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
July 29, 2010 – Contrarian Strikes Again
CONTRARIAN STRIKES AGAIN
Good Evening,
Market ended mixed today, which is just fine. It started lower and battled back from a 100-point drop, but finished up a bit lower. In case you haven’t noticed, my contrarian curse seems to have kicked in. We get out of the RUT 700/710 bull put spread. On cue, the market did an immediate about face and began to head down.
Also, yesterday we initiated another Core position — an SPX 10-contract 1015/1005 bull put spread. The original order was for $.60. A number of subscribers were filled at $.60 within a few minutes of placing the order – which is excellent. As the market started to move down, I raised my credit limit to $.65 and was filled a little later.
At least one other subscriber (Chuck) lowered the strikes to 1010/1000 and was able to get filled at $.60. That extra 5 points of cushion might come in real handy before all is said and done.
Tonight I’ve been looking for another Weekly play – based on the criteria we used last week. If you recall, we locked in an impressive profit in two trading days (See #6 below). Unfortunately, I haven’t found an index that has broken through the 10-day EMA. A few indexes came down and touched the 10-day, but bounced back up before the close. So, we will be patient and wait for our signal to be triggered. When you force a trade, it’s a sure-fire recipe for losing money.
Cheap Fun
Wanna have some cheap fun? Of course you do. I’m not talking about a $5 hooker. I’m talking about a $.16 butterfly.
If you think the market is about to head south for the week, here’s a way to play it that doesn’t require an investment of the family jewels.
The XSP is about 1/10 the value of the S&P 500. It’s European style, so there is no risk of early exercise. For the Weekly series expiring on 8/6/10, and the XSP a 110.29, let’s:
Buy 10 Weekly 107 XSP puts
Sell 20 Weekly 105 XSP puts
Buy 10 Weekly 103 XSP puts
Net debit of about $.16 ($160)
The entire risk is only what came out of your pocket ($.16). If the market moves down a bit, you may find yourself in a nicely profitable position – and a hell of a return on a $.16 risk.
If you have an upside bias, just flip things around.
Buy 10 Weekly 113 XSP calls
Sell 20 Weekly 115 XSP calls
Buy 10 Weekly 117 XSP calls
Net debit of about .21 ($210)
If you think there’s going to be a large move in the next week, you can put on both positions and it still wouldn’t cost much. This is just food for thought. In reality, unless you’re just in it for the action, there’s no reason to trade. Relax. Just relax and enjoy life.
My Two Cents
This weekend I’m going to see “Dinner For Schmucks” – a movie with Steve Carell. It could be funny. It is based on a premise I first saw in the movie “The Dinner Game” which is one of my top 10 favorites of all time. I laughed until I cried.
If you’re a movie buff, I suggest you see “The Dinner Game” first. Then, you can hope that the remake is half as funny.
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CORE PORTFOLIO POSITION
Core Portfolio August Position #1 – RUT Batman Iron Condor – 650.43
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 – 1101.53
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.
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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 – 38.78
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 – AAPL Beat The Bank – 258.11
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. Beats the hell out of the bank.
Educational Portfolio #3 – BP SRS July Position – 38.47
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.
Educational Portfolio #4 – RIMM Ratio SRS Strategy – 55.70
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 #5 – C Covered Call – 4.12
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.
Educational Portfolio #6 – 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.
