Where Directional Traders Come to be Cured

June 7, 2011 – Market Continues Slide

MARKET CONTINUES SLIDE

Good Evening Everyone,

It was nice while it lasted. Today, the market was going along, minding its own business, on its way to posting a modest bounce. Then, this afternoon, Bernanke opens his mouth. The market didn’t care for what Ben had to say and it gave back the day’s gains. Sellers seem to be selling into the bounces – and they don’t need much of a reason.

Only the RUT remained positive – by 2.23. The DOW was off 19.15 and the S&P 500 dipped by 1.23. It wasn’t a terrible day, but there’s not much reason for optimism – at least for the moment.

In Sunday’s suggested Apple Experimental position, we almost got faked out. Yesterday, even though the market was tanking, Apple moved up past our trigger point. We waited and the gain began to slowly disappear – until it closed down. If the rest of the market had been flat or moving up a bit, we might have jumped in. But, it wasn’t, so we didn’t.

Some of you got into our “supplemental” July RUT position. A few used the suggested strikes while many of you lowered the strikes by five or ten points and still took in a nice premium. We’ll follow this “extra” position in our Core Portfolio category.

It’s interesting that, even though the market has come down substantially recently, the VIX is only at 18.07. I would have expected it to be higher. What does that mean? Hell if I know. Maybe it’s because the decline has been orderly instead of there being a huge gap generating the “fear” that usually results in a volatility spike.

Experimental Trade Idea
It looks like the market wants to continue lower. It may be due for a bounce, but it doesn’t appear to be going anywhere, at least for awhile. Let’s try one of our cheap butterfly trades on the SPY. This is like a weekly, but a few days early. With the SPY at about 129, let’s:

Buy 5 June SPY 128 puts
Sell 10 June SPY 126 puts
Buy 5 June SPY 124 puts
Debit of about $.30 ($150)

This is a cheap way of picking a direction with the potential of a nice return on a very little risk. It would still be a good trade all the way up to a debit of $.35. We’ll watch this and, it will be nice to double our money. That means, you can put in a contingent order to close the position for a credit of about $.60-$.65. Don’t forget to take into consideration that butterfly trades are commission intensive. Allow for that when doing your calculations. This is a debit spread. It requires no maintenance.

If you are more bearish, the 127/125/123 butterfly could be put on for about $.23-.24. Notice that the further you go out of the money, the less it costs to put on a butterfly.

As always, watch the futures tomorrow morning. The above trade was based on Tuesday’s closing numbers and some bid/ask spread negotiation. Be careful. Don’t be greedy. Be conservative and be flexible.
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OPEN CORE PORTFOLIO POSITIONS
Core Portfolio June Position #1 – RUT Iron Condor – 797.55
On 5/4, with the RUT at about 832, we sold 10 RUT June 730/720 bull put spreads for $.65 ($650). We also sold 10 RUT June 920/930 for a credit of $.60 ($600). Net credit is $1.25 ($1,250). Maximum profit range is 730 to 920. Maintenance is $10,000.

Core Portfolio July Position #1 – RUT Sweet-Spot Condor – 797.55
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 (Extra) – RUT Iron Condor – 797.55
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
AAPL Iron Condor – 332.04
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.

UPSIDE

Educational Portfolio #1 – JOYG SRS Ratio Ladder Spread – 89.44
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 – 81.90
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 – 112.01
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 – UUP SRS Ratio Strategy – 21.03
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.

Educational Portfolio #5 – AAPL Beat-the-Bank (Long Term) – 332.04
On 4/27, with Apple about $348, we sold 10 January 2012 235/225 bull put spreads for $.83 ($830). Maintenance $10,000. Get comfortable. We’ll be in this one for a long time.

Educational Portfolio #6 – BIDU Diagonal Calendar – 124.82
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.

DOWNSIDE

Educational Portfolio #7 – V Put Ratio Ladder Spread – 79.82
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.
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ZERO PLUS POSITION – RUT Iron Condor – 797.55
On 5/16, with the RUT at about 828, we sold 10 RUT June 740/730 bull put spreads and sold 10 RUT June 890/900 bear call spreads for a total credit of $1.15 ($1,150). Max profit zone in 740 to 890. Maintenance is $10,000.
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RECENTLY CLOSED EDUCATIONAL POSITIONS

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 – 1316.28
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..

Educational Portfolio – IOC – SRS Ratio Spread
On 1/5, with IOC at about $76, we bought a March 75/85 bull call spread and sold two March $65 puts. Net credit of $.20. Closed 3/18 with a profit of: $2.62 + $.20 = $2.81.

Educational Portfolio – VIX SRS Ratio Spread
On 1/27, with the VIX at 17.50, we bought one March $18 call and sold one March $20 call. We sold two March $17 puts – all for a net credit of $.10. Initial maintenance is $695 for the above position. Closed 3/10 for net $1.80 profit.

Educational Portfolio – Weekly SPX Bear Call Spread
On 3/4, with SPX at about 1315, we sold one SPX Weekly (3/11) 1285 put and bought one SPX Weekly (3/11) 1260 put for a credit of $1.45 ($145). Maintenance is $2,500 per contract. Closed 3/10 for net $.35 loss.

Educational Portfolio – Weekly SPX Bear Call Spread
On 2/25, with SPX at about 1315, we sold one SPX Weekly (3/4) 1345 call and bought one SPX Weekly (3/4) 1370 call for a credit of $1.45 ($145). Maintenance is $2,500 per contract. Closed 3/2 for $.25 and a net Profit of $1.20 ($120).

Educational Portfolio – SU SRS Ratio Spread
On 2/14, with SU at about 40.82, we bought one SU June $40 call and sold one SU June $45 call. We sold two SU June $35 puts and did it all for a debit of $.05. Closed 3/2 for a net Profit of $2.80 ($280).

Educational Portfolio – GLD SRS Ratio Spread
On 2/4, with GLD at 132, we bought 3 April GLD 131/135 bull call spreads and sold six GLD April 122 puts for a net debit of $.02. Initial maintenance is $10,300. Closed 2/28 for net Profit of $2.67.

Educational Portfolio – AMZN – SRS Spread
On 12/29, with Amazon at about 183.50, we bought the April 180/190 bull call spread and sold the April 155 put to pay for it. Net debit of $.35. Closed 2/14 for a net Profit of $4.47.
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ONGOING LONG-TERM PORTFOLIO (Background)
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. Our cash total is $81,180 ($79,105 + $2,075). See position above.
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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.¬