The market just keeps chugging along. A few very convincing head fakes along the way and it's business as usual - on its way up. These head fakes would make Labron James proud.
We put on the "butterfly net" position in anticipation that the market would have rolled over and been on the way down. It seemed like a good idea at the time. A few days ago, it looked like the market would find its way to our sweet spot. But, the market had other ideas -- and the market is always right. This is the perfect example of why I'm not a directional trader. I suck at it.
However, the risk on the Butterfly Net of only $.55 ($550) was worth it - and we'll do it again. We'll try to pick our spots. The risk/reward is hard to beat.
In the meantime, our two June RUT positions will expire completely profitable, leaving us with only our fourth losing month in 55. We'll go over the numbers in Sunday's column, we'll put it behind us and we'll begin another winning streak.
Tomorrow morning is the Friday morning settlement. Our current open positions aren't close to being threatened, but I know there are traders out there who still hold tenuous S&P positions. They will be sweating the S&P number. As it turns out, if we hadn't taken the S&P loss earlier in the cycle, we would have been in pretty good shape. The June 1535/1550 has about a 12-point cushion. We did the right thing getting out when we did. Actually, I should have closed the position earlier for about half the loss. My bad, but it's not the end of the world.
Historically, the S&P averages about a 4.5-point opening change on the upside. It doesn't seem like it though - especially after April's settlement. On Thursday, April 19th the S&P closed at 1470.75. The Friday morning settlement number was 1485.57 - a difference of almost 15 POINTS!! Even though most months are much more tame, it's the outrageous months that we remember vividly.
Tomorrow morning there's a CPI number due out. It's an important economic number that, more often than not, triggers a big reaction - one way or the other. So, many of us will be watching Bloomberg and/or CNBC at 8:30 a.m. (ET) tomorrow morning. We'll be monitoring the futures before the open and seeing which way the market is going to over-react.
As we discuss here every expiration Friday, the progressive option brokers will be releasing your maintenance dollars early in the morning on your obviously safe credit spread positions. That's going to free us up to do some trading. We only have two July positions thus far and it would be nice to find something worthwhile. I'll be looking at the RUT, MID, and OEX for possibilities (gee, what a shock). A down day would increase the volatility and provide us with some interesting July opportunities. We aren't going to force anything, though. July is a five-week option cycle, so there's still enough time to find something. Maybe we'll even catch a butterfly or two.
CURRENT JUNE CPTI PORTFOLIO POSITIONS
CPTI June Position #1 - RUT - Bull Put Spread - 837.12
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.
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. On 5/31 closed out bear call spread for a loss of $10,180.
CPTI June Position #3 - RUT - Iron Condor - 837.12
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.
CPTI June Position #4 - XSP - Butterfly Net - 152.30
With the XSP at 150.70, we put on two overlapping butterfly positions. Our out-of-pocket costs were $.55 ($550). We established a profit range of 145.55 to 149.45. Since this is a debit position, there is no maintenance requirement.
CURRENT JULY CPTI PORTFOLIO POSITIONS
CPTI July Position #1 - SPX - Bull Put Spread - 1522.97
On 5/30, we sold 15 July SPX 1400 puts and bought 15 July SPX 1385 puts for a credit of $.70 ($1,050). On 6/4 we put on the bear call spread to complete our Iron Condor. We sold 15 July SPX 1625 calls and bought 15 July SPX 1640 calls for a credit of $.70 ($1,050). Our net credit and profit potential is $2,100. Our maintenance is still $22,500.
CPTI July Position #2 - SPX - Iron Condor - 1522.97
On 6/4, with the SPX at about 1536, we sold 12 July SPX 1440 puts and bought 12 July SPX 1425 puts for a credit of $.70. Then we sold 12 July 1625 calls and bought 12 July 1640 calls for a credit of $.70. The total net credit of $1.40 and profit potential is $1,680. Maintenance requirement is $18,000.
ONGOING STRATEGY - THE
RUT Iron Condor - 837.12
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.
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