TESTIMONIALS . . .
Mike – There is not a day that goes by that we do not think of you and are thankful for the introduction to this world of non directional trading. I urge all traders to take your course and then begin to think and trade for themselves – and use the creative license you allowed us to receive. – Ron
Mike – You should be very proud of your performance, and I just wanted to thank you for teaching me your strategies. – Lee
Mike – I fully value and appreciate your candor, strategies and insight. You simplify what others try to complicate. I have gleaned a wealth (full pun intended) of information from both your newsletter and class. – Gene
August 12, 2010 – Quickie Time
IT’S QUICKIE TIME
Good Evening Team,
The market has turned south the last few days on a big dose of negative news and earnings (Cisco, etc). Today, the DOW lost 59 points and the S&P lost almost 6 points and our RUT was off about 3.4 points. It may continue. If it does, we might be able to position ourselves to make a few bucks with very little risk.
For our first August Quickie trade, we’ll put on a butterfly below the market.
August Quickie #1 – RUT Butterfly. With the RUT at 616.98, let’s:
Buy 10 RUT August 580 puts
Sell 20 RUT August 570 puts
Buy 10 RUT August 560 puts
Debit of about $.48 ($480)
Maximum risk is the $480. You’re risking the .480 to make a possible $9,520. Will you make that much? Probably not. It’s like hitting the lottery. The objective is to make a nice percentage return on the $480. Wouldn’t you be satisfied to double your money? That wouldn’t be too shabby for about a week of exposure and a small risk. You should be.
If the market continues down, the VIX will rise, the premiums increase, and you could conceivably close out the trade for a profit by Tuesday or Wednesday – IF the market continues lower. If you have an upside bias and believe the market will bounce back up, you can create a butterfly on the call side.
Buy 10 RUT August 650 calls
Sell 29 RUT August 660 calls
Buy 10 RUT August 670 calls
Debit of about $.50 ($500)
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August Quickie #2 – XEO Siamese Condor 492.57
This trade is for those who may not be expecting a big move in either direction.
Sell 2 August XEO 490 puts
Sell 2 August XEO 490 calls
Credit of about $13.10
To protect ourselves, and to allow most to participate in the Siamese Condor strategy, we’ll buy some far out of the money options to turn the above uncovered position into the equivalent of an Iron Condor.
Buy 2 August 450 puts
Buy 2 August 530 calls
Debit of about $.70
Net credit is $12.40 ($13.10 – $.70) or a potential $2,480 for two contracts ($1,240 x 2).
We essentially have an Iron Condor with the short options at the same strike price. Notice that I chose the 490 puts and calls. The XEO is actually at 492.57 – right in the middle of two strike prices. I have a slight downward bias, so I chose the strikes slightly below where the XEO is trading. If you have an upside bias, you might want to structure your position using the 495 strikes as your short options.
Our plan is to take advantage of the rapid time decay in the last week of the cycle. If the market hovers in the same area for a few days, we’ll have a good chance to buy back the short 490 strikes for a lot less, thereby locking in a nice profit in just a few days.
If we could buy back the short options at about $8, we could pocket a quick $880. I’d be happy with that. If you’re not going to be around to babysit or monitor your trade, you could put out a contingent order to close your position at $8 (or whatever figure you choose).
The maintenance on the above position is $10,000 for the two contracts. It would be much less if you have CPM (Customer Portfolio Margining).
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CORE POROLIO POSITIONS
Core Portfolio August Position #1 – RUT Batman Iron Condor – 616.98
On 7/9, with the RUT at about 620, we sold 10 August RUT 500 puts, bought 11 August RUT 490 puts and sold 1 August RUT 470 put. Net credit is $500. We also sold 10 August RUT 700 calls, bought 11 August RUT 710 calls and sold one August RUT 730 call for a net credit of $515. Total net credit and profit potential is $1,015. Maintenance is $10,000. Maximum profit range is 500 to 700. On 7/27, closed 700/710 bear call spread for debit of $1.80. We closed the single 710/730 bull call spread for $1.80 ($180).
Core Portfolio August Position #2 – SPX Bull Put Spread – 1083.61
On 7/28, with the SPX at about 1109, we sold 10 August SPX 1015 puts and bought 10 August SPX 1005 puts for a net credit of $.65 ($650). Maintenance is $10,000.
Core Portfolio September Position #1 – SPX Batman Condor – 1083.61
On 8/5, with the SPX at about 1122, we sold 10 SPX Sept 995 puts, bought 11 SPX Sept. 985 puts and sold 1 Sept. SPX 970 put for a credit of $585. We also sold 10 SPX Sept. 1225 calls, bought 11 SPX 1235 calls and sold 1 Sept. SPX 1250 call for a net credit of $510. Total net credit of $1,095. Maintenance is $10,000. Max profit range is 995 to 1225.
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EDUCATIONAL POSITION PORTFOLIO
This portfolio highlights trades using alternative strategies – beyond our standard Iron Condor and basic credit spreads.
Educational Portfolio #1 – QCOM SRS October Position – 38.24
On Monday, 3/15, with QCOM at 38.95, we sold 10 Oct. QCOM 33 puts, bought 10 Oct. QCOM 39, and sold 10 Oct. QCOM 44 calls for a debit of $.50 ($500).
Educational Portfolio #2 – RIMM Ratio SRS Strategy – 54.17
With RIMM at $59.11, we bought 5 December RIMM $57.50 calls and sold 5 December RIMM $67.50 calls for a cost of $4.40. To pay for this bull call spread we sold 10 December $42.50 puts for a credit of $4.10 ($2.05 x 2). Net debit for the entire position is $.30 = $150.
Educational Portfolio #3 – C Covered Call – 3.87
On 6/30, bought 1,000 shares of Citigroup at $3.81 and sold 10 January 2011 $4 calls bringing in $.53 ($530). Long term conservative play.
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RECENTLY CLOSED EXPERIMENTAL POSITIONS
Educational Portfolio – AAPL Beat The Bank
On 5/24, with Apple at about 240, we sold 50 January 2011 120 puts and bought 50 January 2011 110 puts for a credit of $.70. This is a hands-off position that will generate a return of about $3,500 on a $50,000 investment. Closed on 8/3 for $.14, locking in a $.56 profit. PROFIT: $.56 ($2,800)
Educational Portfolio #3 – BP SRS July Position
On 5/17, with BP we sold two BP July 40 puts. We then bought 1 BP July 45 call and sold 1 BP July 49 call – all for a credit of .01 ($10). We now own 200 shares of BP with a cost basis of $40. On 8/3, sold 200 shares at $40. RESULT: Break even.
Educational Portfolio – SPX Short & Sweet Weekly
On 7/23 we sold one SPX July (7/29) weekly 1050 put and bought one SPX July (7/29) weekly 1025 for a net credit of $1.90. We also placed an order to close the position for a debit of $.40. We’ll let time decay do the work for us. On 7/26, closed spread for $.35. PROFIT: $1.55 ($150 per contract).
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ONGOING LONG-TERM PORTFOLIO
This portfolio highlights long-term positions that we monitor for conservative traders.
A few years ago, I outlined a Zero-Plus 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’ve been 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 this month’s profit of $2,040, our new cash total is $79,105 ($77,065 + $2,040).
ZERO PLUS POSITION - RUT September Batman Condor – 616.98
On 8/10, with the RUT at about 645.75, we sold 20 Sept. RUT 530 puts, bought 22 Sept. 520 puts and sold 2 Sept. RUT 500 puts for a net credit of $930. Then we sold 20 Sept. RUT 720 calls, bought 22 Sept. RUT 730 calls and sold 2 Sept. RUT 750 calls for a credit of $1,145. Total net credit of $2,075. Max profit range is 530 to 720. Maintenance is $20,000.
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Renewal Process
The renewal process is pretty simple. We’ve done quite well this past year. More than likely, you will want to continue to receive our thoughts, insights, ideas and trade suggestions. We had a successful 2009 and are doing well in 2010.
When your renewal date is hit, your subscription will automatically be renewed based on the information you provided when you originally subscribed. The rate has not changed. It’s still less than half the profit of a single trade. You will continue to receive all the subscriber benefits for the same low bargain price ($495) as last year. Thanks to all of you who make this job a labor of love.
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OPTION PROFITS: The Naked Truth
My book “Option Profits: The Naked Truth” are now available at Traders Press and Amazon.com. The link to Traders Press to order the book is:
http://www.traderspress.com/detail.php?PKey=628
View the table of contents, a preface and actual reviews of the book (I’ll give you a hint: – they like it – a lot). Check it out.
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Disclaimer
Opinions and information in this newsletter are provided for educational purposes only. No statement in the newsletter should be construed as a recommendation to buy or sell a security or to provide investment advice. It is possible at this or some subsequent time, the editors or staff of Mike Parnos’ Options Newsletter may own, buy or sell securities discussed. All investors should consult a qualified professional before trading in any security. Stock and option trading involves risk and are not suitable for all investors. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy and completeness.
