Option Investor
Updates

IT COULD HAVE BEEN WORSE . . .

HAVING TROUBLE PRINTING?
Printer friendly version

November is a five week option cycle. For option buyers, that's just great. They have an extra week to be right. For option sellers, that's an extra week of stress - especially under these market conditions.

Not so long ago, we could put on a position with a 90-95% probability of success. Remember? Then, we could go about our business, sit out our couches, fondle the remote, watch television and be comfortable knowing that we had an excellent chance of a nice return at the end of the option cycle.

No more. And, it looks like it may be a little awhile before we return to what seems like those "good old days."

What does this tell you? For the more conservative trader, it might tell you to step back and become a market voyeur. Instead of being in the market and getting screwed, maybe it's better to sit back and watch it happening to others. There's nothing wrong with that.

The Market

On Friday the futures were limit down and it looked like Chicken Little might be proved right - the sky might very well be falling. Many pundits thought that a huge spike down could be the long awaited capitulation. It didn't happen.

Buyers stepped in and the market leveled off above 852 (S&P) and bounced around for the rest of the day, never approaching the capitulation levels. That doesn't mean we can't have a capitulation day from this level. Anything can happen, as we?ve seen.

The VIX almost hit an unheard of 90 on the radar (89.53) before closing at 79.13. Insane.

Our Positions

The cushion for our November RUT 390/380 bull put spread has been reduced to 81 points. Based on the volume of contracts that was traded on those strikes when I suggested the position, not too many Couch Potatoes are in this position. If you're in the position, and you're getting nervous, based on Friday's closing prices, you could close out your position for about $2.20.

Others, who are in the 360/350 RUT November bull put spread still have a 111 point cushion. Friday's prices indicate that it might cost about $1.70 to unwind the position.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NOVEMBER PORTFOLIO POSITIONS

CPTI NOVEMBER Position #1 - RUT Bull Put Spread - 471.12

On 10/15, with the RUT at about 436, we sold 20 RUT November 390 puts and bought 20 RUT November 380 puts for a credit of $.80 ($1,600). Maintenance is $20,000.

NOVEMBER PORTFOLIO POSITIONS

CPTI NOVEMBER Position #2 - RUT Bull Put Spread - 471.12

On 10/16, with the RUT at about 480, we sold 20 RUT November 360 puts and bought 20 RUT November 350 puts for a credit of $.80 ($1,600). Maintenance is $20,000.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

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 - RUT Bull Put Spread - 471.12

On 10/16. we sold 30 of the November 360 bull put spreads and bought 30 of the November RUT 350 spreads for a credit of $.80 ($2,400).

- - - - - - - - - - - - - - - - - - - - - - - -


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.

Couch Potato Trader Updates Archives