Option Investor
Updates

THE MONTH THAT GOT AWAY

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This is usually my favorite column of the month to write. However, this July cycle will go on record as one of our losing months -- a cost of doing business. We did everything right and we're living to trade another day. Earlier in the month, we rolled down a threatened SPX position and it looked pretty good with a week to go.

However, the market didn't cooperate and we ended up having to close the position on Tuesday and take a loss. Only six losing months out 68 is still something of which we are very proud.

On Friday, we jumped right back on the horse by putting on a new RUT bull put spread for August. The 600/590 yielded us $.55 in premium. If the relief rally bounce continues, it might be a good opportunity to put on a bear call spread.

Our Zero Plus strategy July RUT position was 100% profitable. I'll be looking for another - possibly tomorrow.

Another Weapon For Your Arsenal
As you all are well aware, the markets have been beaten down pretty badly recently. There are dozens of stocks that have been beaten down - some justifiably, others not. What we're going to explore is a way for a patient trader to risk very little and have the potential to make a very nice return on money at risk.

This is an interesting strategy for beginning option traders who cannot do spreads in their accounts. Plus, there are still a number of stubborn traders who are still with brokers who do not allow spread trading in their IRA accounts.

Let's take a typical stock that was once worthwhile that isn't much anymore. Nortel (NT) is trading at $7.01. So, pay attention. Here's how it works.

Buy 1,000 of NT at $7.01 ($7,010)
Buy 10 January 2010 NT $10 puts at $4.10 ($4,100)
Your total out of pocket investment is $11.11 ($11,110).
For the next 18 months, your total risk is only $1.01 ($1,010)

Let's look at a few "what if" scenarios to show you why you are only risking $1.01.

What if . . . in 10 months Nortel is at $14? The stock would have a value of $14. The 2010 $10 put would be $4 out of the money, but there would still be about $.40 of time value - for a total of $14.40. If the position is closed, the profit would be the $14.40 less the $11.11 out of pocket amount = $3.29.

What if . . . at January 2010 expiration Nortel is $5? The stock would have a value of $5 and the 2010 $10 put would have a value of $5 - for a total of $10. The loss would be the maximum at risk = $1.01/share.

What if . . . in 13 months, Nortel is at $9? The stock would be worth $9. The 2010 $10 put would have $1 of intrinsic value and about $50 of time value remaining - for a total of about $10.50. The loss would be only $.51/share.

Take a look at the NT January 2010 $10 call option. It could be purchased for about $1.30. It seems like you would only be tying up $1,300. Why, you ask, should you go through all the trouble of buying the stock and the put LEAPS?

It has to do with delta. When you own the NT stock, your delta is 100%. You participate in the upward movement of the stock penny for penny. The delta of the 2010 $10 leap is only 45%. It's your call - in more ways than one.

Who knows what the future holds? Not me. The market does crazy things. In February 2007 Nortel was trading at $30. Can it get back there? Probably not, but that doesn't mean it can't get back up to $15.

Example #2
Do you believe the oil crisis will force further consolidation in the airline industry? Look at US Air (LCC). It's currently trading at $2.87.

Buy 1,000 shares of US Air at $2.87 ($2,870)
Buy 10 US Air Jan. 2010 puts for $3.40 ($3,400)
Your total out of pocket investment is $6.27 ($6,270)
For the next 18 months, your maximum risk is $1.27 ($1,270)

Example #3
Motorola (MOT) is trading at $7.46. In October 2006, it was trading at $26. Is it worth a shot to see if it starts to find its way back up - even half-way up? You decide.

Buy 1,000 shares of Motorola at $7.46 ($7,460)
Buy 10 MOT Jan. 2010 $10 puts for $3.50 ($3,500)
For the next 18 months, your maximum risk is $.96 ($960)

Example #4
National City (NCC) is trading at $4.54. In January 2007, it was trading at $38. Maybe, in the next 18 months, it will recover a bit. Maybe not. Maybe it will be taken over. Who knows?

Buy 1,000 shares of NCC at $4.54 ($4,540)
Buy 10 NCC Jan. 2010 $7.50 puts for $4.20 ($4,200)
For the next 18 months, your maximum risk is $1.24 ($1,240)

There are dozens of low priced stocks in a variety of sectors. Check them out. This isn't brain surgery. Do the math and see if it makes sense to you. The best part of this strategy is the small risk.

You all know what I think about directional trading. However, I keep getting emails from traders who have very small trading accounts. These traders can't realistically use our spread strategies. This is just a way they can take a calculated risk with very little risk.

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TRACKING CPTI PORTFOLIO RESULTS
Welcome to our tracking of CPTI portfolio's year number six! We've just completed the ninth month (July) of CPTI tracking year number six. Our positions for July did not work out as well as we would have liked. Our loss for the ninth month of our sixth year was $6,475. In our sixth tracking year, we accumulated a profit of $10,785 ($17,260 - $6,475).

RECAP OF JULY POSITIONS
See Position Details in July Summary Below

SPX Bull Put Spread - LOSS: $4,900
SPX Iron Condor - LOSS: $3,375
RUT Bull Put Spread - PROFIT $1,300
RUT Bear Call Spread - PROFIT: $500

JULY LOSS: $6,475

July Settlement Numbers
S&P 500: $SET - 1264.17
Russell: $RLS - 697.55
S&P 100: OEX - 580.57
MID: $MIV - 802.71

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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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SUMMARY OF CPTI JULY POSITIONS

CPTI July Position #1 - RUT Bull Put Spread ? 693.08

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. PROFIT: $1,300

CPTI July Position #2 - RUT Bear Call Spread - 693.08

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. PROFIT: $500

CPTI July Position #3 - SPX Bull Put Spread - 1260.68

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). NET LOSS: $4,900

CPTI July Position #4 - SPX Iron Condor - 1260.32

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). Closed for $2.70 ($6,750)

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CPTI AUGUST POSITION

CPTI July Position #1 - SPX Bull Put Spread - 1260.68

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.

CPTI AUGUST Position #2 - RUT Bull Put Spread - 693.08

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. PROFIT: $1,300

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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 - 693.08

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 - 693.08

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 68 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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