,500 in maintenance. Plus, we'd be waiting for nine more weeks for this all to be resolved.

To help out the situation, we could also close out our June 1410/1395 bull put spread. It would cost us about $.25 (X 18 contracts = $450). Then, we could roll the bull put spread to the July 1440/1425. Again, we're faced with a limited number of strikes being available. We can take in about $1.30 on the July 1440/1425 bull put spread. After spending the $.35 to close out the June 1410/1395 position, that would leave us $1.05 to help defray the cost of rolling up and out the bear call spread.

That changes the number a bit. Instead of having only the $3.00 to work with, we would now have about $4.05 ($3.00 + $1.05). So, if we divide the $10,540 by $4.05, we'd only need to trade 27 contracts. Our maintenance requirement would be only $39,000 - a little more palatable.

The new maximum profit range would be 1440 to 1585 - and that would have to last us for nine weeks. At least we'd have some breathing room. If we keep rolling up and out, sooner or later we'll be right. The question is whether or not our account size can handle it.

Other choices include rolling up about 20 points and remaining in the June cycle at 1555/1570. Also, if you're faced with limited funds (a lack of dry powder), you may opt to accept a loss on half (or whatever percentage works for you) of the position and rolling out the other half of the position.

Put your thinking caps on. Check your position and your account and figure out what you can afford and what will get you through. You may choose to take the loss and move on with a fresh start. After all, it looks like the other June positions are in quite good shape and could further reduce the loss by almost $3,000. Plus, you'd still have time to put on another June position to bring is some additional premium. Perhaps, putting this position behind you will help you to start fresh.

These are times for tough choices. It's not fun, but it's part of the business. It is a test, to say the least.

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

TRACKING CPTI PORTFOLIO RESULTS
We've just completed the sixth month (May) of CPTI tracking year number five. The market continued its up move (damn it!). But, we ended up with another profit. However, we had to roll out a May position to June- leaving just the two profitable positions for May. We've now been profitable for 51 OUT OF THE 54 months - a record we are VERY proud of. Our profit for the fifth month of our fifth year was $3,000. Thus far, in our fifth tracking year, we've accumulated a tidy profit of $20,220 ($17,220 + $3,000).

RECAP OF MAY POSITIONS
(See Position Details in MAY Summary Below)

RUT Iron Condor - PROFIT: $2,100
OEX Bull Put Spread - PROFIT: $900

TOTAL MAY PROFITS: $3,000

May Settlement Numbers:
S&P 500: $SET - 1517.46
Russell: $RLS - 823.66
S&P 100: OEX - 699.80
MID: $MIV - 895.46

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

How To Get Wealthy

A young man asked an old rich man how he made his money.

The old guy fingered his worsted wool vest and said, "Well, son, it was 1932. The depth of the Great Depression. I was down to my last nickel. I invested that nickel in an apple. I spent the entire day polishing the apple and, at the end of the day, I sold the apple for ten cents.

The next morning, I invested those ten cents in two apples. I spent the entire day polishing them and sold them at 5:00 pm for 20 cents. I continued this system for a month, by the end of which I'd accumulated a fortune of $1.37.

Then my wife's father died and left us two million dollars."

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

ONE LAS VEGAS SEMINAR SPOT LEFT!!
There is still one spot remaining for my upcoming June 2nd & 3rd Las Vegas seminar. It's always a great time in Vegas and a great learning experience. Don't wait too long. This spot will be gone soon.

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

SUMMARY OF MAY CPTI PORTFOLIO POSITIONS
CPTI May Position #1 - RUT - Iron Condor - 823.66

We sold 20 May RUT 710 puts and bought 20 May RUT 700 puts for a credit of $.45 ($900). Then, we sold 20 May RUT 870 calls and bought 20 May 880 calls for a credit of $.60 ($1,200). Our potential profit is $2,100. Maintenance is $20,000. Profit: $2,100

CPTI May Position #2 - OEX - Bull Put Spread - 699.80

We sold 20 May OEX 615 puts and bought 20 May OEX 605 puts for a credit of $.45 ($900). Our potential profit is $900. Maintenance is $20,000. Profit: $900

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

CURRENT JUNE CPTI PORTFOLIO POSITIONS

CPTI June Position #1 - RUT - Bull Put Spread - 823.66

On 5/1, we sold 20 May RUT 720 puts and bought 20 May RUT 710 puts for a credit of $.50 ($1,000). Maintenance is $20,000. We will watch for an opportunity to add a bear call spread to this position to complete our Iron Condor.


CPTI June Position #2 - SPX - Iron Condor - 1522.75

On 3/28, with the SPX at about 1419, we sold 12 May SPX 1300 puts and bought 12 May SPX 1285 puts for a credit of $.70. Then we sold 12 May SPX 1505 calls and bought 12 May SPX 1520 calls for a credit of $.70. Our net credit and profit potential was $1.40 ($1,680). Our maximum profit range is 1300 to 1505. Our total maintenance was $18,000.

On 5/3, with the SPX at about 1501, we rolled out our May position into June by buying back both spreads and establishing the 1535/1550 bear call spread and the 1410/1395 bull put spread for an additional credit of $380. We now have a profit potential of $2,060. Our maintenance is now $27,000. Our max profit range is now 1410 to 1535.

CPTI June Position #3 - RUT - Iron Condor - 823.66

On 5/7, we sold 20 June RUT 760 puts and bought 20 June RUT 750 puts for a credit of $.60 ($1,200). Then we sold 14 June 890 calls and bought 14 June 900 calls for a credit of $.50 ($700). Total potential profit is $1,900. Maximum profit range is 760 to 890. Maintenance is $20,000.

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

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. Our new cash total is $49,610 ($51,050 - $1,440).

RUT Iron Condor - 823.66

On 5/7, we sold 25 June RUT 760 puts and bought 25 June RUT 750 puts for a credit of $.60 ($1,500). Then we sold 20 June 890 calls and bought 20 June 900 calls for a credit of $.50 ($1,000). Total potential profit is $2,500. Maximum profit range is 760 to 890. Maintenance is $25,000.

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

CPTI SEMINAR SCHEDULE!
Las Vegas, NV - June 2nd & 3rd - ONE SPOT LEFT!

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 to 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, 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. Send me your phone number. 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. You'll have a two-day experience that you'll remember, and profit from, for a lifetime. I limit our CPTI seminars to ONLY 25 ATTENDEES. And, as a bonus, if you attend one of my CPTI seminars, you are entitled to RETAKE the seminar a SECOND TIME at NO CHARGE!

50 OUT OF 53 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. 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: 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 Trader 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