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 8, 2010 – Long Hot Summer
THE LONG HOT SUMMER
Happy Sunday,
The column headline has nothing to do with the market. It’s just been a long hot summer. Besides, I always like the movie by that name. The heat is nice. It’s funny to hear people complain and ask, “is it hot enough for you?” It’s these same people that would kill for this same heat when it gets to five degrees during the snowy winter. Ever notice how some people are never satisfied?
The Weekly trade idea I wrote about on Thursday didn’t pan out. The jobs number disappointed and the market gapped down and pretty much stayed there. It did show some resilience and it bounced back near the end of the day. The S&P 500 had earlier broke down through the 200 day moving average, but it came back and only ended down 4.17.
It’s better not to force the trade, even though it might have worked out. Remember, we want to have a high probability of success. If we don’t, it’s just a crap shoot. We’ll have plenty of opportunities. Patience is almost as important as self-discipline.
Trade Idea
Here’s something to think about. There are those who believe that we’ve topped out and that the market is headed south. At least that’s what guys on TV said. What the hell, there’s a 50/50 chance they’re right. They also think that RIMM is vulnerable. It’s a good company, but is having a bit of a problem competing with AAPL. So, if you have a downside bias, here’s a strategy that will position you to take advantage of the scenario.
We’ll use our SRS Ratio 1-by-2 put spread. With RIMM at $53.45, let’s:
Buy 1 RIMM September $50 put @ $2.02
Sell 2 RIMM September $45 puts @ $.77 (x 2 = $1.54)
Net credit of about $.48 ($48 per contract).
You have to admit that $48 per contract is pretty damn cheap. When the market opens on Monday, the prices will obviously be different. The above calculations are made based upon Friday’s closing prices. You will just put in your order as a spread for a net debit.
Also, be aware that you have to be willing to become long 100 shares of RIMM at $45. Don’t worry, though. Your cost basis wouldn’t be $45. Don’t forget that you just made $$4.52 on the $50/$45 bear put spread ($5.00 – $.48). The actual cost basis would be only $40.48.
The sweet spot, at expiration, would be just above $45. It will be tough to close out the position too early because, as the market comes down, the volatility increases. That makes it costly to buy back the two short $45 puts.
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Why Italians Pass Handguns Down Through The Family
An old Italian man is dying.He calls his grandson to his bedside… ” Guido, I want you to lissina me.
I want you to take-a my chrome plated .38 revolver so you will always remember me.”
“But grandpa, I really don’t like guns. How about you leave me your Rolex watch instead?”
“You lissina me, boy. Some day you gonna be runna da business, you gonna have a beautiful wife, lotsa money, a big-a home and maybe a couple of bambinos.
Somma day you gonna come-a home and maybe find you wife in bed with another man… Whatta you gonna do then? Point to your watch and say, ‘Time’s Up’?”
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CORE PORTFOLIO POSITION
Core Portfolio August Position #1 – RUT Batman Iron Condor – 650.68
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 – 1121.64
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 – 1121.64
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 – 38.65
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 – 53.45
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 – 4.06
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 – 260.09
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 – 41.33
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 -
We are currently looking for a new Zero Plus Position. ______________________________________________________________
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.
