Option Investor
Updates

JUST ANOTHER CRAZY MARKET DAY

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A few days ago the market spiked up in the morning. It didn't look like it would hold, so I took advantage of the opportunity and found a bear call spread to match up with our October SPX bull put spread. Being the big bleeping chicken that I am about the call side, I suggested only a 10 contract position. We took in $.55, which is pretty good. No additional maintenance was necessary because we already have the Oct. SPX bull put spread.

We only put on the 10 contracts of the 1415/1425 bear call spread. That means that, if we find another appealing position, we can trade another 10 contracts without having to come up with any additional maintenance. These maintenance comments are assuming that most traders have not yet added the customer portfolio margining feature to their account.

Well, I was right about the market (for a change) and the market did a huge turnaround and came down hard. Today (Thursday), it came down even harder - with one of those ridiculous sell-off days.

A big sell-off like today gives traders, who may have missed previous positions, an opportunity to put on bull put spreads. The VIX went up 2.60, meaning there?s more premium to go around.

Based on Thursday's closing prices, you might be able to put on the SPX 1100/1090 for $.50-.60. That still looks like a decent trade to me. It's even 10 points safer than our original portfolio trade.

If you're looking at the RUT, the October 610/600 looks enticing with a premium of about $.50, which is the same position in our Couch Potato portfolio.

I wouldn't, however, put in orders before the market to nab any position at this point. Take a look at the futures and see which way the market may be headed. Then make your decision. At this writing, it appears the market will continue down, at least in the morning. You might want to wait and possible move your orders down a strike or two.

You can likely use the future symbol on your data provider. Currently, the symbol for the S&P 500 futures is: SP U8 or SPU8. If that doesn't work, call your data provider, or your broker. If your broker can't help you, you have the wrong broker.

You can always flip on CNBC, Bloomberg or Fox Business Channel. They all have scrolling data with the futures information. Plus, on Fox, you get to see Jenna Lee and Rebecca Gomez. For a true couch potato, that is meaningful - and worth that extra click on the remote.

September Position Update

Even though the market has tanked the last few days, we are still quite comfortable with our September positions. Many Couch Potatoes have already closed out the RUT bull put spread. We still have nice cushions on both positions.

Coming Soon

I'll be looking for an opportunity to put on one of our hypothetical Boston Strangle or Siamese Condor positions in the next few days. The higher volatility makes these strategies quite appealing at this point - with about two weeks to go in the five week September cycle, that seems to be lasting forever.

Bouncing Strangle Strategy

I received a number of emails from Couch Potatoes who like the Bouncing Strangle strategy I wrote about on Sunday. If you actually put on the trade, you are well on the way to realizing the first step - a large move in one direction.

The October 47 put is can already be sold for about $3.70. It's $3.34 in the money. When/if the QQQQs get down to about $43, you can consider closing the $47 put and then riding the $45 call at little or no cost.

We'll keep an eye on it. Should be interesting.

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Can You Tell The Difference?

By looking at a picture of a person, you have to decide if he is a computer geek or a serial killer. Go with your gut feeling and click on your choice. There are 10 photos. Your score will be given at the end.

http://www.malevole.com/mv/misc/killerquiz

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CPTI SEPTEMBER Position #1 - RUT Bull Put Spread - 718.62

On 7/31, with the RUT at about 720, we sold 20 RUT September 610 puts and bought 20 RUT September 600 puts for a credit of $.55 ($1,100). Maintenance is $20,000. I'll look to put on a bear call spread in the future - IF it makes sense.

CPTI SEPTEMBER Position #2 - SPX Bull Put Spread - 1236.83

On 8/7, with the SPX at about 1275, we sold 20 SPX September 1120 puts and bought 20 SPX September 1110 puts for a credit of $.55 ($1,100). 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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CPTI OCTOBER Position #1 - RUT Bull Put Spread - 718.62

On 8/18, with the RUT at about 732, we sold 20 RUT October 600 puts and bought 20 RUT October 590 puts for a credit of $.55 ($1,100). Maintenance is $20,000. I'll look to put on a bear call spread in the future - IF it makes sense.

CPTI OCTOBER Position #2 - SPX Bull Put Spread - 1236.83

On 8/25, with the SPX at about 1267, we sold 20 SPX October 1110 puts and bought 20 SPX October 1100 puts for a credit of $.60 ($1,200). Maintenance is $20,000. I'll look to put on a bear call spread in the future - IF it makes sense.

CPTI OCTOBER Position #3 - SPX Bear Call Spread - 1236.83

On 9/2 with the SPX at about 1294, we sold 10 October 1415 calls and bought 10 SPX October 1425 calls for a credit of $.55 ($550). No additional maintenance is required since we already have the SPX October bull put spreads.

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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 July profits, our new cash total is $64,220 ($62,110 + $2,100).

SEPTEMBER ZERO PLUS POSITION - 718.62

On Friday 7/25, I put out an order to sell 30 September 1080/1070 bull put spreads for $.70. It was filled when the SPX dipped to 1251. That's $2,100 of premium. It's going to be a long wait, but I'm in no hurry.

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SHORT & SWEET - RUT - 718.62

On 8/1, we opened a new hypothetical "Short & Sweet" position, selling 4 December RUT 560 puts and selling 4 RUT 850 calls for a total credit of $11.60.

Traders with less experience, smaller trading accounts or those without customer portfolio margining, might want to buy 4 of the September 570 puts and 4 of the September 850 calls to give you two months (August & September) where the short positions are covered for about $1.10. Their net credit would then be $10.50.

Our objective is to do exactly what we did with the previous Short & Sweet Strangle. We want to let time decay and reducing implied volatility do their thing, so we can close the position and lock in some nice profits.

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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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