Option Investor
Updates

L.A. HERE WE COME

HAVING TROUBLE PRINTING?
Printer friendly version

BACK TO LA-LA LAND - L.A. HERE WE COME

It's been almost a year since our last visit to Los Angeles. It's time to venture back to the wild wild west where everything is tape delayed by three hours. Should be fun.

Per a number of requests, from new Couch Potato subscribers and former seminar attendees, I'll be presenting my two-day advanced seminar on the weekend of December 8th & 9th.

With the ever increasing popularity of option trading, the landscape is changing. There is a variety of other option vehicles being offered. Plus, some brokers are progressing with what is being offered - in the form of personal assistance, strategy education and creative maintenance options. We delve into all of the above - in depth - at the seminar.

Plus, we discuss, for hours, trade selection, entry points, exist strategies and alternatives, premium negotiation, taxes, and much more - all subjects necessary to help maximize your trading business. As you know by now, the seminars typically sell out. As in trading, opportunities aren't there for long. Reserve your spot as soon as possible.

Give yourself the gift of knowledge. It lasts a lifetime - often even longer.

Early Bird Special - Save $100
If you complete your registration for the upcoming Los Angeles seminar by November 9th, you will save $100. If you've been paying attention to my column, by now you know that every $100 you save is $150 you don't have to make. Plus, for most, it's all deductible for you.

There are five retake spots available for the Los Angeles seminar. These spots go quickly, so, if you're interested, I suggest you contact me as soon as possible.

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

DIRECTIONAL TRADERS - I Know They're Out There
Bless them - the directional traders of the world. Without them, we wouldn't be able to take in the premium that ultimately ends up in our non-directional pockets. Although I look at directional trading as a potential financially terminal disease, I recognize the lure of the hope of high profits from high leverage. Therefore, we have to live with the bottomless pit of those who are looking for a big score. I don't like their chances of long term success, but it's that occasional win that keeps them coming back to the betting window.

And, somehow, I still get my share of questions regarding the placement of directional trades. Go figure. At least the questioner below is looking for a way to insure his investment.

Hello Mike -- Could you explain how to buy a protective put step-by-step. I plan on buying GOOG Nov. calls, but I would like to protect my investment. Thanks -- Godwin

Hi Godwin -- On Friday, GOOG closed at 594.05. The following example is based on Friday's closing prices. Here are the things you should consider when you decide to place a directional trade on a stock - whether it's a long option or actual stock ownership.

1. What direction do you expect it to go? Check the chart. Where is the support? Where is the resistance? Moving averages?
2. How far to you expect GOOG to go?

3. How long do you expect it will take for it to get there?

4. Which call do you want to buy? How much delta do you want working for you?

5. Is the option overpriced? Under-priced? Fairly valued?

Deciding on a protective put:
6. Which protective put will you choose? How much of a deductible are you willing to accept? The higher the deductible you accept, the lower the cost for your insurance.

Take an example. GOOG closed at 594.05.
1. The Nov. 590 call costs about $27.30.

2. The Nov. 600 call costs about $22.10.

3. The Nov. 580 put costs $15.30.

4. The Nov. 570 put costs $12.00.

For example, if you decide on items 1 & 3, your total outlay will be $32.60. That means you will profit if, at Nov. expiration, GOOG is above 622.60. If GOOG moves earlier, you can always close the position sooner. If you close it earlier, it's possible that your long protective put may still have some value. Your risk is, if GOOG doesn't move, $32.60 -- plus, if GOOG goes down 10 points, the $10 deductible.

There are two ways you can place the orders.
1. First, buy whichever calls you choose and then buy whichever puts you choose.

2. Place the order to buy both options as a strangle -- where both options (Nov. 590 call and Nov. 580 put) are filled simultaneously as a net debit. Any decent broker will have a trading platform that will allow you to place a spread order with a net debit.

It sounds like you are relatively new to the process. You should be particularly careful and understand the risks you are taking when you place a directional trade. I'm not an advocate of directional trading, but I know that doesn't stop many traders. In this uptrending market, some directional traders have made out quite well. The question is - do they have the sense to take profits? Or will they - in the name of greed -- ride their positions back down to breakeven or below?

The protective put is expensive. You might consider looking for a call to sell out of the money to help defray the cost of the insurance (protective put). You could conceivably sell the GOOG Nov. 650 call for about $6.00 and reduce your risk by that much. This is referred to as a "collar." It's a wise alternative and can be done on the ownership of stocks or long options.

Since you may be using a short option to reduce your risk, you will have established a vertical spread - a bull call spread. It makes the closing of your position a touch more complicated. You can't really sell your long 590 call without first closing your 650 short call - or it can be done simultaneously. Your 580 put can still be closed at any time.

Establishing a bull call spread will cap your profits at 650. However, you don't necessarily have to sell the same number of 650 calls as the purchased 590 calls, thereby leaving some calls with no profit cap. Good luck and trade smart -- Mike

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

CURRENT OCTOBER CPTI PORTFOLIO POSITIONS
CPTI October Position #1 - RUT - Bull Put Spread - 844.88

On 9/7, with the RUT at 775.53, we sold 20 October RUT 630 puts and bought 20 October RUT 620 puts for a credit of $.70 ($1,400). Total net credit and profit potential (so far) of about $.70 ($1,400). Our maintenance is $20,000. We'll look for opportunities to complete our Iron Condor if/when the market pops up.

CPTI October Position #2 - SPX - Bull Put Spread - 1557.59
On 9/20, with the SPX at 1518, we sold 20 October SPX 1395 puts and bought 20 RUT 1385 puts for a credit of $.60 ($1,200). Total net credit and profit potential (so far) of about $1,200. Our maintenance is $20,000. We'll look for opportunities to complete our Iron Condor if/when the market pops up.

CPTI October Position #3 - MID - Bull Put Spread - 913.91
On 9/24, with the MID at 881, we sold 20 October MID 810 puts and bought 20 MID 800 puts for a credit of $.60 ($1,200). Total net credit and profit potential (so far) of about $1,200. Our maintenance is $20,000. We'll look for opportunities to complete our Iron Condor if/when the market pops up.

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

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 -

Watch for a New Position To Be Announced Soon

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

CPTI SEMINAR SCHEDULE!

LOS ANGELES, CA - DECEMBER 8 & 9


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.

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 will 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!

53 OUT OF 58 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