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ANOTHER WILD RIDE

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ANOTHER DAY,

The daily roller coaster ride continues - down, up, down, up and ultimately down. At least that's how it seems.

So, here we are. Our rolled down SPX 1190/1180 position has just shy of a 50 point cushion - and there are four trading days (and Friday's settlement) left. We know that those 50 SPX points could disappear in a day - or not at all.

Like you, I'm watching things closely. I know that our strategies are supposed to be hands off, but current market conditions aren't helping. When the SPX moved down towards the 1220 level, I had to close some 1220/1210 bull put spreads that I had on in some other accounts I trade. When I originally put on those positions, I never expected they would be threatened. Shit happens.

Oh well, it's part of the process - that cost of doing business that I often talk about. Our Couch Potato portfolio has had so many months in a row without a problem that, when we encounter a bit of trouble, it may seem more overwhelming than it is.

This is probably a good time to remind you that you need to take a macro view of your results. Our strategies will be successful a very high percentage of the time. The probabilities are with us. The occasional month when the markets don't cooperate, we may sustain losses. It may take a few months to make up these losses. However, if you pay attention to the bottom line results for a year, two, or three, you'll see that you're doing very well (if you've learned your lessons well). When we have a chaotic month, in the heat of the action, it's important to keep that in mind.

A Hedging Idea
With the market so volatile, let's look into our trading arsenal and see what we have that can help hedge our positions.

We haven't discussed the butterfly in quite some time. How can we use the butterfly to possibly lighten our load if the markets continue down without stopping to breathe? By now, you should already know the construction of a butterfly spread. If not, go review the 5/27/07 column.

Let's look at the RUT. The reason I'm looking at the RUT today is not because our RUT is in any danger (it's not), but simply because the Friday's closing SPX option chain is tough to figure out at the moment. When the market opens on Monday, and the prices become live, it will be easier. For now, though, let's go over the concept using the RUT. If you want to focus on the SPX, you could use the XSP.

If we believe that the RUT is going to move down towards expiration, we can place a butterfly spread near where we think it might go (above the short strike price of our initial bull put spread) in order to pick up a few dollars of profit.

The reasons? First of all, it's always nice to have those dollars in your pocket. Secondly, if you have picked up some profit on the butterfly, you can be a little more patient before having to roll out, or close, the original bull put spread.

The cost of the butterfly is relatively small. It typically has an excellent risk/reward ratio. Below is our butterfly example based on Friday's closing prices.

Buy 10 RUT 660 puts - ($6.10)
Sell 20 RUT 650 puts - $3.70 x 2 = $7.40
Buy 10 RUT 640 puts - ($2.30)
Debit of about $1.00 ($8.40 - 7.40 = $1.00)

In the butterfly example above, you can never lose more than the initial $1 debit. It costs a buck for the potential to make $9. You may also have an opportunity to close out the position early and lock in a profit - which is always a good idea.

The prices for the individual options in the above example aren't important. They'll change the minute the market opens. You should be able to place this order as one trade and the only price you need concern yourself with is the net debit - in this case, $1.

You can adjust the number of contracts to your risk tolerance and account size. If you want a smaller hedge, you can do a 5/10/5 contract position. If you want a larger one, you can put on a 20/40/20 butterfly. These are the business decisions you need to make.

Let's go through some "what-if" scenarios.

If the RUT settles at 652:
660 put is worth $8
650 puts - expires worthless
640 put - expires worthless
Profit is $7 ($8 - $1) x 10 contracts = $7,000

If the RUT settles at 644:
660 put is worth $16
650 puts are worth - $12 ($6 x 2)
640 put - expires worthless
Profit is $3 ($16 - $12 - $1 initial debit) x 10 contracts = $3,000.

You can reduce the cost of a butterfly by going further out of the money. For example, the 640/630/620 butterfly would cost about $.50. The 630/620/610 might cost just $.30. However, the further out of the money you go, the further the market has to move to be profitable.

If you move closer to the money, the cost of the butterfly goes up. The 670/660/650 butterfly would cost about $1.30. So, name your poison. It all depends on your opinion on where the market will go.

I know what you're thinking - it's a directional trade. Yes, it is. But it's also serving the purpose of hedging a non-directional position.

In these volatile times, there are traders who use butterflies exclusively - placing them above and below trading levels. It's a lottery-like strategy, but if you can pick up one $7-$8 winner, it can make up for a number of $.40 - $.50 losers.

I'm not recommending you trade butterflies exclusively, but having the strategy in your arsenal can come in quite handy.

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NEW SEMINAR DATES ANNOUNCED!

After a very special sold out Las Vegas seminar, I?ve put together two new seminar dates along with Early Bird Special dates.

OCTOBER 4 & 5 - DALLAS, TEXAS

DECEMBER 6 & 7 - ORLANDO, FLORIDA

You will save $100 if you complete your reservation for the DALLAS seminar by August 17th. Your two days of education and enlightenment will cost only $895.00.

You will save $100 if you complete your reservation (including payment) for the ORLANDO seminar by October 1st. Your two days of education and enlightenment will cost only $895.00.

If you can, plan to stay a third day. Mike Cavanaugh, my esteemed broker, will be giving a comprehensive presentation on the Monday following the two seminars. You are invited to attend - at NO CHARGE. Don't miss it.

Contact me as soon as possible. Send me your phone number (Contact Support) and I'll personally call you to reserve your spot and to answer any questions you may have. Both locations are great vacation destinations. The earlier you get your airline tickets, the cheaper they'll be.

RETAKES
Seminar grads who want to schedule their free retakes should contact me immediately (mparnos@optioninvestor). There are only five retakes per seminar and are first come first served. They go quickly. He who hesitates stays home.

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The Resourceful Customer
A father walks into a bookstore with his young son. The boy is holding a nickel. Suddenly, the boy starts choking, going blue in the face.

The father realizes the boy has swallowed the nickel and starts panicking, shouting for help. A well dressed, attractive and serious looking woman, in a blue business suit is sitting at a coffee bar reading a newspaper and sipping a cup of coffee. At the sound of the commotion, she looks up, puts her coffee cup down, neatly folds the newspaper and places it on the counter, gets up from her seat and makes her way, unhurried, across the bookstore.

Reaching the boy, the woman carefully drops his pants; takes hold of the boy's testicles and starts to squeeze and twist. After a few seconds the boy convulses violently and coughs up the nickel, which the woman deftly catches in her free hand.

Releasing the boy's testicles, the woman hands the nickel to the father and walks back to her seat in the coffee bar without saying a word.

As soon as he is sure that his son has suffered no ill effects, the father rushes over to the woman and starts thanking her saying, "I've never seen anybody do anything like that before, it was fantastic. Are you a doctor?"

"No," the woman replied, "divorce attorney".

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CPTI JULY POSITIONS

CPTI July Position #1 - RUT Bull Put Spread - 674.95

On 5/23, with the RUT at about 735, we sold 20 RUT July 620 puts and bought 20 RUT July 610 puts for a credit of $.65 ($1,300). Maintenance is $20,000.

CPTI July Position #2 - RUT Bear Call Spread - 674.95

On 5/28, with the RUT at about 732, we sold 10 RUT July 810 calls and bought 10 RUT July 820 calls for a credit of $.50 ($500). This bear call spread completes an Iron Condor for 10 of the RUT bull put spreads previously put on 5/23.

CPTI July Position #3 - SPX Bull Put Spread - 1239.49

On 5/30, with the SPX at about 1399, we sold 20 SPX July 1250 puts and bought 20 SPX July 1240 puts for a credit of $.60 ($1,200). Maintenance is $20,000. Position closed for debit of $3.05 ($6,100).

CPTI July Position #4 - SPX Iron Condor - 1239.49

On 6/27, with the SPX at about 1275 we rolled our 1250/1240 bull put spread position into a 25 contract 1190/1180 bull put spread for a credit of $.80 ($2,000). Then, on 7/7, with the SPX at about 1372, we sold 25 1340/1350 bear call spreads for a credit of $.55 ($1,375).

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CPTI AUGUST POSITION

CPTI July Position #1 - SPX Bull Put Spread - 1239.49

On 6/19, with the SPX at about 1342, we sold 20 SPX August 1170 puts and bought 20 SPX August 1160 puts for a credit of $.65 ($1,300). Maintenance is $20,000. I'll 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 May profits, our new cash total is $62,110 ($60,460 $1,650).

JULY ZERO PLUS POSITION - RUT - 674.95

On 5/20, with the RUT at about 721, we sold 30 RUT July 610 puts and bought 20 RUT July 600 puts for a credit of $.70 ($2,100). Maintenance is $30,000. We will look to put on a bear call spread in the future - IF it makes sense.

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SHORT & SWEET - RUT - 674.95

On 5/18, we opened a new hypothetical "Short & Sweet" position, selling 4 December RUT 530 puts and selling 4 RUT 930 calls for a total credit of $10.30. Then, we purchased 4 of the July 550 puts and 4 of the July 890 calls to give us two months (June & July) of protection for $.60. Our net credit, thus far, is $9.70.

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SEMINAR DATES -

DALLAS, TEXAS - October 3, 4 & 5

ORLANDO, FLORIDA - December 6, 7 & 8


62 OUT OF 67 PROFITABLE MONTHS!!
WANT TO ACHIEVE SUCCESS WITHOUT STRESS?
OF COURSE YOU DO!!
LEARN OUR CPTI WEALTH-BUILDING TECHNIQUES!

I?ve negotiated excellent low room rates for both seminars. 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) in Dallas and Orlando 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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