Option Investor
Updates

WHO DO YOU LISTEN TO?

HAVING TROUBLE PRINTING?
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We have four days and a Friday morning settlement left to the November expiration. It can’t come too quickly for me. With the market in constant turmoil, nothing seems particularly safe anymore. The down move on Friday was on smaller volume than Thursday’s big up move. Does that mean anything? Hell if I know.

Our November RUT 390/380 bull put spread, as of Friday’s close, has a delta of -5. That means that there is a 95% mathematical probability that the RUT will close above 390. Here’s where mathematics, reality, and emotion get all tangled up and confused.

Who do you listen to? The impersonal mathematical programmer that came up with the 95% figure? The voice of reality that the market has been, and continues to be, a total train wreck? Or the little voice of fear in your head that may be telling you to GTFO?

Welcome to the world of trading. Sometimes we have TMI (too much information). Other times we don’t seem to have enough.

When the market opens Monday, some who have the 390/380 bull put spread will want to get out of Dodge. Based on Friday’s closing numbers, it might cost about a buck. We originally took in $.80, or $400 for 20 contracts. The question is – Is it worth $400 to you to not have to worry about the market for the next four trading days? It’s a personal choice.

We also still have the November RUT 360/350 bull put spread. That is 30 points “safer.” The delta for the 360/350 is, according to my BrokersXpress quotes, virtually zero. The market says it would cost about $.50 to close the position.

We’ll keep watching. There’s a lot of economic news coming out, but that’s not likely to provide much positive news. The slowdown happened so quickly that analysts don’t have much of a handle on the earnings numbers.

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The Butterfly Quickie
Those of you who chose to put on the lower butterfly quickie I tossed out there in Thursday night’s column must have a smile on your face about now. If the market ends up at the present 456 level, you’ll make out nicely. What are the chances of that happening? Slim, for sure, but it didn’t cost much to take the shot. It a better chance than a lottery ticket. It will be interesting to see where the RUT ends up.

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S&P 500 Support & Resistance - Closed at 873.29
Resistance:
889 is an interim 2002 peak
899 is the early October closing low
The 10 day EMA at 908
The 18 day EMA at 928
965 is the 2003 consolidation low
995 from June 2003 consolidation peak
The 50 day EMA at 1021
1065 is the Q4 2003 level that SP500 started the run to 2007 after the first run in the recovery.
1075 from August 2004.
1106 is the late September low
1133.50 is the mid-September 2008 low
The 90 day SMA at 1142
1200 is the July 2008 intraday low
1244 is an August 2005 peak
1250 is the 2002/2003 up trendline
1257 is the March low
The 200 day SMA at 1257
1270 is the January low
1285 is the recent July peak

Support:
866 is the second October 2008 low
853 is the July 2002 low
848 is the October 2008 closing low
839 is the early October 2008 low
818 is the November 2008 low
800 is the March 2003 post bottom low
768 is the 2002 bear market low

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NOVEMBER PORTFOLIO POSITIONS
CPTI NOVEMBER Position #1 - RUT Bull Put Spread – 456.52
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.

CPTI NOVEMBER Position #2 - RUT Bull Put Spread – 456.52
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.

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DECEMBER PORTFOLIO POSITION
CPTI DECEMBER Position #1 - RUT Bull Put Spread – 456.52
On 11/6, with the RUT at about 510, we sold 20 RUT December 330 puts and bought 20 RUT December 320 puts for a credit of $.55 ($1,100). Maintenance is $20,000.

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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 – RUT Bull Put Spread – 456.52
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).

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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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