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CAPITULATION?

HAVING TROUBLE PRINTING?
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Was today's action the we've been waiting for? Possibly. Will it matter? Probably not - at least not for our two positions. It would be nice to see a ferocious rally tomorrow afternoon. It would be fun to watch. We only need a few hundred S&P points and about 100 RUT points.

In the meantime, we should chat about reality. I know, reality sucks. And, this month it's really going to suck. Barring the mother rally of all time in the next week, those of us who are still in our October positions are going to take a good size hit.

We have to accept it and move on. We're all big boys and girls here. Life goes on. And, we have decisions to make. If you've been paying attention to the columns over the years, you have kept your powder dry. Fortunately, I had the good sense (I do have some occasionally) to not put out any official November portfolio positions. That means many may only have tied up about 35-40% of the total value of your account in October positions.

On a $100,000 account, we would have about $60,000 left. The question is: Do you pull in your horns, take your money and stuff it in your mattress? Or, if you believe in our methods, do you start looking for new positions for future cycles?

I understand that many of us will need a mourning period. But then, I'm going to be ready to go again. What we do here makes sense. I'm looking forward to making this all back a little at a time, methodically. Can this type of market event happen again? Anything is possible, but this kind of meltdown has never happened before. So, we have no real basis of comparison.

We're here now. We still have some working capital. We're not going to close the Couch Potato trading business. Whether you have $20,000 or $200,000 left after this debacle, we're going to persevere and work on making money - carefully. We're human (usually). We're going to be right a lot and wrong occasionally. We're going to try and execute well and stick to our rules. In the past, those methods have provided us with profits and an impressive track record.

Hopefully, we've also learned from this experience - good and bad. Often, it's only the expensive lessons that make a lasting impression.

A few days ago I tossed out an idea for folks in a difficult position. It was a way to buy time. Today I received the email below:

Thank you. Mike,

Your Alternative roll out was a great idea today. I was able to roll out of my 570/560 RUT October Puts for December Puts at a Limit Even cost. It cost me $40 to breathe life into the position for two months rather than taking a $100K hit next week.

Thanks!

Mike

Will his new December 570/560 bull put spread work out? I hope so. At some point the market will find a bottom, regain its footing and will start back up. At least his position now has a fighting chance. And, now you have one more method of dealing with a position gone awry.

Tonight, at 8:30 ET, the futures are down over 20 points. Hang in there. We have five days to ride the back of that mother rally - if it comes.


Smile. We shall survive.

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OCTOBER PORTFOLIO POSITIONS

CPTI OCTOBER Position #1 - RUT Bull Put Spread - 499.20

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.

CPTI OCTOBER Position #2 - SPX Bull Put Spread - 909.92

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.

CPTI OCTOBER Position #3 - SPX Bear Call Spread - 909.92

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).

ZERO PLUS POSITION - COMING SOON

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


Aren't we glad we don't have any positions on right now? I am.

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SHORT & SWEET - RUT - 499.20

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.

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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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