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December 29, 2008

# BOUNCING STRANGLE UPDATE

HAVING TROUBLE PRINTING?
Morning Taters,

This morning, when the market opend, for a while there was an opportunity to turn a quick profit on our Bouncing Strangle strategy. I watched as the QQQQs hit a low of \$43.25 this morning.

You could have sold the October \$47 puts for \$4.00 and then sold the October \$45 calls for \$.91.

Here's how the math works out.

By selling the Oct. \$47 put for \$4.00, you have recouped all but \$.41 of your original \$2.41 risk. Then, if you were to sell the Oct. \$45 call for \$.91, you would have a profit of \$.50. A 20-contract position would have resulted in a \$1,000 profit.

It doesn't sound like much, but a \$.50 return on a risk of \$2.41 is a profit of 20.7% return on your risk in less than a week. Pretty impressive!!

The strategy also gives you the option of hanging onto the \$45 call and wait for a reversal. With only a \$.41 cost basis for the remaining \$45 call, the profit could be huge when the market reverses. After all, there are still six weeks left to October expiration. A lot can happen.

Just wanted to give you some food for thought and to walk you through the math of an interesting strategy.