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QUIZ ANSWERS & MORE

The market didn't really do anything exciting today, but don't get complacent. There's excitement as close as tomorrow. The market did seem to absorb some more negative news and hold its own. Then, Google went nuts after announcing great earnings and guidance. Last I looked it was up 80-points (to 530) from today's close (450).

I know some Couch Potato seminar grads who use the Low Risk Straddle strategy I teach at the seminars on Google's earnings numbers every quarter. I'm sure they're drooling watching the after hours trading and they can't wait till tomorrow's open. Good for them. The Low Risk Straddle is a non-directional trading strategy with a low risk. The risk/reward potential is excellent.

If the market really goes crazy up tomorrow, I may look at some bear call spread positions for our May RUT & SPX bull put spread positions. Although, if the market goes up, the volatility will likely come down - meaning less premium. But, it's worth a look.

We're well on our way to another easy month -- and our 60th profitable month out of 65. It's sweet music to our financial ears. Didn't even breathe hard for the second month in a row.

I Couldn't Wait
Well, I waited as long as I could. On March 28, I sold the four RUT December 450 puts and took in $3,200 in premium ($8 x 400). My patience wore thin and I saw an opportunity. Nineteen days later (yesterday) I bought back the four RUT contracts for $4.50. I locked in a profit of $1,400 ($3.50 x 400).

So, I waited 19 days and got a large portion of my potential $3,200 profit. I could have waited another eight months for the other $1,800. I'm pretty sure it would have worked out. But that just didn't make sense. I might live to regret it, but that won't be the first time - nor likely the last.

Having used customer portfolio margining in my account, only about $3,500 was being held in maintenance on that position. So, my percentage return was stellar - about 67%. Remember, the percentage return is calculated on the amount of maintenance being held, less the premium (profit) taken in and divide that into the profit. $3,500 less $1,400 = $2,100. Divide $2,100 into $1,400 to get your 67%. I'll be doing more of these in the future.

New Seminar Date
I'm working on finalizing the details for my next two-day advanced seminar. I'll give you a hint. We'll be visiting the White House about three months before Larry, Moe, or Curly.

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Quiz Results
Based on your emails, many of you seemed to enjoy the quiz. I also noted some reader confusion on some of the questions. The questions are pretty clear, as are the answers. Remember, this isn't option kindergarten. This is the Couch Potato Trading Institute. You have to earn you seat on the couch.

Below are the questions again, along with the answers and an explanation where needed.

1. 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
ANSWER: D
Started off with an easy one. Don't get too confident.

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.
ANSWER: C
If I had asked for the probability of the SPX closing above 1250, the answer would have been 89%

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?
ANSWER: E
Without looking at a streaming option chain, you can only make a guess ? and not an educated one.

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
ANSWER: A
The OEX is not a European style option. It's an American style option and subject to early exercise. It settles like all stocks, at Friday's close.

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
ANSWER: E
You have taken in $1,200 and used up $20,000 of maintenance. $25,000 $1,200 - $20,000 = $6,200 maintenance remaining.

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

ANSWER: E
You have taken in $2,200 and used up $20,000 of maintenance. $25,000 $2,200 - $20,000 = $7,200 maintenance remaining.

7. If I have a good options 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

ANSWER: A, B & D
Obviously, you don't want a broker who holds maintenance on both sides of the Iron Condor. If your broker doesn't do A, B or D, contact me. Be ready to dump him and I'll give you the name of my broker - the best (IMHO).

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

ANSWER: A. C. & E
Treasuries can be used for maintenance, but the percentage should be 95 - 98% (not 75%). Your wife's shoe collection is your problem, not your broker's.

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

ANSWER: D
You made $5.50 x 2 contracts = $1,100

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

ANSWER: A (and possibly D if you have an imagination)
A short straddle is two short options at the same strike price.

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

ANSWER: B & D, then E C & A, F is optional.
The most important information is the bid and ask prices along with the bid size and ask sizes. The others are nice to know, but don't have much value when negotiating for premium.

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

ANSWER: E
Any, or all, of the reasons above can result in you trading the Siamese Condor - and it's not a bad thing. The Siamese Condor is an excellent non-directional strategy.

Let me know how you did. Be honest. I won't publish any names, I promise. This quiz wasn't particularly easy. I didn't intend it to be. Hopefully, it opened the eyes of a few traders who think they know it all. That's what my seminars are for -- to make a difference. For most seminar grads, these questions shouldn't have been a problem.

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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.

18 Early Birds
There were 18 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 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 ? 708.00

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 ? 1365.56

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 ? 1365.56

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 ? 708.00

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 - 1365.56

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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S&P 500 Support & Resistance: Closed at 1364.71
Resistance:
1370 is the August 2007 intraday low
1374 is the March 2007 closing low
The 90 day SMA at 1376
1387 is the April 2008 intraday high
1396 is the February 2008 peak
1406 is the August and November 2007 closing low
1420 is a longer term trendline from the August 2003/September 2004 lows
1433 from a pair of August 2007 lows and December mid-month intraday low

Support:
The 50 day EMA at 1351
1325 from May 2006 peak prior to the summer 2006 correction
1324 is an ancient trendline
1317 is the early February low
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
1272.66 is the March 2008 low
1270 is the January intraday low
1260 from July 2006
1258 to 1255 from May and June 2006 lows

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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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