Option Investor
Updates

READY FOR A QUIZ?

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GE screwed up the market on Friday. If it wasn't GE, it would have been the Michigan sentiment number. We can give credit to both for the big down day. There were a bunch of traders who believed the market was set up for a nice bullish bounce and were placing their directional bets. Bless their hearts. It's their premium that we put into our pockets on a regular basis.

We did put a bit of premium in our pocket on Friday when we initiated a second May position - an RUT 600/590 bull put spread. I suggested the position rather early in the day, and, by the end of the day, 3,900 contracts of the May 590 put had traded. Now, we shouldn't take credit for all 3,900 contracts, but you can believe a chunk of them were from our subscribers.

In my posting, I suggested that some traders may prefer to wait for the market to come down and put on the 590/580 bull put spread. Well, I received emails from traders who were filled on that spread at $.50 and $.55 towards the end of the day. Something tells me that they may have legged into the spread - which is only suggested for very experienced traders who understand the risk involved.

Regardless, we now have two positions for May and I'll be looking for more. I half regret not putting on bear call spreads for April, but I have what may be an irrational fear of the upside. Then, by the time the indexes move down far enough, the amount of premium available on the call side won't provide a large enough cushion. Over the last 5-1/2 years that we've been doing our portfolio trades, our losing months have been a result of violations of the bear call spreads rather than the bull put spreads. I guess those memories have just stuck in my mind.

I know some traders put on bear call spreads on their own - and I think that's great, as long as they understand the risk and how to deal with the sharp up days that we experience from time to time.

The Quickies
When I sent out the post for the RUT portfolio trade, I mentioned that I hope the quickie traders took the huge down opening into consideration before placing the trades. I would have been more comfortable lowering the strikes a bit. Take off the blinders and use some good common sense. Just keep in mind that the only time we can be perfectly logical is BEFORE we enter the trade.

Once the trade is filled, the emotions take over and can make it particularly tough to make decisions.

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TEST YOUR KNOWLEDGE
It's been awhile since we've given a quiz to see if you know as much as you think you do about our non-directional style of options trading. I've put together a few questions for you to ponder. Don?t worry, they?re multiple choice. Shouldn't be too tough if you know what you're doing. I'll warn you, there may be more than one right answer to each question.

The RUT is trading at 695 with six weeks to go until May options expiration. The bid/ask of the May 710 call is 5.30 x 5.80. Is the 710 call:
a) 5 points in the money
b) 15 points in the money
c) 5.8 points out of the money
d) 15 points out of the money
e) 10 points in the money

2. The SPX is trading at 1335. The delta for the May 1250 put is -11. That means the approximate mathematical probability of the SPX closing (at expiration) below 1250 is:
a) 78%
b) 89%
c) 11%
d) 22%
e) none of the above.

3. The SPX May 1390 call options have a bid/ask of 4.50 x 5.00. The SPX May 1380 call options have a bid/ask of 6.30 x 6.70. Why is the bid/ask spread on the 1390 call .50 and the bid/ask spread on the 1380 call .40?
a) The market maker wants an extra .10 to trade the 1380 calls
b) There are 5 contracts on the bid of the 1380 call and 12 on the ask
c) The market makers are discounting the 1380 calls
d) a & c
e) How the hell am I supposed to know without looking at an option chain?

4. It's 1 p.m. (ET) on Thursday prior to expiration Friday. The OEX is trading at 633. The OEX settlement price will be calculated based on:
a) the closing prices at the end of trading on Friday.
b) the opening prices on Friday morning
c) the closing prices at the end of trading on Thursday
d) the prices at 4:20 p.m. on Thursday
e) I don?t have a clue

5. I have $25,000 of maintenance available in my brokerage account. I just put on a 20 contract of the RUT 610/600 bull put spread, taking in a premium of $.60. How much maintenance will I have left in my brokerage account?
a) $15,000
b) $19,600
c) $5,600
d) $16,000
e) none of the above

6. I have $25,000 of maintenance available in my brokerage account. I just put on a 20 contract of the RUT 610/600 bull put spread, taking in a premium of $.60. I also put on 20 contract 780/790 bear call spread, taking in a premium of $.50. How much maintenance will I have left in my brokerage account?
a) $21,100
b) $18,900
c) $6,100
d) $23,900
e) none of the above

7. If I have a good broker, he will:
a) Allow me to trade uncovered puts
b) Allow me to trade credit spreads in my IRA account
c) Hold maintenance on both sides of an Iron Condor
d) Release my maintenance dollars on expiration Friday
e) all of the above

8. Maintenance dollars can be in the form of:
a) 50% of value of marginable stocks in your account
b) 75% of value of treasuries in your brokerage account
c) 50% of value of mutual funds in your brokerage account
d) 50% of value of LEAPS in your brokerage account
e) 50% of value of your ex-wife?s shoe collection

9. With two weeks to go until expiration, you sold two contracts of a short straddle and took in 39 points of premium. Three trading days later, you bought the position back for 33.50. What is your profit (excluding commissions)?
a) $1,050
b) $550
c) $1,350
d) $1,100
e) none of the above

10. What is a short straddle?
a) A Siamese condor with the wings amputated
b) An Iron Condor with the same short strikes for both spreads
c) An intriguing sexual position for midgets
d) A deep in-the-money credit spread
e) none of the above

11. When negotiating premium on a credit spread, what information should you have on your streaming quote screen to be able to place an order with a high probability of being filled?
a) open interest
b) bid and ask prices
c) daily volume
d) size of bid and size of ask
e) the exchanges for the bid and ask
f) the name of the market maker's children you?re putting through school

12. What is the reason for trading a Siamese Condor as opposed to trading the short options without the long options?
a) you can't afford the maintenance on uncovered options
b) you don't have the approval level for trading uncovered options
c) you know you don't know how to handle uncovered options
d) your wife will kill you if she finds out
e) all of the above

These 12 questions are just the tip of the iceberg, but they're enough to help you determine if you have a good grasp of what we're doing. Jot down your answers and keep them handy. In a day or two, I'll send out the answers (at least as I see them). Have fun!

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Misunderstanding

Charlie walks into his bedroom with a sheep under his arm and says: "Darling, this is the pig I have sex with when you have a headache."

His wife is lying in bed and replies: "I think you'll find that's a sheep, you idiot."

The man says: "I think you'll find that I wasn't talking to you.

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SEMINAR DATE - LAS VEGAS - June 21 & 22
I will be presenting a two-day advanced CPTI seminar in Las Vegas on June 21st & 22nd (Saturday & Sunday). Come on down! As of today, only six spots remain.

I?ve also negotiated an unbelievably low room rate for the weekend. Vegas is great for a getaway as well as for attending a seminar. Check your calendar and contact me as soon as possible. Send me your phone number at - Contact Support. I will personally call you to go over the details and to answer any questions you may have.

Also attending (and speaking) at the Las Vegas seminar will be Mike Cavanaugh, my personal broker and option strategist extraordinaire. Actually, he knows this stuff better than I do. I guarantee you?ll be impressed.

19 Early Birds
There were 19 early birds who saved $100 on the upcoming Las Vegas seminar by completing their reservation by April 11th.

Reserving early will accomplish a few different things. The earlier you reserve, the lower your airfare will be. Plus, you will be assured of a spot. The last two Las Vegas seminars have sold out well before the seminar dates.

Las Vegas Retakes Are Gone
As you may know, if you have previously taken one of my seminars (at any location), you are entitled to retake the seminar a second time at NO CHARGE! There were five retake spots available for the Vegas seminar. They are now gone. If you would like to be put on a waiting list, contact me. There is the occasional cancellation.

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CPTI APRIL POSITIONS
CPTI April Position #1 - RUT Bull Put Spread - 688.16

On 3/5, with the RUT at about 674.50, we sold 20 RUT April 560 puts and bought 20 RUT April 550 puts for a credit of $.55 ($1,100). Maintenance is $20,000. We will look to put on a bear call spread in the future - IF it makes sense.

CPTI April Position #2 - SPX Bull Put Spread - 1332.83

On 3/10, with the SPX at about 1288, we sold 20 SPX April 1110 puts and bought 20 SPX April 1100 puts for a credit of $.55 ($1,100). 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 MAY POSITIONS

CPTI May Position #1 - SPX Bull Put Spread - 1332.83

On 3/31, with the SPX at about 1316, we sold 20 SPX May 1130 puts and bought 20 SPX May 1120 puts for a credit of $.55 ($1,100). Maintenance is $20,000. We will look to put on a bear call spread in the future ? IF it makes sense.

CPTI May Position #2 - RUT Bull Put Spread - 688.16

On 4/11, with the RUT at about 700, we sold 20 RUT May 600 puts and bought 20 RUT May 590 puts for a credit of $.55 ($1,100). 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 March profits, our new cash total is $60,460 ($58,660 $1,800).

ZERO PLUS POSITION ? SPX ? Bull Put Spread ? 1332.83

On 3/31, with the SPX at 1316, we sold 30 SPX May 1130 puts and bought 30 SPX May 1120 puts for a credit of $.55 ($1,650). Maintenance is $30,000. We have plenty of time to find a bear call spread. Let?s hope the market cooperates.

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SEMINAR DATE -

LAS VEGAS - June 21st & 22nd

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!

59 OUT OF 64 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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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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