Option Investor


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It’s a white Christmas here in Detroit. We haven’t had one of those here in some time. It’s kinda nice, actually. This afternoon Lydia and I will do the family thing – a nice dinner. I’m looking forward to the honey-baked ham probably more than seeing all the relatives.

Many of the relatives are just fine. Then, there are the ones that live 30 miles away and we only once a year – for good reason. They come for the free meal and a couple of presents. These relatives are why Dollar Stores are doing so well this holiday season. Apparently, I’m not the only one with these relatives to shop for.

I hope you are having a relaxing and enjoyable Christmas day – with a minimum of conveniently distant relatives to tolerate.

The year 2009 will be a year of change and a year of challenge -- for all of us. Sometimes change is a necessary ingredient to keep a fresh perspective on life and the world in general. Lydia and I want to wish all my subscribers a happy, healthy, and prosperous 2009. I hope we can play a big part in the "prosperous" part of your 2009 -- and the "happy" part, too.

The Market
A very low volume half day on Wednesday resulted in slightly positive results in the market. The VIX lost another .81 to close at 44.21. A month ago the VIX was over 80. Is that progress? I hope so.

There is very little good news out there to get the market excited in a positive way -- and one bad earnings report after the other. Thank goodness for the eternal optimists and/or bargain hunters who have provided the impetus for our bounce from the November lows.

Position Update
Our January positions all have very comfortable cushions right now. Our 290/280 RUT bull put spread is ripe to be closed out early. We recently put out an order to close our Zero-Plus 280/270 RUT bull put spread for a nickel. It sat there all week with no fill.

We’re not getting any cooperation from the market makers. If we’re not getting filled on the 280/270 spread, there is less chance of getting a similar order on the 290/280 spread filled. However, stranger things have happened, so I’ll keep the order active.

If you really want to free up maintenance dollars, and lock in your profit, you might consider raising your order to close out the spread to $.06 or $.07, etc. It’s not that much more money and, with the RUT, we’re not limited to trading in nickel or dime increments.

What Did They Do With The Cash?
I just read an Associated Press article that really pissed me off. It’s about the billions of our taxpayer dollars that have received by the banks that we “trust.” What are the banks doing with our hard earned bailout cash? The scary fact is that we may never know.

Apparently, most of the of the 21 banks, who received at least $1 billion, feel no obligation to share that information with the public. As a matter of fact, they’re absolutely refusing to do so. “We’re choosing not to disclose that,” said Kevin Heine, spokesman for Bank of New York Mellon (which received about $3 billion). Thomas Kelly, a spokesman for JPMorgan Chase ($25 billion), said, “We have not disclosed that to the public. We’re declining to.”

Barry Koling, spokesman for SunTrust Banks ($3.5 billion), said “We’re not providing dollar-in, dollar-out tracking. Wendy Walker, spokeswoman for Comerica Inc. ($2.5 billion) said, “We’re not sharing any details.”

The question that brings to mind is: What are they trying to hide?

The article goes on to say that there has been no accounting of how banks spend that money and there is no process in place to make sure that the money is spent on intended purposes. Elizabeth Warren is the chairman of a committee set up by Congress to oversee the bailout. She’s not happy either. Larry, Moe, & Curley who put the TARP together didn’t have the two ounces of sense necessary put those conditions on the bailout billions. She said her panel will try to force the banks to say where they’ve spent the money. I wish her luck.

I know that we live in the best country in the world, and I appreciate the freedoms and opportunities we have in the US, but this is absurd. Just think, this is the same government that feels free to audit our tax returns, just to make sure we’re paying every cent of tax we need to.

Our government doesn’t seem to trust the citizens of the US, but they have no problem trusting the banks. Or are they just bleeping S-T-U-P-I-D? Either way, we’re screwed.


CPTI JANUARY Position #1 - RUT Bull Put Spread – 470.49
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 $20,000.

CPTI JANUARY Position #2 - SPX Iron Condor – 868.15
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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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 – 470.49

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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