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WHEN OPPORTUNITY KNOCKS . . .

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WHEN OPPORTUNITY KNOCKS . . .

The market has been volatile lately - to say the least. This morning, I was just sitting at the computer, minding my own business, when an urge came over me. The market opened up and headed down. The S&P was down over ten points. I looked at the February option chain and saw that I could sell the February SPX 1240 puts for over $5.00 - so I did - two whole contracts. Actually, at 9:39. my broker got me a fill at $5.30.

At the time, that was a cushion of about 155 points. Seeing as how the market has already come down so far, it seems highly unlikely it would come down another 155 points. Now, you're probably saying, "Isn't there something missing? Where is the long put?" It ain't there! I decided to streak the market and trade naked.

I decided to take advantage of a relatively new account concept that my broker offers. It's called "portfolio margining." Basically, it uses a different formula for calculating maintenance. It makes the calculation more like the SPAN calculation that is used by futures traders.

Basically, it enables traders to establish positions and the initial maintenance requirements are only a fraction of the traditional maintenance numbers. I'll go into this in more depth in upcoming columns, when I understand it better. My broker requires a minimum account size of $100,000 to qualify for portfolio margining. Plus, before you get too excited, note that only the "initial" maintenance figure is small. If/when the market moves against you, the maintenance requirement increases.

Note that there is no less risk in the uncovered put position. Naked options are damn risky. But, we have a few skilled experienced traders among our alumni who have the self discipline to manage such positions. The benefit of portfolio margining is that it would allow more flexibility when establishing (and then managing) positions.

One of the major drawbacks is that traders might be tempted to put on more positions (or contracts) than is prudent. Then, if the market moves against them, there could be a margin call and the entire trading account could be just a memory - and not a good one.

Now, let's get back to this morning's trade. Since my account is a little above the minimum required for portfolio margining, doing the trade wasn't a problem. I was perfectly willing to wait the 5+ weeks to February expiration for my $1,000 (2 contracts x $530). I got comfortable and went back to the couch and put on a movie.

Then, as the morning wore on, the market started to recover. It went up, and up, and up some more. Then Bernake opened his mouth and talked about a "substantive" rate cut. The market seemed to like what he had to say. I looked at the S&P option chain again. The value of the Feb. 1240 option had come down significantly. I threw out an order to buy back my two short contracts and, within a few minutes, was filled at $3.20 a little after 3 p.m.

That left me with a profit, before commissions, of $420 ($2.10 x 200). I couldn't resist. I could have waited the 5+ weeks to expiration and likely made the full $1,060. But, I figured that $420 in the hand is worth more than $1,060 in the bush.

That was my day. I'm about 400 double cheeseburgers richer - and I saw a pretty good movie ("Interview" with Steve Buscemi and Sienna Miller). A nice way to spend a Thursday while I wait for our January positions to expire.

I don't recommend uncovered option trading to anyone but the most experienced traders. I got lucky today, but I also know when to GTFO if a position goes dramatically against me. Want to do this style of trading? I hope you have balls of steel. If not, you may end up with balls of cheese as a dip for market maker crackers.

In upcoming columns we will further discuss the portfolio margining concept.

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IT'S QUICKIE TIME
Well, here we are again - with just a little over a week to expiration. Here are a few quickie trade ideas for those experienced traders who dare to put on these trades in this volatile market environment. Remember, I don't do these - nor are they official CPTI positions. But they are interesting and can be quite profitable. The trades below are based on Thursday's closing prices and will probably be different at Friday morning's open. Be careful and don't trade with money you can't afford to lose.

January Quickie #1 - SPX Iron Condor
Sell 10 Jan. SPX 1375 put - SXYMO
Buy 10 Jan. SPX 1365 put - SXYMM
Credit of about $1.40 ($1,400)

Sell 10 Jan. SPX 1460 calls - SXZAL
Buy 10 Jan. SPX 1470 calls - SXZAN
Credit of about $1.30 ($1,300)

Net credit and potential profit of about $2.70 ($2,700). Maintenance is $10,000. Maximum profit range is 1375 to 1460.

January Quickie #2 - RUT Iron Condor
Sell 20 Jan. RUT 680 puts - RUYMP
Buy 20 Jan. RUT 670 puts - RUYMN
Credit of about $.60 ($1,200)

Sell 20 Jan. RUT 760 calls - RUTAL
Buy 20 Jan. RUT 770 calls - RUTAN
Credit of about $.50 ($1,000)

Net credit and profit potential of about $1.10 ($2,200). Maintenance is $20,000. Maximum profit range is 680 to 760.

Good luck and be careful. The money you save may be your own.

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Siamese Condor Update
Monday, I was able to lock in a respectable profit on my Siamese Condor. The market looked like was heading down, but it opened and moved up to about 1430. Fully expecting the market to give it back, and then some, I bought back the 1450 put at $39.50. Then, I sat back and waited.

Within a few hours, the S&P gave back almost 20 points, going down to about 1410. I used that opportunity to sell the long 1350 put for $6.50. I had spent $33 of the $46.30 I took in when originally establishing the position.

It was obvious the market wasn't through going down. I waited a little longer and finally bought back the short 1450 call for $6.50. That left me with a profit of $700. It was another instance of taking a profit when the opportunity presented itself.

Think about it. With the market tanking, I had a 46.30 point cushion from the short 1450 options. With the market looking particularly weak and nothing positive on the horizon, I decided not to wait for the possibility of closing the spread and taking a loss if I could avoid it by being proactive.

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Only Two Weeks To Chicago - Spots Still Available
Join Us in New Jersey, March 15th & 16th

I will be presenting a two-day advanced CPTI seminar in New Jersey (Newark) on Saturday & Sunday, March 15th & 16th. Contact me (Contact Support) to reserve your spot - and save $100! (See below for early bird special information).

Join us as we discuss non-directional strategies, trade selection, entry points, exit 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 usually sell out.

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CPTI JANUARY POSITIONS
CPTI January Position #1 - RUT Bull Put Spread - 720.33

On 12/4, with the RUT at 752, we sold 20 January RUT 620 puts and bought 20 January RUT 610 puts for a credit of $.60 ($1,200). Maintenance is $20,000. We may put on a bear call spread in the future - IF it makes sense.

CPTI January Position #2 - SPX Iron Condor - 1420.33
On 12/10, with the SPX fluctuating, we sold 20 January SPX 1340 puts and bought 20 January SPX 1330 puts for a credit of $.60 ($1,200). Then, we sold 20 January SPX 1630 calls and bought 20 January SPX 1640 calls for a credit of $.55 ($1,100). Net potential profit is $2,300. Maintenance is $20,000.

CPTI January Position #3 - SPX Bull Put Spread - 1420.33
On 12/13, with the SPX at 1472, we sold 20 January SPX 1330 puts and bought 20 January SPX 1320 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.

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CPTI FEBRUARY POSITION
CPTI February Position #1 - SPX Bull Put Spread - 1420.33

On 12/31, with the SPX at 1472, we sold 20 February SPX 1300 puts and bought 20 February SPX 1290 puts for a credit of $.60 ($1,200). Maintenance is $20,000. We will look to put on a bear call spread in the future - IF it makes sense.

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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 - SPX Bull Put Spread - 1420.33

On 12/13, with the SPX at 1472, we sold 30 January SPX 1330 puts and bought 30 January SPX 1320 puts for a credit of $.70 ($2,100). Maintenance is $30,000. We may put on a bear call spread in the future - IF it makes sense.

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SEMINAR DATES -

CHICAGO, IL - JANUARY 26 & 27

NEWARK, NJ - MARCH 15 & 16 (NEW)

The Chicago seminar is filling up nicely. We filled the room twice before in Chicago. I've chosen a hotel convenient to the airport - eliminating the need to rent a car. You simply take the free airport shuttle to and from the hotel -- convenient and easy. The same is true for the newly announced Newark seminar.

Newark Early Bird Special

Take advantage of the early bird special for the New Jersey seminar and save $100. If you complete your reservation by January 31st, you will save $100. My seminar will then cost only $895 (instead of $995).

There are no more retake spots available for the Chicago seminar. If you want to be on the retake waiting list for Chicago, contact me as soon as possible (mparnos@optioninvestor.com).

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!

56 OUT OF 61 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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