November 10, 2009 – A Day Of Rest

A DAY OF REST

Good Evening Everyone,

After a big up day on Monday, the market paused for a rest today (Tuesday).  The S&P was flat and the RUT gave back 5.38 of Monday’s gain.  The volume was low, but that doesn’t seem to matter a lot these days.  Once upon a time, volume was a necessary ingredient for a market rally.  That’s not the case this time around.  But, over the last year, we’ve seen a number of things we’ve never seen before.

Over the past few weeks, when we’ve had a big swing up, it’s been followed by a pullback.  There still seems to be strength in this market – still buyers coming in on dips, providing liquidity.  We have to prepare ourselves to deal with another adjustment if/when the situation calls for it.  We’re not there yet, but if the same pattern continues, we may have to make one of our adjustments.

In Thursday’s column, we’ll try to come up with a few interesting Quickie trades.  With the wild swings, it’s tough to come up with any trades, especially using our non-directional strategies.

We’ll see how things shake out in a few days.
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OFFICIAL CORE PORTFOLIO
November Position #1 – SPX Iron Condor – 1093.01
On October 5. with the SPX at about 1027, we sold 10 November SPX 870 puts and bought 10 November SPX 860 puts for a credit of $.60 ($600).  We also sold 10 November SPX 1140 calls and bought 10 November 1150 calls for a credit of $.65 ($650).  Total net credit of $1.25 ($1,250). Maintenance is $10,000.  The SPX rallied and reached our trigger point.  We closed the 1140/1150 bear call spread for a debit of $2.00.  We originally took in $1.25.  There is a debit of $.75 and our bull put spread is still active.
 
November Position #1A – SPX Bear Call Spread – 1093.01
On October 21, we completed our Iron Condor with an 1170/1180 bear call spread, taking in $.55 ($550) of premium. 
 
November Position #2 – CME Iron Condor – 307.79
On October 12, with CME at 295, we sold 10 CME November 230 puts and bought 10 CME November 220 puts for a credit of $.55 ($550).  We also sold 10 CME November 360 calls and bought 10 CME November 370 calls for a credit of $.60 ($600).  Total net credit of $1.15 ($1,150).  Maintenance is $10,000.
 
December Position #1 – RUT Iron Condor – 586.93
On 11/6, with the RUT at 578.50, we sold 10 December RUT 480 puts and bought 10 December RUT 470 puts for a credit of $.50 ($500).  We also sold 10 RUT December 650 calls and bought 10 RUT December 660 calls for a credit of $.60 ($600).  Total net credit of $1.10 ($1,100).  Maintenance is $10,000.
 
December Position #2 – CME Iron Condor – 307.79
On 11/6, with CME at 302, we sold 10 CME December 250 puts and bought 10 CME December 240 puts for a credit of $.65 ($650).  We also sold 10 CME December 360 calls and bought 10 CME December 370 calls for a credit of $.50 ($500).  Total net credit of $1.15 ($1,150).
 
 
SUPPLEMENTAL NOV. TRADE (Not Official Core Portfolio Trade)
November Supplemental Position – RUT Iron Condor – 586.93
On October 30, with the RUT 580, we sold 10 November RUT 510 puts and bought 10 November 500 puts for a credit of $.50 ($500).  We also sold 10 November RUT 630 calls and bought 10 November RUT 640 calls for a credit of $.55 ($550).  Total net credit of $1.05 ($1,050).  Maintenance is $10,000.
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EDUCATIONAL POSITION PORTFOLIO
This portfolio highlights trades using alternative strategies – beyond our official Iron Condor and basic credit spreads.  Here are the updates.  The original positions are below.
 
(NEW) HORATIO PUT SPREAD – SPY – 109.59
On 10/19, with the SPY at about 108, we bought 100 SPY November 95 puts and sold 300 SPY November 93 puts for a credit of $.30 ($3,000).
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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 recent profits, our cash total is $75,390 ($74,140 + $1,250)
 
ZERO PLUS POSITION RESULT – RUT Iron Condor – 586.93
On September 23, with the RUT at about 620, we sold 15 November RUT 500 puts and bought 15 November 490 puts for a credit of $.50 ($750).  Then, we sold 15 November RUT 710 calls and bought 15 RUT 720 calls for a credit of $.50 ($750).  Potential profit is $1,500.  Maintenance is $15,000.
 
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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.
 
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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’ 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.