Option Investor
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ANOTHER CRAZY EXPIRATION

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Yes, it was crazy and it ain't over yet. We still have the Friday morning settlement to contend with. Right now, it looks like there might be a positive bounce in the morning - but that's almost 12 hours from now. A lot can happen.

The bleeping market (S&P 500) tanked 40 points today. It's been the week from hell. The S&P 500, in the last three days, has gone from 1419 to 1333 - 86 points! That's completely unacceptable, but it is what it is - and we have absolutely no control over it. That's the frustrating part. Perhaps this volatile market is trying to send us a message. Can any of you guess what the message might be? The message is to stay the hell out of the market for awhile. Nowhere is it written that you have to be in the market all the time - and this is a perfect example.

Why do you think I've been reluctant to put on any more position in February? Because this volatility may not be over! As it is, our lone February position is not looking great - even at this level and with a whole month to go.

Let's get back to today's action. We closed out our January SPX 1340/1330 bull put spread for a debit of $1.95. That was the beginning of the roll out process. In many instances, the closing out of a spread and the rolling out into another spread are done simultaneously.

However, it seemed pretty clear that the market wasn't done moving down, even though it had a few semi-convincing bounces during the day. So, what's the rush? We can complete our rollout tomorrow or perhaps even Monday. As it was, the market continued down 20 points from where we closed out the initial 1340/1330. If we had rolled out at that point, our position would have deteriorated by 20 points already.

The obstacles in rolling out in the next day or two include the ridiculously huge bid/ask spreads. That sort of comes along with a volatility spike (+4.08 on the VIX). How do we negotiate these huge bid/ask spreads? Good question. Basically, it turns it into a guessing game. Plus, even if we were to throw out an order, it probably wouldn't get filled - unless it was so market maker friendly that they couldn't resist.

If I was planning to complete our roll out tomorrow, where would I look? First, it cost us $3,900 to close out the 1340/1330 bull put spread. However, we took in $.60 ($1,200), so we're actually only out of pocket about $2,700.

Look at the Feb. 1240/1230 bull put spread. The bid/ask spread on both options is $1.90. If you add those two spreads together you get $3.80 ($1.90 x 2). There is a school of thought that says you may have a chance of getting filled if you ask for 40% of the spread. In this case, that would be about $1.50. Sound good? Well, let's not overlook the fact that the natural posted price is a debit of $.70. So, we would get to keep only about $.80 of the $1.50.

If, somehow, that would be filled, it would bring back in $1,600 ($.80 x 20 contracts). Then, using the same method of calculation, we'd have to go hunting for a bear call spread that would bring us in the other $1,100.

Does this appeal to you? Why doesn't a 90-point cushion (from today's close) sound all that secure to me? In the past, 90 points would be acceptable. However, in this environment, it could be gone in three days. We've seen it up close and personal.

So, if you feel adventurous, there's the roll out process. But, I ask again, do you really want to be in the market under these circumstances? That's a question that you'll have to answer for yourself.

Will I continue to suggest trades? Sure. I get paid to do it. It's still a question of probabilities. When we put the trade on, the mathematical probabilities are upwards of 90%. If the probabilities eventually average out, we're due for a long long winning streak.

In the meantime, let's hope for a positive open. There's a lot riding on it.

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CPTI JANUARY POSITIONS
CPTI January Position #1 - RUT Bull Put Spread - 680.57

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.

CPTI January Position #2 - SPX Iron Condor - 1333.25
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. Closed out the bull put spread for $1.95 debit.

CPTI January Position #3 - SPX Bull Put Spread - 1333.25
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 - 1333.25
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 - 1333.25

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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