Option Investor
Updates

It's Quickie Time - If You Dare

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Well, it’s that time again – when the risk takers come alive and roll the dice for short term, higher-reward, trades. Once again, after about a one day rest, the volatility returned and it was off to the races back down. The S&P dropped 25.85 and it looks like we’re in for more of the same tomorrow. As I write this, the S&P futures are down over 20 points.

I noticed where a number of traders closed their December 330/320 bull puts spreads early for a nickel. Good move. For those who need it, that frees up another $20,000 of maintenance dollars.

On Monday we put on a January SPX Iron Condor. Despite recent massive market moves, this looks like it has a good chance of profitability.

December Quickies
For those who dare, let’s see what kind trades we can find for the upcoming expiration week.

December Quickie #1 – RUT Iron Condor – 451.21
Sell 20 December RUT 390 puts – RURXR
Buy 20 December RUT 380 puts – RURXP
Credit of about $.90 ($1,800)

Sell 20 December RUT 500 calls – RUWLZ
Buy 20 December RUT 510 calls – RUWLB
Credit of about $.60 (($1,200)

Total credit and profit potential of about $1.50 ($3,000). Our maximum profit range is 390 to 500. The maintenance is $20,000.

Based on my personal market sentiment, I’ve created this spread with a bearish bias – not a big one (only 10 points). If I was neutral, I would have used the 400/390 bull put spread and the 510/520 bear call spread for about the same net credit. If you’re going to put on this trade, construct it according to your own market sentiment. We’re still basically non-directional, but with a teaspoon of bias.

December Quickie #2 – SPX Iron Condor – 873.59
Sell 20 December SPX 790 puts – SPZXR
Buy 20 December SPX 780 puts – SPZXP
Credit of about $.70 ($1,400)

Sell 20 December SPX 950 calls – SXBLJ
Buy 20 December SPX 960 calls – SXBLL
Credit of about $.80 ($1,500)

Total credit and profit potential of about $1.50 ($1,500). Our maximum profit range is 790 to 950. The maintenance is $20,000..

Reminders
The quickies do offer a nice reward for about a week’s worth of exposure. But along with the reward come comparable risks – especially in today’s volatile markets. These trades are not official Couch Potato portfolio positions. They should be traded only by experienced traders who will know when to GTFO. The number of contracts should be adjusted to one’s account size and risk tolerance. If you do decide to participate, make sure to double check the option symbols before placing your trades.

These trades should be used as guidance or suggested areas of considerations. Be creative, but don’t be greedy. We’ve already taken more than our share of lumps in the last few months. We don’t need a mammogram to identify our lumps and the only cure is conservative trading. Be careful and don’t get carried away. The rewards are tempting, indeed. But, don’t bet money you’re going to need for Christmas gifts. Those Christmas stockings could be real empty if things don’t go your way.

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DECEMBER PORTFOLIO POSITION

CPTI DECEMBER Position #1 - RUT Bull Put Spread – 451.21
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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JANUARY PORTFOLIO POSITIONS

CPTI JANUARY Position #1 - RUT Bull Put Spread – 451.21
On 12/1, with the RUT at about 455, we sold 20 RUT January 290 puts and bought 20 RUT January 280 puts for a credit of $.75 ($1,500). Maintenance is $15,000.

CPTI JANUARY Position #2 - SPX Iron Condor – 873.59
On 12/8, with the SPX at about 877, we sold 15 RUT January 680 puts and bought 15 SPX January 670 puts for a credit of $.80 ($1,600). Then, when the market moved up, we sold 15 January SPX 1090 calls and bought 15 January SPX 1100 calls for a credit of $.70 ($1,050). The total net credit is $1.50 ($2,250). Maintenance is $15,000.

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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 November profits, our new cash total is $68,840 ($66,440 + $2,400).

ZERO PLUS POSITION – RUT Bull Put Spread – 451.21

On Monday, 12/1, we sold 30 January 280/270 RUT bull put spreads for a credit of $.80 ($2,400). We will look for a possible bear call spread to complete the Iron Condor if an attractive situation presents itself.

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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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