Where Directional Traders Come to be Cured

July 5, 2011 – Market Rests, But For How Long?

MARKET RESTS – BUT FOR HOW LONG?

Good Evening Troops –

The market took a bit of a breather today.  The results were mixed.  The DOW was down 12.90.  The S&P 500 was off 1.79 and the RUT was up 1.58.  The next few days should be interesting.  We’ll see if the train continues uptown.

Friday is the potential market moving jobs number.  That’s always good for some laughs and some volatility.  We’ll watch carefully.

Educational Position Updates

AAPL – In Sunday’s column we were considering an Apple put spread.  But, it doesn’t look like Apple is going to cooperate.  It’s just continuing up.   Those of you who believe we’re due for a significant rollover might consider just increasing the strikes by about five points and trying to put on another Apple put spread.  If you think that Apple is headed back up to resistance at about $360, then just sit back and relax.  What goes up will likely come back down.  It’s just a matter of when.  If not, let’s rock and roll and put on a put spread – just like Sundays, but maybe a strike higher.

BIDU – (Position #5) Microsoft announced some deal with BIDU that the market seemed to like.  BIDU worked it’s way up a few more points.  I had some emails asking when we would be in trouble in the current position.

Here’s how it works.  We look at the delta of the long Jan. 2012 $110 call.  Right now it is very deep in the money – .84.  So, if BIDU goes up $1, the $110 call goes up $.84.  Now, we check the delta of the short August $140 call.  It is $.64.  That means the Aug. $140 call will go up $.64 when BIDU goes up $1.  We will benefit by $.20 ($.84 – $.64) if BIDU goes up $1.

The time for us to get concerned is when the delta of the short $140 call gets close to the delta of the long Jan. $110 call.  That could happen as the $140 call loses time value and continues up.  Then, it’s time to GTFO and lock in some nice profit.

Note that we have two separate short August calls.  Each call should be dealt with separately.  There are two ways to deal with a threatened call.  We can close out the one short $140 call and liquidate the long $110 call.

As long as the deltas of the short $145 and long Jan. $110 call are in OK shape, DFWI – until necessary.  Either way, we’re in pretty good shape in this position.

JOYG (Position #1) – We’ve had this trade for a long time.  It’s been up and down and it’s scheduled to expire next week.  If you haven’t noticed, it’s been moving up a little bit at a time.  The position is actually in profit territory right now.

If the position were liquidated right now (based on Tuesday’s close), we would net a $1.22 profit.  JOYG is still a little out of the money.  Some believe that the market is going to roll over.  It’s up to you.  If the market continues up, you might make some more money.  If it rolls over, the profit will likely disappear.  Aren’t these decisions fun?

I’ll look at tomorrow’s futures and see if that helps me with my decision.

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Double Martinis

A businessman enters a tavern, sits down at the bar, and orders a double martini on the rocks. After he finishes the drink, he peeks inside his shirt pocket, then orders the bartender to prepare another double martini. After he finishes that it, he again peeks inside his shirt pocket and orders the bartender to bring another double martini.

The bartender says, “Look, buddy, I’ll bring ya’ martinis all night long – but you gotta tell me why you look inside your shirt pocket before you order a refill.”

The customer replies, “I’m peeking at a photo of my wife. When she starts to look good, I know it’s time to go home.”

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OPEN CORE PORTFOLIO POSITIONS

Core Portfolio July Position #1 – RUT Sweet-Spot Condor – 841.62

On 5/27, we bought 2 RUT July 740 puts, sold 10 RUT July 730 puts, bought 8 RUT July 710 puts.  We also bought 2 RUT July 900 calls, sold 10 RUT July 910 calls and bought 8 RUT July 930 calls for a net credit of $1,290.  Maintenance is $16,000.

Core Portfolio July Position #2 – RUT Iron Condor – 841.62

On 6/6, we sold 10 RUT July 710/700 bull put spreads for $.65 ($650).  We also sold 10 RUT July 870/880 bear call spreads for a credit of $.65 ($650).  Net credit of $1.30 ($1300).  Maximum profit range is 710 to 870.  The 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.

 

WEEKLYS

Weekly Position #1 – SPX Bull Put Spread

On July 1, we sold one SPX Weekly (7/8) 1285 put and bought one SPX Weekly (7/8) 1265 put for a net credit of $1.40 ($140/contract).  Maintenance is $2,000 per contract.

UPSIDE

Educational Portfolio #1 – JOYG SRS Ratio Ladder Spread – 96.70

On 4/29, with JOYG at about $99.85, we bought one JOYG July $97.50 call and sold one JOYG July $105 call for a debit of $3.60. Then, we sold one July $87.50 and one July $85 put for a total credit of $3.60.  Initial maintenance is about $2,086.

Educational Portfolio #2 – NKE SRS Ratio Ladder Spread – 91.74

On 2/16, with NKE at about 86.15, we bought one NKE July $85 call and sold one NKE July $90 call for a debit of $2.30. Then, we sold one NKE July $75 put and one NKE July $70 put for a credit of $2.30 – a wash.   Initial maintenance is about $1,690.

Educational Portfolio #3 – FFIV SRS Ratio Spread – 113.51

On 2/11, with FFIV at about $126.50, we bought one April FFIV 125 call and sold one April FFIV 135 call for a debit of $4.50.  We now own 200 shares of FFIV at an average cost per share of $107.50.  Sold 2 July $100 calls for $7.80.

Educational Portfolio #4 – AAPL Beat-the-Bank (Long Term) – 349.43

On 4/27, with Apple about $348, we sold 10 January 2012 235/225 bull put spreads for $.83 ($830).  Maintenance is $10,000.   Get comfortable.  We’ll be in this one for a long time.

Educational Portfolio #5 – BIDU Diagonal Calendar – 145.87

On 5/18, with BIDU near 132, we bought two Jan. 2012 110 calls for $31.55 ($6310), sold one June $140 call and one June $145 call for a total of $4.75 ($475).  This is similar to a covered call position, using the Jan. 2012 call instead of owning the stock.  Below is a recap of the position over the past seven weeks.

1 – Bought two BIDU January 2012 January 110 calls for $31.55 each

2 – Sold one BIDU 135 call @ $2.51 credit

3 – Sold one BIDU 140 call @ $1.46 credit

4 – Rolled one July 135 call to August 140 call @ $2.70 credit (current)

5 – Rolled one July 140 call to August 145 call @ $2.00 credit (current)

Educational Portfolio #6 – SPX “Sure Thing” Spread – 1337.88

On 6/17, we sold two July SPX 1310 calls and bought two July 1330 calls for a net credit of $7.20.  Maintenance is $5,000 ($2,500 per contract).

The market reversed itself, going from a bearish trend to a bullish trend.  We had to close the SPX July 1310/1330 bear call spread (at $14.10).  We then established a four contract August 1305/1280 bull put spread for a $7.10 credit. Maintenance is now $10,000.

DOWNSIDE

 

None

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ZERO PLUS POSITION – Stay Tuned . . . Exploring Potential Positions

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ONGOING LONG-TERM PORTFOLIO (Background & Results)
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. After June’s 100% profitable trade, our new cash total is $82,330 ($81,180 + $1,150). ______________________________________________________________

RECENTLY CLOSED EDUCATIONAL POSITIONS

AAPL Weekly Iron Condor

On 6/24 we sold 5 AAPL Weekly 345/350 bear call spreads for $.25 and sold 5 AAPL Weekly 310/305 bull puts for $.25.  Total net credit is $.50 ($250).  Max profit range is 310 – 345.  Options expired 100% profitable.  Net Profit of $250 – 11% in a week.

Educational Portfolio – AMZN SRS Ratio Spread

On 6/27 we bought the AMZN August $195/$205 bull call spread and sold two $170 puts to pay for it.  Net debit of only $.10.  Closed 6/29 for a Net Profit of $2.40 ($240)

SPX Weekly – Bull Put Spread

On 6/17, we sold one Weekly SPX 1315/1335 bull put spread for a net credit of $1.90.  Maintenance is $2,000 per contract.  Closed 6/23 for $.05. Net Profit of $1.85 ($185)

Educational Portfolio – UUP SRS Ratio Strategy

On 10/25, we sold two June UUP $21 puts, bought one $22 call and sold one $24 call for a debit of $.10.  Maintenance is $670.  This is a bet on the strengthening of the dollar in the next six months.  All options expired worthless.  Cost was only a dime.

Educational Portfolio  – SPY Butterfly

On 6/8 with the SPY at 129, we put on a 5/10/5 128/126/124 put butterfly for a debit of $.28 ($280).  Closed 6/15 for $.62, a net Profit of $.34 – a double.

Educational Portfolio – V Put Ratio Ladder Spread

On 3/14, with V at about $71.50, we bought one V June $75 put and sold one V June $70 put. Then, we sold one June $65 put and sold one June $60 put for a net credit of $.71.  Initial maintenance is about $1,600. Closed 6/15 for a total net Profit of $1.31.

AAPL Weekly Iron Condor

We sold 10 Apple 330/325 bull put spreads and 10 Apple 360/365 bear call spreads for a credit of $.68.  Maintenance is $5,000.  On 6/10, closed at $1.39.  Net loss of $.71 ($710).

QQQ Weekly – Boston Strangle

On 5/27, with the QQQ at about $57.35, we bought 10 QQQ Weekly $58 puts and bought 10 Weekly $57 calls for a debit of $1.47.  Risk is only $.47 ($470).  Closed 6/1 for $1.49, just over breakeven.

SPX Weekly – SPX Weekly Bull Put Spread

On 5/20 we sold 10 SPX Weekly 1300 puts and bought 10 SPX 1290 puts for a credit of $.50 ($500).  The maintenance $10,000.  Profit of $500 = 5.26%

Educational Portfolio – OIH SRS Spread

On 5/23, with OIH about 145, we bought the July 144/150 bull call spread and sold the July 135 put for a net credit of $.10.  Closed 5/27 for net Profit of $2.95.

QQQ Weekly – QQQ Weekly Boston Strangle

On 5/20, we bought 10 Weekly QQQ 59 puts and bought 10 QQQ 58 calls for a debit of $1.57. Risk is $.57 ($570). Closed 5/23 for a Profit of $1.36 = 238% over the weekend.

SPX Weekly – Bull Put Spread

On 5/5, with the SPX at about 1351, we sold a 1375/1400 bear call spread for a credit of $1.35.  Maintenance is $2,500 per contract.  Closed 5/11 for $.10.  Net Profit of $1.25

Educational Portfolio – AMZN SRS Ratio Spread

On 5/9, we bought one July 195/205 bull call spread and sold two July 175 puts for a net debit of $.10.  On 5/12, we closed the position for a net Profit of $2.35 in only four days!

Educational Portfolio  – OIH Put Spread

On 4/11, we bought one May OIH 164 put and sold one May 159 put. Then, we sold one May OIH 148 put for a net debit of $.40.  Closed 5/11 for credit of $2.55. Net Profit of $2.15.

Weekly – SPY Boston Strangle

On 4/29, anticipating a large move, we bought 5 SPY Weekly (5/6) 137 puts and bought 5 SPY Weekly (5/6) 135 calls for a debit of $2.95. On 5/5, closed position for $3.40, a Profit of 47% in less than a week.

Educational Portfolio – IBM SRS Ratio Spread

On 4/21, with IBM at about 166.50, we bought one IBM July 165 call, sold one IBM July 170 call and sold two IBM July 145 puts for a credit of $.10.  Initial maintenance is $3,160. Closed 4/29 for a net Profit of $2.23 in only 6 trading days!

Educational Portfolio – SPY SRS Ratio Spread

On 4/21, with SPY at about 131.50, we bought one SPY June $130 call, sold one SPY June $135 call and sold two June $124 puts for a credit of $.02.  Initial margin requirement is $4,000.  Closed 4/27 for a Profit of $2.18 in less than a week!

Educational Portfolio – SPY Put Ratio Spread

On 3/21, with the SPY at 129.80, we bought one April SPY 131 put and sold one April SPY 127 put.  Then, we sold two April SPY 121 puts for a net debit of $.04.  Closed 4/15 for credit of $.20.  Net Profit of $.16 ($.20 – .04).

Educational Portfolio – DIA Put Ratio

On 1/27, with the DIA at 119.50, we bought 5 DIA April 120 puts and sold 5 DIA April 116 puts.  We also sold 10 DIA April 109 puts.  Net credit is $.05.  All options expired worthless.  Profit:  $.05 (initial credit)

Educational Portfolio – Weekly Trade  – Apple Iron Condor

On 4/8 we sold 10 April Apple 325 puts, bought 12 315 puts. Sold 10 April Apple 350 calls and bought 12 360 calls for a net credit of $1,160.  Maintenance is $10,000. Closed 4/13. Net was a Profit of $974.

Educational Portfolio – Weekly Trade – SPY Butterfly

On 4/8 we bought 5 April SPY 132 puts, sold 10 April SPY 130 puts and bought 5 Alpril SPY 128 puts for a debit of $.21 ($105).  Closed on 4/13.  Net was a profit of $240 ($.48 x 500).

Educational Portfolio #6 – IWM Put Ratio Spread

On 3/29, with the IWM at 84, we bought one May IWM 85 put and sold one May 82 put. Then, we sold two May IWM 75 puts for a net credit of $.06. Initial maintenance is about $1,600.  Closed 4/14 for a net Profit of $2.44 ($2.38 + $.06)

Educational Portfolio – CRM SRS Ratio Ladder Spread

On 3/28, with CRM at $128, we bought one May CRM $125 call and sold one June $135 call. We sold one CRM $110 put and one CRM $105 put. Net credit = $.25.  Initial maintenance is $2,520.  Closed 4/8 for net Profit of $3.75.

Educational Portfolio – SPX Weekly Bull Put Spread

On 4/1, with the SPX at 1336, we sold one Weekly 1300 put and bought one 1275 put for a credit of $1.35.  Maintenance is $2,500 per contract. Closed 4/6 for $.20 and a net Profit of $1.15.

Educational Portfolio – SOHU SRS Ratio Spread

On 3/10, with SOHU at about 82, we bought one SOHU June $80 call and sold one SOHU June $90 call for a debit of $4.25.  Then we sold 2 SOHU June $65 puts for $4.10.  Net debit of $.15.  Closed 3/29 for net profit of $3.80.

Educational Portfolio – BIDU SRS Ratio Ladder

On 3/23, with BIDU at 127.25, we bought 1 June BIDU 125 call and sold 1 BIDU 135 call. We also sold 1 BIDU June 105 put and one BIDU June 100 put for net credit of $.30 ($30).  Initial maintenance was $2,540. Closed 3/25 for net profit of $2.93.

Educational Portfolio – Weekly SPX Bear Call Spread

On 3/18, with SPX at about 1315, we sold one SPX Weekly (3/24) 1325 call and bought one SPX Weekly (3/24) 1350 call for a credit of $1.30 ($130).  Maintenance is $2,500 per contract.  Closed 3/22 for $.30 and a net Profit of $1.00 – in three days..

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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 2010 and are doing well in 2011, particularly with the new strategies we have introduced last year. 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.­