Option Investor
Updates

THOUGHTS WITH A WEEK TO GO

HAVING TROUBLE PRINTING?
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This is going to be an interesting week. We have only one February position in the CPTI portfolio - and it's fragile to say the least. We have a tenuous 37 point cushion. Will that be enough?

There's rumored to be support for the SPX above 1300 - at about 1305. The problem is that we're waiting for that "third leg down." That's what the technical analysts say. They say that if we break through the 1300 level, the next stop would be around 1250. Well, let's hope that it doesn't come to that.

For those who are concerned, let's look at what it would take to close the spread, based on Friday's closing prices. This will be good practice for what to do if/when you decide to close your position.

It would cost about $2.40-2.50 to unwind the 1300/1290 bull put spread. We took in $.60. That would leave us with a deficit of about $1.80 - or $3,600 for a 20-contract position. The next question you have to ask yourself is whether you want to try to make the entire $3,600 back in March or would you like to spread it out over a few months.

What's the difference? Well, if you are willing to be patient, the rollout positions we select for March and April will have a higher probability of success. Why? Because we don't have to take in as much premium and can establish our spreads further from the index. We already have some pretty good March positions that will serve to cushion the blow.

So, let's begin the research. There's an interesting March 1170/1160 bull put spread which might bring $.70-.80. You could go a little further out to the 1160/1150 bull put spread and maybe get $.60. These are relatively safe levels.

Now, let's look for a possible bear call spread. The March 1465/1475 spread looks interesting. We might be able to squeeze out $.60 of premium. There's a whole list of resistance levels (see below) before the market would threaten the 1465 short strike.

Rolling to the 1170/1160 and 1465/1475 Iron Condor (almost a 300-point range) would bring in about $1.30 - or $2,600 for a 20-contract position. An alternative would be to increase the contract size. Trading 28 contracts (instead of 20) would make up the entire $3,600 deficit. However, that would increase your exposure by an additional $8,000. The choice is yours.

The added maintenance requirement in the above example is one of the reasons I always encourage you to not tie up all your maintenance dollars.

Since we already have two March CPTI portfolio SPX positions, you might prefer to roll to an RUT Iron Condor. Remember, just because we had a problem with SPX, you don't necessarily have to make it up in the same index - IF you can find a better opportunity elsewhere.

There is a school of thought, however, that says that you should roll out to the same index (or underlying). Why? Because the index has already come down significantly - reducing the likelihood that it would continue down that much further in a subsequent month. If you rolled to another index, that index may not have come down the same amount (point or percentage wise). Obviously, indexes with different components do not move hand in hand.

Recognize that the above numbers we used for calculations are approximate and based on Friday's close. After two days of premium erosion in the last week of an option cycle, things may be rather different when the game begins on Monday. The two days of erosion will obviously have more of an affect on the February bull put spread than the potential March roll out positions.

Hypothetical Short Straddle
On Friday morning, our February 1335 short straddle was filled at $40.70 - a few points less than what I had estimated in Thursday night's column. We're going to let time decay do its thing and try to lock in some decent profit in the next day or two, if possible. Just to be safe, I'll likely throw out an order to close out the straddle for 45.70 - just in case I doze off and the option gods smile on us.

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S&P 500 Support & Resistance - Closed at 1336.91
Resistance:
1349 is the 10 day EMA
1361 is the 18 day EMA.
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 50 day EMA at 1404
1406 is the August and November 2007 closing low
1412 is a longer term trendline from the August 2003/September 2004 lows
1430 from the August interim lows
1440 - 1437 from January and March peaks
1459 is the February peak
1467 is the June/July 2006 up trendline
1475 from peaks in December 1999 and January 2000
The 200 day SMA at 1480

Support:
1325 from May 2006 peak prior to the summer 2006 correction
1313 is an ancient trendline
1305 to 1302 from an August 2006 peak and matches a range of support from March and April 2006.
1294 from the January 2006 peak
1288 from June 2006
1280 from June and August 2006
1270 is the January intraday low
1255 from June 2006 lows

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NEWARK - March 15th & 16th
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.

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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Getting "UP TO SPEED" With Options

I know there are many trial subscribers out there who may not have the experience or background to fully understand what we're doing here at the Couch Potato Trader. What we do is not for beginners. It's important to have a solid foundation of knowledge of options and how they work to take full advantage of my column.

Some folks see our track record and are excited (justifiably so) to give us a try. A large percentage of these folks are relatively new to options. I'm sure you know a few. We want to make the learning process both smooth and enjoyable.

I have recently agreed with OptionInvestor to teach a two-day introductory options course. We're calling it "Up To Speed." It will start from the basics and go through all the information you would need to comprehend options, what they are, how they work individually and together.

After the two days of education, you'll be able to appreciate, and take advantage of, all the newsletters offered on the OptionInvestor site. The first of the "Up To Speed" seminars will be presented in Chicago on Saturday & Sunday, April 12th & 13th.


OptionInvestor is offering these two days of training for as little as $495 - an unbelievable offer. Here is the link to a page that goes into more detail about the "Up To Speed" seminar:

www.optioninvestor.com/account/sm08landing.aspx?


Some of you may be interested in a review. Perhaps you know some people who are envying your results from our Couch Potato Trader, but they're intimidated by option trading. Tell them about this opportunity. This is a great way for them to get "Up To Speed" and to show them what marvelous tools options can be -- IF they know how to use them properly.

As you know, this stuff isn't rocket science. However, it's important for new option traders to have this fundamental knowledge -- or they can kiss their money goodbye.

So, come join me for a couple days of enlightenment and fun. It's a great way to begin one's option education and an experience you'll remember for a long time.


Please Note
Don't confuse the "Up-To-Speed" seminar with my CPTI 2-day Advanced Seminar. In the "Up To Speed" seminar, we will be covering the basics and discussing the strategies a new option trader should know.

My 2-day Advanced Seminar starts where the "Up To Speed" seminar leaves off. Those who attend my advanced seminar are there to learn the intricacies of more sophisticated strategies and to fine tune their trading skills.

Take care and I hope to meet many new friends in the "Up To Speed" seminars.

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CPTI FEBRUARY POSITION
CPTI February Position #1 - SPX Bull Put Spread - 1331.29

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 POSITIONS
CPTI March Position #1 - RUT Bull Put Spread - 702.78

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 - 1331.29

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.

CPTI March Position #3 - SPX Bull Put Spread - 1331.29

On 2/6, with the SPX at about 1342, we sold 20 SPX March 1140 puts and bought 20 SPX March 1130 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 - On 2/6, with the SPX at 1342, we sold 30 SPX March 1140 puts and bought 30 SPX March 1130 puts for a credit of $.60 ($1,800). Maintenance is $30,000. We'll look for a bear call spread to complete the Iron Condor - IF it makes sense.

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SEMINAR DATE -

NEWARK, NJ - MARCH 15 & 16

Newark Early Bird Special - Only 2 Days Left To Save!

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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