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A LITTLE Q & A

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A LITTLE Q & A

Isn't it a good feeling? Our May positions couldn't be safer. Tomorrow's Friday morning settlement numbers are no threat to our positions - nor have the positions been threatened all month long. That's the way the Couch Potato strategies are designed.

As a matter of fact, we may be able to close out one or two of our June positions early for a nickel. The RUT bull put spread is possible. It may be a little premature to close out the SPX bull put spread.

Looking At The Quickies
Last Thursday I threw out a few Quickie ideas. Let's see how they?re doing.

1) The SPX 1340/1350 and 1430/1440 Iron Condor looks pretty good. With the S&P at 1423.57, there's a good chance that the settlement will be below 1430.

2) The OEX uncovered 615 put was a no-brainer. The OEX is at 652.38, and even though it trades through Friday, it's in no trouble whatsoever.

3) The RUT Boston Strangle has been fun. On Monday & Tuesday, there were plenty of opportunities to buy back the short options, locking in about a two-point gain. With a 20-contract position, that represents a $4,000 profit. I got emails from a number of subscribers asking me what to do. I told them it might be wise to GTFO and take their profits. Some did and some didn't. Greed will come back and bit you in the butt.

It's possible that the RUT will settle below 740 and those still holding the position can get 100% profit on the trade. $5.30 x 2,000 = $10,600. That's not the way I play it, but there are traders out there with more balls than brains. It should be interesting.

Tomorrow morning, if you have the right broker, maintenance dollars should be released and you'll have that money to work with for other trading opportunities. That's IF you have the right broker. Unfortunately, many traders, for whatever reason, are reluctant to change brokers.

Brokers must have your best interests at heart. With thousands of accounts, how can a telephone customer service representative know you from Santa Claus. If you blindly trust these people, you're not going to get the personal attention you deserve. When you blindly trust brokers, or anyone for that matter, you could easily wake up in Tailand missing a kidney. You have to be careful. You need a broker with whom you can establish a personal relationship.

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QUESTION:
How do you pick the strikes for your trades? I use a monthly 6% variance in trading range and cross check that with the Deltas. I see your strikes are much further OTM on your verticals or Iron Condors.

ANSWER:
To keep it simple, I try to go out as far as possible and still take in a reasonable amount of premium. It's always easier to find good put positions because of the higher premiums available. There is typically less premium on the call side. Therefore, if I want to put on a bear call spread, I would not have the same cushion as on the bull put spread.

QUESTION:
What's your feeling on trading SPY vs. SPX; or IWM vs. RUT, I know the premiums are better but risk is greater for smaller accounts. Also the SPDRS for example are electronically traded, vs. SPX and RUT being pit traded, so there's more subjective risk from a Market Maker.

ANSWER:
I like the SPX and RUT for our Iron Condors and credit spreads because they're European style options - no threat for early exercise, etc. While it's true that the bid/ask spreads for the SPY & IWM options are smaller, it's necessary to trade far more contracts to achieve similar results.

QUESTION:
How is margin calculated on short options?

ANSWER:
The margin requirement for a short equity option is "20% of the underlying plus 100% of the option premium less the out-of-the-money amount to a minimum of options proceeds plus 10% of the underlying in the case of a call or to a minimum of options proceeds plus 10% of the strike price in the case of a put."

The margin requirement for a short put and short call with different strikes (short strangle or combination) is "the higher requirement for one of the short options plus the premium of the other option." I stole this question and answer from an email I got from CBOE. I do get this question often - especially since we've started doing the short straddles, Boston Strangles, etc.

This is the method used by many brokers to calculate maintenance requirements. However, some brokers (the good ones) are offering customer portfolio margining.

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Washington Washout
Apparently I didn't take things into consideration when I scheduled a seminar in Washington in August. It appears that people are going on vacation, have other plans, or prefer not to be in Washington in the middle of summer. The point is that there is not enough interest in an August Washington DC seminar to make it viable.

Therefore, I am postponing the Washington event. I will look for an alternate date and location for the fall.

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CPTI MAY POSITIONS

CPTI May Position #1 - SPX Bull Put Spread - 1423.57

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 - 743.38

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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CPTI JUNE POSITIONS

CPTI June Position #1 - SPX Bull Put Spread - 1423.57

On 4/18, with the SPX at about 1392, we sold 20 SPX June 1235 puts and bought 20 SPX June 1225 puts for a credit of $.70 ($1,400). Maintenance is $20,000. We will look to put on a bear call spread in the future ? IF it makes sense.

CPTI JUNE Position #2 - RUT Bull Put Spread - 743.38

On 4/22, with the RUT at about 709, we sold 20 RUT June 590 puts and bought 20 RUT June 580 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 - 1423.57

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 DATES -

LAS VEGAS - June 21st & 22nd


60 OUT OF 65 PROFITABLE MONTHS!!
WANT TO ACHIEVE SUCCESS WITHOUT STRESS?
OF COURSE YOU DO!!
LEARN OUR CPTI WEALTH-BUILDING TECHNIQUES!

I will be presenting our two-day advanced CPTI seminars in Las Vegas on June 21st & 22nd (Saturday & Sunday). Come on down! As of today, only two spots remain for the Las Vegas seminar.

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.

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!

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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