Option Investor
Updates

IT'S QUICKIE TIME

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It was another wild ride today. Glad we're non directional traders. I just sat here shaking my head watching the market swings. It was a day trader's dream come true, a position trader's nightmare and more than a little mind boggling. At least another day bit the dust without any damage to our positions. Looks like we're OK, at least for now.

I know you've been waiting for this column with breathless anticipation - at least those of you who dare to trade our monthly Quickies and have lived to talk about it. One of our Quickie trades last month wasn't profitable, but over all, we've done pretty well.

Here comes the disclaimer. Every month I tell you that I, personally, do not trade the Quickies. Plus, they are not official Couch Potato portfolio positions. To trade these short term risky trades you should have experience in dealing with positions that move against you, you should have a decent size trading account that enables you to make adjustments if necessary and you should have the time flexibility to be able to monitor your positions.

If you don't have all of the above, you are looking for trouble. You may get lucky and be profitable for a number of trades in a row. However, if you're gonna dance, you gotta pay the band - and you will, sooner or later. The market is the band and the band doesn't come cheap. You can learn from me at my seminar, or learn from the market on your own. Come join us in Dallas or Orlando and save yourself some expensive lessons.

Every month I get emails from traders with limited experience and small accounts who are trying to cash in on the Quickies. Not only do they find themselves up the creek without a paddle, they lose the canoe as well.

September Quickie #1 - Iron Condor - SPX - 1249.05

With the SPX trading at 1249.05, let's:

Sell 20 September 1190 puts - SPTUR

Buy 20 September 1155 puts - SPTUP

Credit of about $.65 ($1,300)

Sell 20 September 1310 calls - SXYIB

Buy 20 September 1320 calls - SXYID

Credit of about $.65 ($1,300)

Total net credit of about $1.3 ($2,600). Maximum profit range is 1190 to 1310. The maintenance if $20,000.

September Quickie #2 - Iron Condor - RUT - 719.00

With the RUT trading at 719, let's:
Sell 20 September 680 puts - RUYUP

Buy 20 September 670 puts - RUYUN

Credit of about $.80 ($1,600)

Sell 20 September 760 calls - RUTIL

Buy 20 September 770 calls - RUTIN

Credit of about $.76 ($1,500)

Total net credit of about $1.55 ($3,100). Maximum profit range is 680 to 760. The maintenance is $20,000.

September Quickie #3 - SPX - Boston Strangle - 1249.05 (Sent out last Sunday)

The SPX closed Friday at 1242.31

Sell 4 September SPX 1200 calls - SZQIT

Sell 4 September SPX 1280 puts - SZPUP

Credit of about $89.70 ($35,880)

Remember, we always have to give back the difference between the strikes (80 points x 400 = $32,000)

Potential Maximum Profit: $9.70 ($3,880)

This trade may still be available. Based on Thursday's closing price, the net credit would be about $86.40. Maximum profit potential would then be $6.40.

As always, be careful. Double check your option symbols before placing your trades and make sure to adjust the number of contracts to your account size and risk tolerance.

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Magic Beer

A lady walks into a high class bar on the 30th floor of an office building and sees a really good-looking guy sitting at the bar by himself. She goes over and asks him what he is drinking.
'Magic Beer,' he says.
She thinks he's a little crazy, so she walks around the bar, but after realizing that there is no one else worth talking to, goes back to the man sitting at the bar and says, 'That isn't really Magic Beer, is it?'
'Yes, I'll show you,' he says.
He takes a drink of the beer, jumps out the window, flies around the building three times and comes back in the window.
The lady can't believe it: 'I bet you can't do that again.'
He takes another drink of beer, jumps out the window, flies around the building three times, and comes back in the window.
She is so amazed that she says she wants a Magic Beer, so the guy says to the bartender, 'Give her one of what I'm having.'
She gets her drink, takes a gulp of the beer, jumps out the window, plummets 30 stories, breaks every bone in her body, and dies.
The bartender looks up at the guy and says, 'You know, Superman, you're a real asshole when you're drunk.'

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CPTI SEPTEMBER Position #1 - RUT Bull Put Spread - 719.00

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.

CPTI SEPTEMBER Position #2 - SPX Bull Put Spread - 1249.05

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.

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CPTI OCTOBER Position #1 - RUT Bull Put Spread - 719.00

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 - 1249.05

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 - 1249.05

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 - 719.00

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 - 719.00

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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