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
December 29, 2009 – How About A Calendar Spread?
HOW ABOUT A CALENDAR SPREAD?
By Mike Parnos
Here’s an idea that we’ll try in our Educational Portfolio. It’s a diagonal calendar spread. For those who don’t remember, a calendar spread is considered “diagonal” when the long option and short option have different strike prices. A calendar spread is “horizontal” when the strike prices are the same.
Based on Tuesday’s closing prices for IWM (63.23), let’s:
Buy 10 February 62 calls – DIWBJ – Delta: .61 (Price: 2.97)
Sell 10 January 65 calls – DIWAM – Delta: .26 (Price: .41)
Debit of about $2.56 ($2,560)
IWM tracks the RUT (Russell 2000 index). This is a strategy for those who are neutral to mildly bullish. Our objective is to take advantage of time decay. If the IWM moves up, the .61 delta will cause the value of the February 62 long call option to increase more rapidly than the January 65 call option. The difference will be our profit.
In a perfect world, the IWM will settle slightly below 65 (650 on the RUT). That way, we would not only retain the .41 of time decay, but we would benefit from the upward move of the RUT. It all is well at January expiration, you can evaluate the situation and decide if you would like to sell a February call against the 65 February call you still own.
You might be asking, “when do we GTFO?” It’s time for us to end the relationship if the delta of the short January 65 calls is equal to the delta of the February 62 calls. That’s the move when the IWM moves up too quickly. Don’t worry. Even if the market moves up quickly, and you have to GTFO, you will have a nice profit to show for your trouble. On the downside, if the IWM moves down to where you can liquidate both options for about $2.26. That means we are actually risking about $.30 ($300).
This is another strategy in which we would look to lock in a profit of $150 – $200 if we have the opportunity prior to January expiration. Let’s not get greedy. $150 – $200 is not a bad return on a risk of about $300. There is no maintenance requirement simply because this is a debit (not credit) spread. You will need to pay attention to the market for this position. It’s not like one of our Iron condors that allow us to be complete couch potatoes. We can only be partial couch potatoes this time around.
Don’t forget to include commissions when doing your calculations. Plus, double check your option symbols before placing the trade. Also, don’t forget to check the futures before putting your orders out there. They could make a difference in your decision of which strikes to use.
______________________________________________________________
The Couple That Sneaked Into The
White House Without Any Credentials!!
______________________________________________________________
JANUARY CORE PORTFOLIO POSITION
January Position #1 – RUT Iron Condor – 633.18
On 12/8, with the RUT at 601, we sold 10 January RUT 510 puts and bought 10 January RUT 500 puts for a credit of $.55 ($550). We also sold 10 RUT January 670 calls and bought 10 RUT January 680 calls for a credit of $.55 ($550). Total net credit of $1.10 ($1,100). Maintenance is $10,000.
January Position #2 – SPX Iron Condor – 1126.20
On 12/16, with the SPX at 1108, we sold 8 January SPX 1005 puts and bought 8 January SPX 995 puts for a credit of $.50. We also sold 8 January SPX 1180 calls and bought 8 January SPX 1190 calls for a credit of $.50 ($400). Total net credit of $1.00 ($900). Maintenance is $10,000.
January Position #3 – CME Iron Condor – 338.39
On 12/18, with CME at 324, we sold 10 CME January 290 puts and bought 10 CME January 280 puts for a credit of $.55 ($550). We also sold 10 CME January 360 calls and bought 10 CME January 370 calls for a credit of $.50 ($500). Total net credit of $1.05 ($1,050). Maintenance is $10,000.
______________________________________________________________
EDUCATIONAL POSITION PORTFOLIO
This portfolio highlights trades using alternative strategies – beyond our official Iron Condor and basic credit spreads.
There are no current active positions.
______________________________________________________________
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 recent profits, our cash total is $76.890 ($75,390 + $1,500)
ZERO PLUS POSITION – RUT Bull Put Spread – 633.18
With the RUT at about 578.50, we sold 20 January RUT 470 puts and bought 20 January 460 puts for a credit of $.55 ($1,100). Potential profit is $1,100. Maintenance is $20,000. We are still looking for a possible bear call spread to complete an Iron Condor position.
______________________________________________________________
REMINDER . . .
As we approach the end of the year, it’s time to address our renewal process. Actually, it’s pretty simple. We’ve done quite well. More than likely, you will likely want to continue to receive our thoughts, insights, ideas and trade suggestions.
When your renewal date is hit, your subscription will automatically be renewed based on the information you provided me 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. As your subscription is renewed, I will send you a confirmation email. Thanks to all of you who make this job a pleasure.
______________________________________________________________
OPTION PROFITS: The Naked Truth
My book “Option Profits: The Naked Truth” are now available only at Traders Press. 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.
_________________________________________________________________
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’ 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.
