Option Investor
Updates

STILL IN THE COMFORT ZONE

HAVING TROUBLE PRINTING?
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Three weeks left. So far, so good. The market has been volatile, but it's been an up and down kind of volatility. For our style of trading, that's just fine. There is some resistance at 1490. We almost got there Friday. Once that level is breached on a closing basis, many may view it as a buy signal. This may be that Santa Claus rally some were expecting.

It that doesn't materialize, this may just be another failed oversold rally. Either way, we're in good shape.

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Reader Q & A

Question: Why do people sell in-the-money options? Aren't they at risk of being exercised?

Answer: People write or sell in-the-money options for a variety of reasons. The best reason is if it is part of a sophisticated conservative strategy (like our Boston Strangle). Another reason, and a very destructive one, is pure greed. The worst reason, however, is because some moron has told you to sell deep in the money naked options with the hope of buying them back at a lower price on a directional market move.

Back during the internet bubble, when even Mickey Mouse could pick winners, selling deep in the money naked puts was a popular strategy. Like lemmings, newsletter subscribers were blindly following gurus (who weren't investing their own money). The problem is that the market changed, but that didn't stop the gurus. They were one trick ponies. They continued to suggest selling in the money put options. The market didn't bounce and the lemmings followed the gurus right off the cliff and their money went with them. That is the plight of directional traders - especially ones who don't bother to learn strategies completely and are willing to take on unlimited risk on someone else's suggestion.

Let's continue our discussion of selling ITM options. Sometimes people write in-the-money options to help cushion their stock position from a fall or to increase the yield on a covered-call position. I don't like covered calls - and that's just one more reason. People will continue to trade covered calls. Unfortunately, so few traders do it properly (and safely).

One more thing - this same greed factor also enters into Iron Condor trading. I send out suggested trades with, hopefully, safe cushions. I encourage traders to be creative - not foolish. Many traders move the strike prices much closer in to get the extra premium. Not a good idea, especially in the recent volatile market environment. These traders are destined to become a bug on the windshield of life - and they have it coming.

Now, regarding the question of an in-the-money option being exercised. As long as there is some time value left on an option, it is more efficient to sell a long (purchased) option rather than exercise it. Why? Because the trader will receive more for his money. When an option is exercised, it's exercised at the strike price. Any time value remaining in the option will be sacrificed. That's why it's unlikely that options will be exercised, but the trader has to be aware of the possibility.

One of the reasons we typically trade European Style index options is to eliminate that one additional variable.

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S&P 500 Support & Resistance - Closed at 1481.14
Resistance:
The 200 day SMA at 1484
The 50 day EMA at 1485
The 90 day SMA at 1488
1490.72 is the early June closing low and early August peak.
1534 is the early July high
1539 is the July 2006/March 2007 up trendline
1539 is the mid-June intraday high
1541 is the early June high

Support:
1475 from peaks in December 1999 and January 2000
1459 is the February peak
1440 - 1437 from January and March peaks
1438 is the November low
1430 from the August interim lows
1425 is some minor support.
1415 is the June/July 2006 up trendline
1406 is the August closing low
1375 is the March closing low
1370 is the August intraday low

Economic Calendar

December 3
ISM Index, November (10:00): 50.5 expected, 50.9 prior

December 5
Productivity, Q3 preliminary reading (8:30): 5.5% expected, 4.9% prior
Factor Orders, October (10:00): 0.4% expected, 0.2% prior
ISM Services, November (10:00): 55.0 expected, 55.8 prior
Crude oil inventories (10:30): -425K prior

December 6
Initial jobless claims (8:30): 352K prior

December 7
Non-Farm Payrolls, November (8:30): 75K expected, 166K prior
Unemployment rate, November (8:30): 4.8% expected, 4.7% prior
Hourly Earnings, November (8:30): 0.3% expected, 0.2% prior
Average workweek, November (8:30): 33.8 expected, 33.8 prior
Michigan sentiment, preliminary December (10:00): 75.5 expected, 76.1 prior
Consumer Credit, October (3:00): $5.0B expected, $3.7B prior

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Real Classified Ads
FREE PUPPIES:
1/2 Cocker Spaniel, 1/2 sneaky neighbor's dog.

COWS, CALVES: NEVER BRED.
Also 1 gay bull for sale.

NORDIC TRACK
$300 Hardly used, call Chubby.

GEORGIA PEACHES
California grown - 89 cents lb.

JOINING NUDIST COLONY!
Must sell washer and dryer $300.

WEDDING TUX FOR SALE
Worn once by mistake Call Steve.

FOR SALE BY OWNER:
Complete set of Encyclopedia Britannica,

45 volumes. Excellent condition.
$1,000 or best offer. No longer needed,
Got married last month.
Wife knows everything.

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December Los Angeles Seminar - It's Not Too Late!

There is less than a week left until the L.A. seminar (Dec. 8 & 9). It's not too late to make your reservation to attend. There are still a few spots remaining. Considering the market movement lately, I'm sure we're going to have a lot of interesting strategies to discuss. Come be part of it. Contact me right away at mparnos@optioninvestor.com.

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SEMINAR DATES -
LOS ANGELES - DECEMBER 8 & 9
CHICAGO - JANUARY 26 & 27

Chicago is both centrally located and easily accessible. We've been there twice before and filled the room. I've chosen a hotel convenient to the airport - eliminating the need to rent a car. You 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.

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.

SAVE $100 - EARLY BIRD SPECIAL
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 is now only one retake spot available for the Chicago seminar. These spots go quickly. Contact me as soon as possible if you would like to join us.

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CPTI DECEMBER POSITIONS
CPTI December Position #1 - RUT Bull Put Spread - 767.77

On 11/1, with the RUT at 806, we sold 20 December RUT 690 puts and bought 20 December RUT 680 puts for a credit of $.70 ($1,400). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

CPTI December Position #2 - SPX Iron Condor - 1481.14
On 11/16, with the SPX at about 1450, we sold 20 December SPX 1320 puts and bought 20 December SPX 1310 puts for a credit of $.90 ($1,800). Then we sold 20 December 1570 calls and bought 20 December 1580 calls for a credit of $.70 ($1,400). Total net credit and profit potential of $1.60 ($3,200). Maintenance is $20,000.

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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 $56,560 ($55,060 + $1,500).

ZERO PLUS POSITION - Watch for new position to be announced.

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CPTI SEMINAR SCHEDULE!

LOS ANGELES, CA - DECEMBER 8 & 9

CHICAGO, IL - JANUARY 26 & 27


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!

55 OUT OF 60 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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