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
November 16, 2010 – Down, Down, Down
DOWN, DOWN, DOWN
Hi Gang,
The market moved a chunk to the downside. The DOW was off 178. The RUT was down 14.60 and the S&P 500 was down 19.41. The VIX popped up 2.38 to 22.58. There’s a bit more premium in the market now.
We’re due for a bounce and there are only a few days left in this option cycle. The market should find a floor not too terribly far from here. That’s my two-cents – and it’s probably exactly what it’s worth.
Our Goldman Sachs Educational trade idea was initiated yesterday when GS hit our trigger point. It has since come back down with the rest of the market, but we’re in. The other Educational position, FLR, was never triggered so we’ve canceled it.
We were able to put on our Educational CME bearish trade. Now, with the market pulling back, we have two bearish trades – CME and Apple. These are ways of hedging. If stocks don’t pull back to profitable territory on our positions, we haven’t spent very much, if anything, to put on the positions. It ties us some maintenance dollars, but not a lot.
Participating in this hedging makes sense and gives us the potential of making some nice money and/or buying some stock at real bargain prices.
Let’s try to put on another bearish Educational position. First Solar (FSLR) came down big today. It may continue down, although it may very well bounce tomorrow. Big down or up days, often pause before continuing in a particular direction.
New Educational Position Idea
With FSLR at 130.69, let’s create a put ratio spread using a “put tree.”
Buy one FSLR January 130 put @ $9.10
Sell one FSLR January 120 put @ $5.25
Sell one FSLR January 115 put @ $3.95
Net credit is about $.10.
We’ve only done this once before, a long time ago. Here’s how it breaks down. We make money if FSLR comes down to between 120 & 130 – potentially $10. If FSLR blows through 120, we are still short the 115 put. We are saying that we are willing to buy 100 shares of FSLR at 115.
Our real cost basis, if we buy the shares at 115, is only 105 because we made $10 on the 130/120 bear put spread. Personally, I’d be willing to own FSLR at 105. The initial maintenance is $1,545.
On all the positions we establish, we have a maintenance requirement – usually because we are short a put or two. The maintenance figures I put on the trade are the “initial” figures. They will fluctuate, up and down, as the underlying fluctuates. Plus, my figures come from inputting the prices and strikes into the CBOE margin calculator. It’s a good place to start.
For those of you who have portfolio margining, the requirements would be significantly less. Check your broker to see if they offer portfolio margining and their requirements. It’s a nice feature to have, as long as you don’t abuse it.
Here’s the link for the CBOE Margin Calculator: http://www.cboe.com/tradtool/mCalc/default.aspx
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CORE POROLIO POSITIONS
Core Portfolio November Position #1 – RUT Batman Condor – 705.34
On 10/1, with the RUT at about 675, we sold 10 Nov. 560 puts and bought 10 Nov. 550 puts for a credit of $.75 ($750). We also sold 10 Nov. 760 calls and bought 10 Nov. 770 calls for a credit of $.70 ($700). We bought the 550/530 put Batman Wing for only $.90 and the 770/790 call Batman Wing for $1.05. Our net credit $1,260. We closed the bear call spread and the one contract bull call spread for $1,565. Our current debit is $305. We initiated a November 690/680 bull put spread, taking in a credit of $.55 ($550)
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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 – UUP SRS Ratio Strategy – 22.92 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 #2 – C Covered Call – 4.22
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 #3 – AAPL Ratio Put Spread – 301.59 On 10/1, with Apple at about 284, we bought a January $280 put, then sold one $260 put and one $250 put for a net credit of $.15. We are in a position to profit if Apple drops below $280 all the way down to $260. This was a longshot, but it didn’t cost us anything.
Educational Portfolio #4 – ALTR SRS Ratio Strategy – 32.18 On 10/12, when ALTR broke through our trigger point ($30), we bought 1 Jan. ALTR $29 call and sold 1 Jan. ALTR $32 call for $1.40. We sold two Jan. ALTR $24 puts for a total of $1.30. Our net debit was only $.25.
Educational Portfolio #5 – GOOG SRS Strategy – 583.72 On 10/25, with GOOG at about 616, we bought one March GOOG 610 call and sold one March GOOG 630 call for a debit of $10.20. We sold one March 510 put for a credit of $10.20. There is no credit or debit. Note we only sold one put. Maintenance is $6,120.
Educational Portfolio #6 – GS SRS Ratio Strategy – 165.10 On 11/15 we bought one GS April 165 call and sold one April 180 call. We sold two April 135 puts all for a net credit of $.20. Maintenance is $3,360.
Educational Portfolio #7 – CME Ratio Put Spread – 286.65 On 11/15, we bought one January CME 290 put and sold two January 270 puts for a small debit of $.70. Initial maintenance is $4,600.
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“TASTY” TRADE IDEAS PORTFOLIO
BWLD SRS Ratio (Stock Replacement Strategy) – 47.52
On 9/12, with BWLD at about $47.9, we sold 2 BWLD Dec. $40 puts for a net credit of $2.00. We bought 1 BWLD Dec. $46 call and sold 1 BWLD $50 call for a debit of $1.95. Net is a credit of $.05.
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RECENTLY CLOSED EXPERIMENTAL POSITIONS
Educational Portfolio ESRX SRS Ratio Strategy
On 10/25, we sold two January ESRX $42.50 puts, bought one $47.50 call and sold one $52.50 call for a debit of $.30. Maintenance is $1,075. On 11/12, closed position for a – Profit of $2.60 ($260/contract) in about 3 weeks.
Educational Portfolio RIMM Ratio SRS Strategy
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. Closed 11/12 for a – Profit of $2.82 ($282/contract).
Educational Portfolio – MS SRS Ratio Strategy
On 9/27, Morgan Stanley at 25.15, we bought one Nov. MS $25 call and sold one MS Nov. $28 call for a debit of $1.10. We sold two Nov. MS $22 puts at $.47 (x 2 = $.94). Net debit is $.16. On 11/8 we closed position for a – Profit of $1.82 ($182/contract).
Educational Portfolio – XEO Weekly Siamese Condor
On 10/29, we sold one XEO Weekly (11/5) put and sold one XEO Weekly (11/5) call for a credit of $11.25. We bought one XEO Weekly (11/5) 510 put and one XEO Weekly (11/5) 560 call for a debit of $1.20. Net credit of $10.05. Maintenance $2,500/contract. On 11/4, we locked in a – Profit of $2.20 – a return on risk of 15.2%.
Educational Portfolio – SPX Weekly Bull Put Spread
On 10/29, we sold one SPX Weekly (11/4) 1050 put and bought one SPX Weekly (11/4) put for a credit of $2.40. Maintenance is $2,500/contract. On 11/4 we locked in a healthy profit of $2.15 – a nice 9.5% return on risk in four trading days.
Educational Portfolio – XEO Weekly Siamese Condor
On 10/15, we sold one XEO October Weekly 535 put and sold one October Weekly 535 call. We also bought one XEO October Weekly 510 put and bought one XEO Weekly October Weekly 560 call. Net credit is $8.50. Closed 10/28. Profit: $3.90. 23.6% ROR in less than five trading days.
Educational Portfolio – SPX Weekly Bull Put Spread
On 10/22, we sold one SPX Weekly 1150 put and bought one October Weekly 1125 put for a credit of $1.65. Maintenance is $2,500. Closed 10/28. Profit: $1.50. 6.9% ROR in less than five trading days.
Educational Portfolio – Ford Ratio SRS Strategy
With Ford at $11.75, we bought 5 March 2011 $11 calls and sold 5 Ford March 2011 $14 calls for a cost of $1.30. We sold 10 March 2011 Ford $10 puts for a credit of $1.58 ($.79 x 2). Net credit is $.28 or $28 per contract. Closed 10/26. Profit $2.40 ($1,200 on five contracts).
Educational Portfolio – SOX SRS Ratio Strategy
On 9/27, with the SOX (Semiconductor Index) at 346, we bought one November SOX 340 call and sold one November 360 call for a debit of $10.20. Sold two November SOX 310 puts for $5.00 (x 2 = $10). Net debit for position is $.20 ($20 per contract). Closed 10/25. Profit $10.50 per contract in less than a month. 15.8% ROR.
Educational Portfolio MA (Mastercard) SRS Ratio Strategy
On 10/13, when MA broke through our trigger point ($233), we bought 1 Jan. MA 220 call and sold 1 Jan. MA $240 call for $9.50. We sold two Jan. MA $190 puts for a total of $9.10. Our net debit was $.40. Closed 10/25. Profit $870 per contract. 18.3% ROR in two weeks.
Educational Portfolio – XEO Weekly Siamese Condor
On 10/15, we sold one XEO October Weekly 530 put and sold one October Weekly 530 call. We also bought one XEO October Weekly 505 put and bought one XEO Weekly October Weekly 555 call. Net credit is $9.50. Closed 10/19. Profit $250 per contract in 3 trading days – a 16.1% return.
Educational Portfolio – SPX Weekly Bull Put Spread
On 10/15, we sold one SPX Weekly 1150 put and bought one October Weekly 1125 put for a credit of $2.00. Maintenance is $2,500. Closed 10/18. Profit: $125 per contract in 2 trading days.
Educational Portfolio YUM SRS Ratio (Stock Replacement Strategy)
On 9/12, with YUM at about 44.75, we sold 2 YUM Jan. 2011 $40 puts for a net credit of $2.74. We bought 1 YUM Jan. $43 call and sold 1 YUM Jan. $48 call for debit of $2.46. Net is a credit of $.28. On 10/15, closed for total net credit of $3.10 ($2.82 + $.28). Profit: $310 per contract – a 27% return on risk in one month.
Educational Portfolio – SPX (S&S) Weekly
On 9/3, with SPX at 1102, we sold 1 SPX Weekly 1075 put and bought 2 SPX Weekly 1050 puts for a net credit of $2.10. We placed an order to close the position for $.40. On 9/8 our order was filled at $.40 and we locked in a 7.3% return on our risk. PROFIT: $170 per contract (in three trading days)
Educational Portfolio – QCOM SRS October Position
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). On 9/8, closed position for a net PROFIT: $1,710
Educational Portfolio – SPX Short & Sweet Weekly
On 8/20 we sold one SPX Aug. (8/26) weekly 1100 call and bought one SPX Aug. (8/26) weekly 1125 for a net credit of $1.80. On 8/24, we closed the position for $.17, locking in a 7% return on risk. PROFIT: $167 per contract. (in less than 3 trading days).
Quickie (August) – XEO Siamese Condor
On 8/13, we sold 2 August XEO 490 puts and sold 2 August XEO 490 calls for a credit of about $13.10. Then we bought 2 August 450 puts and buy 2 August 530 calls for a debit of about $.70. The net credit is $12.40 ($13.10 – $.70) or a potential $2,480 for two contracts ($1,240 x 2). On 8/17 we bought back the short options for $9.30, locking in a profit of ($3.10 x 2). PROFIT: $620 (in less than 3 trading days).
Educational Portfolio – AAPL Beat The Bank
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. Closed on 8/3 for $.14, locking in a $.56 profit. PROFIT: $.56 ($2,800)
Educational Portfolio – BP SRS Ratio
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. On 8/3, sold 200 shares at $40. RESULT: Break even.
Educational Portfolio – 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).
Educational Portfolio – Apple SRS Strategy
On 8/30, with AAPL at $241, we sold 2 Apple Jan. 2011 $190 puts for a total of $11.50. We then bought one Apple Jan. 2011 $240 call and sold one Apple Jan. 2011 call for a debit of $9.10. Net credit if $2.40 ($240). Closed on 9/16 for net credit of $12.30. PROFIT: $1,230 (per contract in less than 3 weeks).
Educational Portfolio – XEO Weekly Siamese Condor – 523.39
With the XEO at about 515, on 10/1, we sold one XEO Weekly 515 call and one put for a total of $10.50. We bought one 535 call and one 490 put for a total of $1.00. Our net credit is $9.50. Closed for small loss of $.50 ($50)
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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 $2,075, our new cash total is $81,180 ($79,105 + $2,075).
ZERO PLUS POSITION – We are currently scouting 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.
