Option Investor
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HAVING TROUBLE PRINTING?
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? PLUS READER Q & A

It's been another rollercoaster ride this week. Early in the week I began to get concerned about our August 740 RUT bull put spread. But the bargain hunters appeared and, at least for the moment, we are back at a semi-comfortable level - if there is such a thing as a comfort level in this bonkers market.

1. As I said above, our RUT 740 bull put spread now has a 44-point cushion with two weeks left. Under normal circumstances, that would be plenty. Let's just watch and hope that the market has found a bottom - although we can anticipate, at some point, another test of the lows.

2. Our SPX 1400/1385 & 1615/1630 Iron Condor is in fine shape. We have a 72 point cushion on the put side and a 140-point cushion on the call side.

3. Our Adjusted RUT 730/720 & 850/860 Iron Condor is in decent shape. We have a 54 point cushion on the put side and a 46-point cushion on the call side.

4. Our Adjusted MID 820/810 & 920/930 Iron Condor is also in decent shape. We have a 45-point cushion on the put side and a 54-point cushion on the call side.

I don't know how this month will work out, but I have high hopes. You can see how our adjustments from last week have given us a fighting chance to have a profitable month. The price we paid was some additional exposure. If the market proves to have flattened out and stays within our new parameters, then we'll look like geniuses. If not, we could be in deep mierde again.

Keep in mind that this is a numbers game. We are playing the percentages. If we do that responsibly, in the long run, we should be fine. That doesn't mean we won't have some losses. We just need to have sufficient capital available to give us adjustment flexibility and keep a level head when we have to make those tough decisions.


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Hi Mike -- I have a question on position sizing.
1. If I take your July positions as an example; If I had invested the exact quantities that you suggested, I would have received approximately $2,100, $1680 and $1900 = $5,680 in credit , requiring $ 60,500 in Maintenance? As long as everything expires OTM, this would be a 9% return on my capital?
($5,680/$62,000) Is that correct?

2. If I have $250,000 to invest, would I increase each position x 4 because the maintenance would then be approximately. $240,000 to $250,000? (4 x $62,000?) This would yield $22,720 in credit as long as they expire worthless? or...should I be adding additional spreads with different indexes or strikes? Do you personally trade larger quantities than the official position, each month?

Hi Ron -- Let's address both of your questions.
1. In July, we took in $5,680. The maintenance was, as you noted, $60,500. Recognize that what you have at risk is only $54,820 ($60,500 - $5,680). The way to calculate your return on actual risk is to divide the profit $5,680 by $54,820 = 10.361%.

2. First, let me say that you should NEVER use all of your account for maintenance. You should use about 1/3 of your account for the current month, another 1/3 for the next month and keep the final 1/3 for potential adjustments if they become necessary. The last 1/3 of available dollars has come in particularly handy in recent weeks as we've had to make a few position adjustments.

If you have a large account, you could certainly trade a larger number of contracts, but diversification is also important. In one of the accounts I trade, some well over 100 contracts per trade. I use the same strategies and negotiation techniques. I will also vary the size of the position to help with diversification and risk control. I use a variety of indexes -- most are the same I use in my column.

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Mike, - I believe the positions change too frequently. If the strategies are non-directional, then I don't understand why the positions would be changing if the market is changing. Aren't we trading on volatility? Thanks, Solomon

Hi Solomon -- This is the exception rather than the rule. The market is making dramatic moves. Under normal (80% of the time) conditions, we have little or no problems with the positions we establish. They typically have a 90% chance of success. However, we live in an imperfect world (if you haven't noticed) and we have to be flexible enough to roll with the punches and do what's necessary to control our positions. We can't let our positions control us. This is not a marriage. It's a business.

Our strategies are non-directional, but not totally without risk. We make adjustments because we're trying to control the risk when a position is threatened. When a position is in trouble, we can't just sit idly by, light a candle, and pray to the option gods. We have to take action -- for self-preservation. Our objective is to make our trading a business -- and we have to be proactive in conserving our inventory (money).

Will Rogers once said that, "Even though you're on the right track, you'll get run over if you just sit there.

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Teenager

I was at the mall the other day eating at the food court. I noticed an old man watching a teenager sitting next to him. The teenager had spiked hair in all different colors: green, red, orange, and blue. The old man kept staring at him. The teenager would look and find the old man staring every time.

When the teenager had enough, he sarcastically asked,
"What's the matter old man, never done anything wild in your life?"

The old man did not bat an eye in his response, "Got drunk once and had sex with a peacock. I was just wondering if you were my son".

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NEW SEMINAR DATE ANNOUNCED

Seattle (Oct. 20th & 21st)
As a result of many emails I received, we will venture to Seattle, WA this fall. The dates are Saturday & Sunday, October 20th & 21st. Seattle is supposed to be a great place to visit. The early bird special for the Seattle seminar is in effect until September 1st. Take advantage and save $100. It's a hell-of-a-deal.

There are three "retake" spots available for the Seattle seminar. These retake spots are free for those who have paid to attend one of my previous seminars and who want to retake the seminar a second time. They're reserved on a first come first serve basis. These spots go fast.

Charlotte (Sept. 22nd & 23rd)
Don't wait to make your reservation. The seats go quickly and you'll want to take advantage of the $100 early bird savings if you complete your reservation before August 15th.

There are two "retake" spots remaining for the Charlotte seminar. These retake spots are free for those who have paid to attend one of my previous seminars and who want to retake the seminar a second time. They're reserved on a first come first serve basis. These spots go fast.

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CURRENT AUGUST CPTI PORTFOLIO POSITIONS

CPTI August Position #1 - RUT - Bull Put Spread - 783.99

On 6/29, with the RUT at 844, we sold 20 August RUT 740 puts and then bought 20 August RUT 730 puts for a credit of $.45 ($900). Total net credit and profit potential of about $.45 ($900). Our maintenance is $20,000. We'll look for opportunities to complete our Iron Condor if/when the market pops up.

CPTI August Position #2 - SPX - Iron Condor - 1472.20

On 7/3, with the SPX at about 1524.50, we sold 12 August SPX 1400 puts and bought 12 August SPX 1385 puts for a credit of $.65 ($780). Then we sold 12 August 1615 calls and bought 12 August 1630 calls for a credit of $.80 (960). The total net credit of $1.45 and profit potential is $1,740. Maintenance requirement is $18,000.

CPTI August Position #3 - RUT -- Iron Condor - 783.99

On 7/19, with the RUT at about 851, we sold 20 August RUT 770 puts and bought 20 August RUT 760 puts for a credit of $.45. The credit so far is $.45 ($900). Our maintenance is $20,000. We'll see if it's prudent to put a bear call spread on the topside to complete our Iron Condor.

Adjustment: On 7/26, we closed the original 20-contract bull put spread position and established a 30-contract Iron Condor consisting of the 730/720 bull put spread and the 850/860 bear call spread. Maintenance is now $30,000 and the new maximum profit range is 730 to 850. The profit potential of $900 remains the same.

CPTI August Position #4 - MID - Iron Condor - 865.80

On 7/23, with the MID at 916, we sold 20 August MID 850 puts and bought 20 MID August puts for a credit of $.50 ($1,000). The credit so far is $.50 ($1,000). Our maintenance is $20,000.

Adjustment: On 7/27, we closed the original 20-contract bull put spread position and established a 30-contract Iron Condor consisting of the 820/810 bull put spread and the 920/930 bear call spread. Maintenance is now $30,000 and the new maximum profit range is 820 to 920. The profit potential is now about $600.

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CURRENT SEPTEMBER CPTI PORTFOLIO POSITION

CPTI September Position #1 - RUT - Bull Put Spread - 783.99

On 7/24, with the RUT at 822.70, we sold 20 September RUT 700 puts and then bought 20 September RUT 690 puts for a credit of $.70 ($1,400). Total net credit and profit potential (so far) of about $.70 ($1.40). Our maintenance is $20,000. We'll look for opportunities to complete our Iron Condor if/when the market pops up.

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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. With the July profits, our new cash total is $55,060 ($52,210 + $2,850).

ZERO PLUS POSITION -

RUT - June Iron Condor - 100% PROFITABLE

On 6/21, with the RUT at 839.81, we sold 30 July RUT 770 puts and then bought 20 July RUT 760 puts for a credit of $.55 ($1,650). Then we sold 30 July RUT 900 calls and bought 30 July RUT 910 calls for a credit of about $.40 ($1,200). Total net credit and profit potential of about $.95 ($2,850). We were 100% profitable and pocketed $2,850.

We'll be looking to put on a new Zero Plus position soon.

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CPTI SEMINAR SCHEDULE!

SEPTEMBER 22nd & 23rd - CHARLOTTE, NC

OCTOBER 20TH & 21ST - SEATTLE, WA


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 personally call you with all the pertinent information. The price is a bargain - ONLY $995.00 -- less than the profit from one Iron Condor trade. Take advantage of the "early bird special" and save $100. You'll have a two-day experience that you'll remember, and profit from, for a lifetime. I limit my 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!

52 OUT OF 56 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?

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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 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.

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