Option Investor
Updates

ANOTHER EXCITING WEEK

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The market is still confused. Today, the DOW had a trading range of about 450 points. The S&P's range was about 50 points, etc. The nice part about it, was that the market's confusion ended on the upside today.

We now have a 78.55-point cushion on our pesky February SPX 1300/1290 bull put spread position. For the moment, we seem to be OK. I know that those who still have the position (me included) will sleep a little better - tonight.

Sunday's Trade Suggestion
Our SPX Iron Condor was a bit elusive for some, but not a problem for others. I received a few dozen emails from CPTIers who were filled on one, or both, sides of the Iron Condor. So, we'll consider it an official CPTI portfolio position.

Now, here's some food for thought. Some of the emailers were proud when they got their 1490/1500 March SPX bear call spreads filled at $.90 and $1.10, etc. There was only one problem. When I suggested the trade, the SPX was trading at about 1330. By the time these traders got such good fills, the SPX had moved up to 1350 - 1360.

When the index moves up 20 points from the suggested entry scenario, it presents a new set of choices. Unfortunately, some traders have blinders on and focus only on the suggested position. I try to preach flexibility and creativity, but it's tough for some to lose those blinders.

The choices are -- that one can enter the original trade and take in a heftier premium - which is what many traders chose to do. OR - you can adjust the strike prices higher and take in about the same (or close to it) premium as originally suggested. The perk here is that you are 10 or 15 points safer. The original cushion would have been about 160 points. The new cushion (at the higher SPX price), without having adjusted the strikes would be only about 130 (1490 - 1360).

Personally, I am much more comfortable with a 140-150 point cushion and the original $.60 premium. That's not saying the originally suggested trade won't work out, but if you have a chance to be safer, take it!

Today, the SPX traded up a bunch, closing not far from 1380. The cushion is shrinking. Now, even though the market popped today, it's hard to imagine there being a problem on the topside - but stranger things have happened. And, we still have over seven weeks to wait to March expiration. A lot of shit can happen (good and bad) between now and then.

Today's Not-So Hypothetical Trade
Well, maybe it wasn't hypothetical at all. This trade has become a favorite of my seminar students. Towards the end of trading today, I decided to take advantage of my portfolio margining status and experiment with a Siamese Condor - minus the long options. Basically, it's a naked straddle - which brings all kinds of naughty things to mind.

I sold one contract of the February SPX 1375 calls and 1375 puts for a net credit of 56 points. That creates a profit range at expiration of 1319 to 1431. The closer SPX closes to 1375, the more I'll make. That's a nice range for about two weeks to expiration. The volatility (VIX) is still reasonably high (26.20) despite losing 1.42 today. As we get closer to expiration, the premium will begin to erode rapidly. Hopefully, the volatility will be in both directions. If so, it will be neutralized and the SPX will finish somewhere within the range.

However, I have no intention of riding the trade all the way to expiration. If, in a week, I can buy the straddle back for 40 or 45 points, I'll lock in a nice quick profit of $1,000 or $1,500. In the meantime, my exit points are the profit parameters should all hell break loose. I might even put in a GTC order to close the spread at 40 points - which will help take some of the emotion out of the trade.

The same, or similar, position (or likely better) might be available tomorrow for those daring soles who know the ins and outs of this strategy. If you don't have a huge account, or don't have portfolio margining, you can buy the wings to complete the Siamese Condor (or Iron Butterfly). It might cost a bit, but it would put you into a position that has significant profit potential.


As of Thursday's close, the February 1275 puts would cost about $4.80 and the 1475 calls would cost about $.90. That would reduce the net credit by $5.70 to 50.30. You can do the math and see the trading range is still pretty big - from about 1325 to 1425.

The maintenance on such a trade would be $10,000 per contract. Sounds like a lot, doesn't it? But, think about it. If you trade two contracts, you would be using $20,000 in maintenance. That's what we typically use for our Iron Condor positions. The difference is that, instead of having a maximum profit of $1.00 - $1.25 ($1,000 - $1,500 on a 20 contract position), we have the potential to make as much as $50 per contract (x 2 contracts = $10,000). It's not likely to happen, but even a blind squirrel finds an acorn now and then.

This is not really a "hands off" trade like the Iron Condor. You could put on the trade and establish a stop order. But, remember the drawback to stop orders. If your stop is hit, your order becomes a market order. There is no premium negotiation. You're at the mercy of the market makers and will pay invoice (market price) to close your position. On the other hand, you will still lock in a nice profit and you didn't have to babysit the position.

Another choice would be to establish a "stop limit" order - which would be filled only if the straddle could be bought back for a specific amount. You'll need to check with your broker to see what kind of orders can be placed on your position. As you should know by now - all brokers are not created equal.

I'll follow this "Naked Strangle" trade in the newsletter.

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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 - 1378.55
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 - 713.30

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.

CPTI March Position #2 - SPX Iron Condor - 1378.55

On 1/28, with the SPX at about 1330, we sold 10 SPX March 1150 puts and bought 10 SPX March 1140 puts for a credit of $.50 ($600). Then, we sold 10 SPX March 1490 calls and bought 10 March 1500 calls for a credit of $.55 ($550). Total net credit is $1.15 ($1,150). Maximum profit range is 1150 to 1490 (340 points). This is the first part of what we anticipate will be a 20 contract position. We plan to scale in and enter the second ten contracts in the near future.


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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 - Only 1 Day Left To Save!

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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