Option Investor


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By Mike Parnos

I often get emails from traders who want to use our strategies to generate sufficient monthly income to enable them to retire. Many of the emails I get are from folks who see our success rate and think it's easy. By now, you should know better than that. You don't have to belong to Mensa to do what we do. However, it takes both learning and common sense - a combination that can be elusive. Learning takes time, repetition and experience. Common sense? Either you have it or you shouldn't be let out of the house by yourself.

There are literally dozens of traders who have already accomplished that not so small feat. Originally, they followed my CPTI trades - usually with some degree of success. Then, ultimately, they attend my seminar to fine tune their trading - simplifying their trading life, making it both more profitable and more fulfilling.

Retirement equals freedom. Do you like to call your own shots? Would you rather retire at 50 or 65? You do have choices. It's which choices you make that can make the difference.

I was able to effectively retire about 12 years ago. It's not that I have stopped working. Obviously, I'm still active. However, what I do now is a labor of love. Because my expenses are already covered, I'm writing my column and teaching seminars because I want to - NOT because I have to. Plus, as a perk, I continue to meet some incredible people along the way

How did I get to this point? It was a combination of things. Yes, I made some money from trading, but that was even before I knew Iron Condors existed. Not only that, but before I started making decent money, I started off over $200,000 in the hole.

Money generated from trading was only one contributing factor. Probably the more significant element to my "retirement" formula was the establishing of my priorities. I knew early on that I don't typically deal well with authority - which I'm sure comes as no surprise to most. I knew there would be times that I'd have to bite the bullet and do things that made absolutely no sense. However, I was determined to keep those times to a minimum. How did I avoid dealing with authority? By thinking outside the box and working to develop a skill set. Learn how to do everything related to the field you choose.

In establishing my priorities, I also realized early that for every $1.00 I don't spend, there's a $1.50 I don't have to make. In other words, I don't allow myself to piss away money on unnecessary items. I kept my expenses down - way down. I refused to mortgage what I saw as my future freedom for a present extravagance.

I've always been conservative - in my dressing, my cars and my eating. I never smoked or drank. If you figure a pack of smokes and a six-pack a day, it really adds us fast. I once calculated how much I saved every year by avoiding just those few unnecessary vices. It was mind-boggling. I made sure to limit my vices to the more affordable ones.

In the emails I receive, I'm often told that they need to generate $10,000 a month in order to retire - and asked how large of an account one would need. My first thought is: What the hell do you need to spend $10,000 a month on?

I know a family of three (let's call them Ricky, Lucy and Little Ricky) who live in a four bedroom four bath home and has a $4,000 mortgage. My question is: why do you need four baths if you only have three butts? And four bedrooms? I'll take a wild guess and say they could get along just fine in three bedrooms and two baths -- and save $1,500 a month. Then also they have two car leases -- $500 and $400. There's also that $5,000 55-inch plasma TV and two $4,000 vacations every year. It's a "material world" - especially if you have to keep up with the Joneses.

I know what you're thinking - different strokes for different folks. There's a "quality of life" issue here. Personally, I'm very happy with a three bedroom two bath condo that I paid cash for, two cars (2003 and 1994) that run perfectly for which I also paid cash, and credit cards that get paid in full every month.

I recognize that change is tough. Many are entrenched in their lifestyle with no escape in sight. If Ricky cut up a credit card would result in a call from Lucy's divorce attorney. Drive a car over two years old and Ricky would have his country club membership revoked. Wouldn't is be just awful if Little Ricky couldn't afford Calvin Klein briefs? What happens if Ricky loses his cushy job at the Copa? He gets downsized and becomes a ba-ba-loser. Say goodbye to the big house and hello to Walmart and government cheese. It's all a result of your choices.

Just think of this as a "heads-up." If you have a $200,000 trading account, and you get good at our strategies, Ricky and Lucy may not have to make any sacrifices. Lucy can continue to shop at Lord & Taylor instead of Target.

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Mike - I understand you're non directional. But not taking any call spreads in addition to your put spreads for week, seems like it is a directional opinion. We could have taken in call premium that was 5 to 6% above the market. We're too one sided, we need more call spreads. Regards, Couch Disciple

Hi Couch Disciple - It may seem directional, but it's really not. If I could find a call spread with the same cushion as I have on the put side, I would consider doing the trade. But, the premium isn't there, in spite of the higher volatility. But that isn't the whole story.

Does it make sense to put on a closer bear call spread just for the sake of having on a trade? If the market looks like it's going up, why lay down in front of a steamroller? Our objective is to have peace of mind using relatively hands-off strategies. These strategies work best in non-trending markets. If we're not in a range-bound market, we need to adjust our strategy.

The Iron Condor is not a one-size fits all strategy. That's how traders blow up their accounts - being a one-trick pony and trying to use that one strategy under all market conditions. Don't try to force a square peg into a round hole. We have to learn to recognize trends and just take what the market gives us. When we get aggressive, our risk goes up - and usually so does our blood pressure.

We happen to be in an upward trending market. I know we've had some dramatic pullbacks along the way, but the uptrend is still in tact. It may take awhile to prove otherwise. We may get faked out from time to time, but all we can do is try to use the tools that we have the best way that we can.

If you want to take the added risk of bear call spreads, be my guest. It just might work out. I encourage everyone to base their trading on their own risk tolerance, their account size and their skill level. It's fine as long as you go into the trade with your eyes wide open. Good luck and be careful, Mike.

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In Thursday's column I asked for suggestions on a Midwest location for the next CPTI seminar. Thanks to the many who replied. Among the suggestions were Salt Lake City, UT, Dayton, Ohio, St. Louis, MO, Toronto, Canada, Chicago, IL (3), Cleveland, OH, Denver, CO.

Chicago seemed like the most centrally located and most accessible location. We've been there twice before and filled the room. Let's give it another shot. I've chosen a hotel near the airport - eliminating the need to rent a car. You'll just take the airport shuttle right to the hotel, convenient and easy. Take advantage of the early bird special and save $100. See the details below.

Join us as we discuss, trade selection, entry points, exist strategies and alternatives, premium negotiation, maintenance alternatives, taxes, and much more - all subjects necessary to enlighten and to 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.

Early Bird Specials - SAVE $100
L.A. - If you complete your registration for the upcoming Los Angeles seminar prior to 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, it's likely deductible for you.

No more retake spots are available for the Los Angeles seminar. There is now a waiting list for possible cancellations. Contact me if you would like to be on the waiting list. Thus far, there are two people on the waiting list.

Chicago - If you complete your registration for the upcoming Chicago seminar prior to December 14th, you will save $100 only $895 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, it's likely deductible for you.

There are five retake spots available for the Chicago seminar. These spots go fast. Contact me as soon as possible if you would like to join us.

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CURRENT CPTI NOVEMBER Position #1 - SPX - Bull Put Spread - 1535.28
On 10/9, with the SPX at 1553.50, we sold 20 November SPX 1425 puts and bought 20 November SPX 1415 puts for a credit of $.50 ($1,000). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

CPTI November Position #2 - RUT Bull Put Spread - 821.39
On 10/11, with the RUT at 835, we sold 20 November RUT 740 puts and bought 20 November RUT 730 puts for a credit of $.50 ($1,000). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

CPTI November Position #3 - MID Bull Put Spread - 895.29
On 10/16, with the MID at 902, we sold 20 November MID 820 puts and bought 20 November MID 810 puts for a credit of $.50 ($1,000). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

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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).

CPTI Zero-Plus Position #1 - RUT Bull Put Spread - 821.39

On 10/11, with the RUT at 835, we sold 30 November RUT 740 puts and bought 30 November RUT 730 puts for a credit of $.50 ($1,500). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

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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 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!


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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