Option Investor


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In case you've been wondering why I write this column and put on my seminars, keep reading.

Hi, Mike - It's been about 5 months since I attended your seminar in Dallas. I had a great time and learned a lot. I wanted to pass on a couple of insights I've realized trading your Couch Potato system over the last year.

First, it is by and far, the most reliable, consistent means of making money in the market that exists, and believe me, I've tried them all. The concept of using indexes (at least for the Iron Condor trades) is absolutely brilliant, and provides a tax bonus that I did not realize until I attended the seminar (and I'm a [recovering] lawyer!)

Second, I've been burned a few times in the recent volatility, mostly through my own stupidity, but I'm still ahead and I've learned a couple of valuable (albeit expensive) lessons that I'd like to pass on to you, for what it's worth:

No. 1: Volatility is the blessing and the curse of the spread trader. As you recently noted, we were all pissing and moaning when the VIX was at 10, and now we're all scared shitless when it's at 26. I believe there is a method to this madness that needs to be considered: do NOT put both sides of an Iron Condor on at the same time. I've seen your CPTI recommendations, and been able to profit from them by waiting to until the market spikes up to put on the bear call; and waiting until it spikes down to put on the bull put. By doing this, not only do I get much better fills, but I have managed to fill positions where the short strikes are 150 points apart on the RUT and the MID and over 200 points on the SPX. Furthermore, these positions have been filled with less than 4 weeks remaining to expiration. I am very comfortable with what I have been able to do in a very volatile market, just by having a little patience. If I can't fill both sides of th condor using this technique, so be it. I will live to trade another day.

No. 2: It's OK to have a bias. I know we're supposed to be non-directional. I honestly believe that's for the best; but you can't fight the market (or city hall, for that matter). For months, the market bias was upward. Everybody expected a correction, but the technical analysis demonstrated that the bulls were in charge and would remain that way until proven wrong. Where I made my mistakes were by trying to fight this trend by putting on trades that went against it. The trend is still your friend. That doesn't mean that you can't put on contrary trades, but don't do it when there's 6 weeks to expiration. As a corollary to No. 1, wait until later in the option cycle to put on the contrary trades. Eventually, during the bull phase, I was only putting on bull put spreads and waiting until later (if at all) to play the other side. Right now, the trend is bearish. You have very few bear call positions in the CPTI portfolio, but I have several. Yeah, I might get burned if the DOW jumps 700 points to the upside, but I think that risk is low, and I'm prepared for it if it happens. The short bull put positions that I do have are several dozen points below the "official" positions. For the most part, I am sleeping well at night these days.

No. 3: Don't panic. This is probably the toughest concept to digest. I'm lucky because I have a large account (and fairly large cajones). I know you have a lot of subscribers who have absolutely no appetite for risk (I met a few in Dallas). These people bail at the first sign of adversity. Yeah, maybe they sleep better, but their accounts have to suffer for it. We pick (or should be picking) our short strikes based on sound technical analysis. If you have done your homework, trust your instincts. I know you dumped a couple of the RUT bull puts in Aug recently because of the volatility. I'm not saying that's wrong. It doesn't affect me, because my strikes are much lower, but sometimes, you just have to stand up in the face of the hurricane (assuming you have followed the admonitions of No. 1 and No. 2) and say: this, too, shall pass. I managed to stare the Devil in the face the past couple of months and have been well rewarded for the effort. Again, I recognize that this attitude is not for everyone. Feel free to tell me to go f*** myself if the RUT settles below 740 this month.

I have one question: with the spike in volatility, the spread between bid and ask prices is easily $2.00 or more, even for front month options. I know the mantra at the seminar was to take .10-.20 off each side and submit a bid in between, but does that still hold in this environment? Recently, I've been taking the spread, dividing it in half, and submitting an offer adding that amount to the bid price. You'd be surprised how often I'm filled. Any updates on your suggestions?

Best to you and Lydia - Ken

Hi Ken -- Good to hear from you. Thank you for the kind words and I'm glad you enjoyed and benefited from the seminar. Many have. It makes me feel great knowing that I've contributed to the rehabilitation of a "recovering" attorney.

Regarding your question -- it's been difficult trading these huge bid/ask spreads. I've tried a few different ways. The best way (for me) is to figure out where the market maker is (when possible) and then add the spreads of the two options (in the bull put or bear call spread) together. Then, I put out a credit limit order for about 40% of the total. That's a good place to begin the negotiations. Also, in this volatility, I've noticed that it takes a bit longer to get fills in this high volatility environment.

Thanks again for your note. Keep thinking creatively and tweaking our strategies to your account size, risk tolerance and personal preferences.

What a difference!!
I get many emails - sent by folks of every knowledge and experience level. The above email reinforces my belief that there are many who do "get it." What a relief!

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Charlotte (Sept. 22nd & 23rd)
Don't wait to make your reservation. The seats go quickly.

There is one "retake" spot 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.

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CPTI September Position #1 - RUT - Bull Put Spread - 783.11

On 7/24, with the RUT at 822.70, we sold 20 September RUT 700 puts and 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.

CPTI September Position #2 - SPX - Bull Put Spread - 1457.64
On 8/3, with the SPX at about 1463, we sold 20 September SPX 1260 puts and bought 20 September 1250 puts for a credit of $.50 ($1,000). Our maintenance is $20,000. We'll look for opportunities to complete the Iron Condor if/when the market bounces.

CPTI September Position #3 - RUT - Iron Condor - 783.11
(Formerly August Position) 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).

Adjustment: On 7/26, we closed the original 20-contract bull put spread position and established a 30-contract Iron Condor consisting of the 670/660 bull put spread and the 840/850 bear call spread. Maintenance is now $30,000 and the new maximum profit range is 670 to 840. The profit potential of $900 remains the same.

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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).

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.

Watch for new Zero-Plus position to be announced soon.

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Take your trading from a "hobby" to a 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.

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!


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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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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