Option Investor
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OUT OF THE FRYING PAN

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Wow! What an exciting week. It was one of those "pulling out your hair" weeks (and it isn't quite over yet). I was calm. Why? Because I can't afford to lose any more hair. We moved , but are still on the stove. We went from being 30 points in-the-money to 52 points out-of-the-money in our February SPX 1300/1290 bull put spread. It's progress, but certainly not a lock.

Now, there are still three weeks to go to February expiration, and a lot can still happen. But, you have to admit you're feeling better than Tuesday and Wednesday. As some of the earnings announcements over the last few days indicate, the economy isn't in terrible shape - not bad enough to cause the kind of panic that we saw in the markets on Tuesday and early Wednesday.

There are also enough astute individual and institutional traders who recognized the value in companies - and had the cash (and the balls) to act on it. It was predictable. There was a fire sale - and these good folks took full advantage of the opportunity. They put out our fire - at least for now.

We also took advantage of the opportunity, in our own way. Obviously, we didn't buy any stocks. However, when there was blood in the street, I found an interesting bull put spread, for the March cycle, that was way the hell out of the money. It made good sense.

On Tuesday, the RUT March 540/530 filled at $.60 for some. Then the market bounced a bit. On Wednesday, the market turned back down and the volatility went up. It was an opportunity for those who weren't able to get in on Tuesday to get into the 540/530s. Many did.

In my posting on Wednesday morning, I suggested that, if the market tanked, it might be a good idea to look at the possibility of moving down a few strikes. As it turned out, I was able to get filled in two accounts at $.70 and two others at $.65 on the 530/520 RUT bull put spreads. I got emails from others who chose to be a little safer too.

As of Thursday's close, that represents a 162.72 point cushion - more than 20% from where the RUT is currently trading. I like those odds.

I know that some traders chose to close their Feb. 1300/1290 and 1290/1280 bull put spreads and I fully understand. Those were emotional times and they wanted to salvage as much of their trading capital as possible. I would hope that there is something to be learned from this experience. This is something that I harp on at my seminars, too.

Whatever decisions you make, you don't have to trade your entire position. If you had 20 contracts of the 1300/1290, you could have closed 10 and waited for the smoke to clear on the other 10 contracts. You have to do what your risk tolerance and account size dictates, but you do have choices. By acting on one doesn't mean you have to disregard the other completely.

My broker, Mike Cavanaugh, told me of a few of his clients were doing something interesting with their positions. It was a different approach and only an approach I would suggest for experienced traders.

If they had a 20 contract position, they would buy back perhaps five contracts of the SPX Feb. 1300 puts when the SPX bounced up about 20 points. Then, when the market retraced back down, they would sell the 1290 put for more than what they paid for the 1300 puts - actually realizing a profit. Some traded five contracts, some traded considerably more.

It's a good strategy - IF it works. But then, any strategy is a good strategy -- IF it works. In this time or ridiculous volatility, there was a decent chance the market was going to fluctuate in both directions, but it was certainly nothing you could count on. It is a "directional" trade. And there is the risk that accompanies any directional trade. If you buy back the 1300 SPX put, there is the possibility that the market doesn't go back down. You are risking the value of the 1290 put. If the market stays up, the value of that 1290 put will go down and you will eventually be forced to sell it for less, defeating the purpose and taking a larger loss than necessary.

Trading options is full of choices. We try to make the best choices we can. You can read, you can study, and, if you're really serious, you attend a seminar to have all the information you can to make an educated decision. We have some guidelines to go by, but each choice is an individual choice. Sometimes you get the bear - and sometimes the bear gets you. Happy hunting!

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On The Way To Chicago
OK, gang. It's up to you to keep an eye on the market on Friday morning. I won't be getting quotes till the afternoon. I'll be driving to this weekend's Chicago seminar. I have 20 inquiring minds that will be joining me there. It should be a great time with a lot of new strategies and new ideas to discuss. I hope to see the rest of you at a seminar in the future.

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Iraqi Hockey Player
The Detroit Red Wings foreign scout flies to Baghdad to watch a young Iraqi play hockey in the new American sponsored league, and is suitably impressed. He arranges for him to come over to the US .

The Red Wings him to a one year contract and the kid joins the team for the preseason.

Two weeks later the Wings are down 4-0 to the Blackhawks with only 10 minutes left. Mike Babcock gives the young Iraqi the nod and he goes in.

The kid is a sensation - scores 5 goals in 10 minutes and wins the game for the Wings! The fans are delighted, the players and coaches are delighted, and the media love the new star.

When the player comes off the ice he phones his mom to tell her about his first day of NHL hockey. "Hello mom, guess what?" he says in an Iraqi accent. "I played for 10 minutes toda y, we were 4-0 down, but I scored 5 goals and we won. Everybody loves me, the fans, the media, they all love me."

"Wonderful," says his mom, "Let me tell you about my day. Your father got shot in the street and robbed, your sister and I were ambushed, raped and beaten, and your brother has joined a gang of looters, and all while you were having such great time."

The young Iraqi is very upset. "What can I say mom, but I'm so sorry."

"Sorry? You're Sorry?" says his mom, "It's your fault we moved to Detroit in the first place!"

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NEWARK
I will be presenting a two-day advanced CPTI seminar in New Jersey (Newark) on Friday & Saturday, March 15th & 16th. Contact me (Contact Support) and get your spot reserved - 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. Don't procrastinate! The seminars often sell out.

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CPTI FEBRUARY POSITION
CPTI February Position #1 - SPX Bull Put Spread - 1352.07

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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CPTI MARCH POSITION
CPTI March Position #1 - RUT Bull Put Spread - 692.72

On 1/22, with the RUT at about 670, we sold 20 RUT March 540 puts and bought 20 RUT March 530 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 $58,660 ($56,560 $2,100).

ZERO PLUS POSITION - SPX Bull Put Spread - 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 was $30,000. PROFIT: $2,100.

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SEMINAR DATE -

NEWARK, NJ - MARCH 15 & 16

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). What a deal!!

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!

57 OUT OF 62 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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