Option Investor
Updates

PROFITABLE! 64 OUT OF 70

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MONTHS

There is good news and there is some not-so-good news. Obviously, the good news is that our CPTI portfolio recorded another 100% profitable month this September cycle. We narrowly escaped the ridiculous downdraft and our portfolio spread positions expired worthless.

The not-so-good news is that the huge V-shaped bounce-back was, more than likely, just a giant short squeeze. We may be headed back down in the not-to-distant future. The bounce has re-created the nice cushion we had before, but it's a good idea to stay alert. Things can happen in a big hurry in the market. If we could just give the market a valium and a breath mint . . .

Some folks, who watched the downdraft on Wednesday and Thursday morning, decided to put on bear call spreads. They took a big chance, though they didn't think so at the time. It was like jumping into the bathtub with a toaster.

Needless to say (though I'll say it anyway), many of these bear call spreads were violated when the market came roaring back Thursday afternoon and in the Friday morning settlement. That hurt more than a few. What did we learn from this week? Sometimes, it's better to just stand back and watch. You don't have to get into the ring and take punches to enjoy a prize fight.

Did you see the Friday settlement numbers? The S&P settlement number was 1279.31. That was 14.19 points above the S&P high for the day. Thursday, the SPX closed at 1206.51. That?s a 72.80 settlement pop. I?ve never seen anything like that before. Nothing is really safe in these market conditions.

The RUT settlement number didn't come out until after the market closed on Friday. For some reason, they're always slow. Maybe they haven't heard of computers yet at the Russell 200. Or, maybe they just have 20 guys in a little room drinking Sangria and using a dollar-store calculator.

The RUT number was 771.41. That was 17.67 above the RUT high for the day (Friday). Thursday, the RUT closed at 723.68. The settlement number (771.41) represented a 41.73 Friday settlement pop.

Is any credit spread safe? Nothing is 100% safe. There are different degrees of safety. All we can do is make our new position decisions based on the probabilities that the underlying will close above the short strike prices in our spreads. Then, we have to have a plan in mind about what we're going to do if the underlying gets to a certain point - and then to have the balls to act on it.

We're going to keep doing what we're doing - because we do it pretty damn well. We'll take our occasional hit, but over time, our results will continue to be impressive.

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Zero Plus Strategy Update

I guess there's a little more good news. We were also 100% profitable with our Zero Plus Strategy position. Our profit was the entire $2,100. I'll be on the lookout for our next position. In this environment, it won't be easy. But, I'm patient.

Quickie Updates

Sometimes you get the bear and sometimes the bear gets you. This September cycle, our quickie trades bit the bullet. How much of a hit you took depends on if/when you exited the trade. It was just one of those months. Considering the recent crazy activity, I'm surprised we came as close as we did.

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TRACKING CPTI PORTFOLIO RESULTS
Welcome to our tracking of CPTI portfolio's year number six! We've just completed the eleventh month (August) of CPTI tracking year number six. Our positions for September worked out just as we planned. Our profit for the eleventh month of our sixth year was $2,200. In our sixth tracking year, we accumulated a profit of $15,585 ($13.385 $2,200).

RECAP OF SEPTEMBER POSITIONS
SPX Bull Put Spread - PROFIT: $1,100
RUT Bull Put Spread - PROFIT: $1,100
SEPTEMBER PROFIT: $2,200.

September Settlement Numbers
S&P 500: $SET - 1279.31
Russell 2000: $RLS - 771.41
S&P 100: OEX - 577.91
MID 400: $MIV - 822.18

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SUMMARY OF SEPTEMBER POSITIONS

CPTI SEPTEMBER Position #1 - RUT Bull Put Spread - 753.74

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). PROFIT: $1,100.

CPTI SEPTEMBER Position #2 - SPX Bull Put Spread - 1255.08

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). PROFIT: $1,100.

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OCTOBER PORTFOLIO POSITIONS

CPTI OCTOBER Position #1 - RUT Bull Put Spread - 753.74

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 - 1255.08

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 - 1255.08

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 September profits, our new cash total is $66,440 ($64,220 $2,100).

SEPTEMBER ZERO PLUS POSITION - 753.74

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. In spite of the crazy market, it never got down far enough to threaten our position. Our profit was the entire $2,100.

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SHORT & SWEET - RUT - 753.74

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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