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
May 17, 2011 – Meet the Diagonal Calendar Spread
MEET THE DIAGONAL CALENDAR
Good Evening Everyone,
After looking like it was going to move up this morning, news from Hewlett Packard dampened the spirits and the market started down. It continued down and only a late day rally prevented another severe loss. The DOW was off 68.79. The S&P lost only .49. The RUT shaved 2.55 while the Nasdaq was actually up .90.
Zero-Plus Position Update
On Monday, we managed to get into the RUT Iron Condor, but with a minor strike adjustment. With the RUT moving lower from the open, we were able to lower the strikes of both the bear call spread and the bull put spread by ten points. The net premium was the same. The VIX moved up and made a little more premium available.
Something Different
We’ve been using a variety of strategies, some short term, some longer term. Today, we’ll discuss a strategy we haven’t used here in the newsletter – a diagonal calendar spread. This is just one of the many strategies we discussed this in last weekend’s seminar.
This strategy is popular, relatively conservative, and is often used in place of a covered call. Instead of owning 100 shares of stock, we’ll use one LEAP contract of a strike with a delta of .75 or more. Then, we will sell near term calls against this position.
For the underlying, we will use BIDU. This trade is for educational purposes. If you like this strategy, you should pick an underlying for which you are neutral to mildly bullish. Here is how we will initially set up the trade. With BIDU trading at 131.81, let’s:
Buy 2 January BIDU 110 calls (delta: .75) @ $31.45 x 299 = $6,290)
Sell 1 June BIDU 140 call @ $3.10
Sell 1 June BIDU 145 call @ $1.81
Total premium received: $4.91
If BIDU closes below 140, we will have a return on risk of about 7.8%. By staggering the calls at 140 and 145, we are giving the long January call room to move up and appreciate before we have to make an adjustment. We will, during the life of this trade, have to make adjustments. We’ll discuss potential adjustments and how deltas figure into the calculations in upcoming columns.
The above is based on Tuesday’s closing prices. As usual, they will likely be very different tomorrow morning. But, you might want to watch this strategy for awhile and see if it fits comfortably with your risk tolerance and/or your account size. Obviously, the example is for only two contracts. You can, when you decide to participate, scale the position up to your comfort level. This position should be interesting. We’ll all, including me, learn a lot in the process. Be careful. Be flexible. Be conservative.
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OPEN CORE PORTFOLIO POSITIONS
Core Portfolio May Position #1 – GOOG Iron Condor – 530.46
On 4/4, with GOOG at about 594, we sold 10 GOOG May 670/680 bear call spreads. We also sold 10 GOOG May 515/505 bull put spreads for a credit of $.65. The net credit is $1.15 ($1,150). Maximum profit range is 515 to 670. Maintenance is $10,000.
Closed 515/505 bull put spread for $2.95 and rolled out to May 475/465 bull put spread for $.80. Debit of $2.15 ($2.95 – $.80). Current position has a net debit of $1.00 ($2.15 – $1.15).
Core Portfolio May Position #2 – RUT Iron Condor – 820.36
On 4/11, with RUT at about 840, we sold 10 RUT May 740/730 bull put spreads for $.65 ($650). We also sold 10 RUT May 910/920 bear call spreads for $.65 ($650). Net credit is $1.30 ($1,300). Maximum profit range is 740 to 910. Maintenance is $10,000.
Core Portfolio June Position #1 – RUT Iron Condor – 820.36
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.
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EDUCATIONAL POSITION PORTFOLIO
This portfolio highlights trades using alternative strategies – beyond our standard Iron Condor and basic credit spreads.
WEEKLYS
None
UPSIDE
Educational Portfolio #1 – JOYG SRS Ratio Ladder Spread – 86.19
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 – 84.89
On 2/16, with NK 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 – 103.84
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 July $100 call for $7.80.
Educational Portfolio #4 – UUP SRS Ratio Strategy – 21.60
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) – 336.14
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.
DOWNSIDE
Educational Portfolio #6 – AAPL Put Spread – 336.14
With Apple near 348, we bought one May 325 put and sold one May 315 put. Then we sold one 300 put all for a net credit of $.25. Initial maintenance is about $3,250.
Educational Portfolio #7 – V Put Ratio Ladder Spread – 80.6
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 – 820.36
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
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.
