Option Investor
Updates

IS IT A DONE DEAL?

HAVING TROUBLE PRINTING?
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Is the bailout plan a done deal? And, if it is, so what? It's still going to be painful - and a mess. This (Sunday) morning, it was reported that the committee worked until 11 p.m. last night to hash out the details of a revised plan. And, apparently, they were back at work this morning to put on the finishing touches.

What grinds me is that the newscasters made it seem like the congressmen involved were making some kind of huge sacrifice by having to work the weekend. Now, I admit that my knowledge of politics is limited. However, it seems to me like these guys get plenty of time off and much of their time is spent getting their collective asses kissed by lobbyists. It ain't such a tough life. Just ask any of us who work for a living.

Regardless of what they come up with, it doesn't seem that the finished product is anything we're going to be thrilled about. We'll be bailout out the people who were directly responsible for getting the financial system into trouble.

It seems the financial institutions push the "leverage" envelope over the edge. These same institutions made ridiculous loans available (and sold the hell out of them) to folks whose last names all might as well be Clampett. Their "American Dream" has turned into an "American Nightmare." Why? Because they couldn't resist the temptation to max out their limits and buy an extra $100,000 worth of house.

The government is soon going to own what used to be a $250,000 house, but now it's only worth $150,000. Clampett is now $100,000 upside down on his house with no equity. Goodbye house. Hello apartment. Reminds you of the movie "Dumb and Dumber."

Who is at fault? Mr. Clampett, of course. But does the realtor and/or lending institution have a moral responsibility to try and control an out-of-control client? The larger the mortgage, the larger the commission. It seems that "moderation" is a dirty word and that all is fair in love and business.

I hate to think of what may happen when the financial institutions cry wolf again - this time for credit card debt.

So, what's in store for us in the near future? As my favorite market analyst, Jon Johnson, explains it, "The bailout applies a tourniquet to stop the bleeding and save the life. The patient still has to heal and may need some additional medical treatment to get through the healing process and back up to full speed. Thus we need to be ready for some range trading as well as another sell-off at some point to test that new low for the year."

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October Position Update

Based on Thursday's prices, we still have a 103 point cushion on our SPX 1110/1100 spread and a 105 point cushion on our RUT 600/590 spread. Sounds pretty safe, but in this volatile environment when the SPX moves in 50-point chunks, you never know. I?m not looking forward to the next few weeks.

I often put in the SPX support and resistance levels, but in this market, they don't mean squat. The technical analysts will tell you differently. Go ahead and listen, if you like. It's like with doctors. If you go to enough doctors, and get enough opinions, you'll eventually get someone to tell you what you want to hear. It doesn't change anything, though.

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Bird Flu Symptoms

The Center for Disease Control has released a list of symptoms of bird flu. If you experience any of the following, please seek medical treatment immediately:

1. High fever
2. Congestion
3. Nausea
4. Fatigue
5. Aching in the joints
6. An irresistible urge to shit on someone's windshield

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OCTOBER PORTFOLIO POSITIONS

CPTI OCTOBER Position #1 - RUT Bull Put Spread - 704.79

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 - 1213.27

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 - 1213.27

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 - 704.79

We will be watching for an opportunity to put on a new position for our Zero Plus strategy.

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SHORT & SWEET - RUT - 704.79

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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