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 2, 2010 – And The Winners Are . . .
AND THE WINNERS ARE . . .
Hello Everyone,
The envelope, please. Later tonight we’re going to find out who are the winners and losers. We’ll know if our country has a fighting chance or if we’re going to have to run for cover, try to survive and wait for another two years to try again. Regardless, there will likely be a reaction in the market tomorrow. It’s hard to know if, or how much, of a particular result is built into the market prices.
There was a strong move up today. If I were to guess, it would be that the move up was based on the generally accepted prediction that Republicans are going to make significant headway in wrestling control away from the Democrats in both the House and Senate.
Let’s look at where we stand, at least in relation to this week’s Weekly trades. We’ll start with the one that might become the most troublesome – the XEO Weekly Siamese Condor. Our short strikes are at 535. After moving up 3.69, the XEO rests comfortably at 537.54.
Under normal circumstances, that would be just dandy. As a matter of fact, we would have been able to close out our Siamese Condor today for about $6.00 and lock in over $4.00 of premium and been on our merry way. However, because of the uncertainty connected with the election, we didn’t get our normal time decay.
We could have bought back our short 535 options for about $9.50 and there might have been another $.50 worth of premium if we sold our long 510 and 560 put and call options respectively. If we had done that, we would have had about a buck to show for our efforts.
Tomorrow, once the election results are known, the excess premium should drain out of the Weekly options in a big hurry. The question is that we don’t know where the price will be in relation to our 535 strikes. We’ll have a good idea when we see the futures in the morning.
Our second Weekly position – the SPX Weekly 11/50/1125 bull put spread, has a little more flexibility. The SPX closed at 1,193.57, which provides us with a 43.57-point cushion. We could have closed the position, based on tonight’s prices, for about $1.15. That would have locked in a profit of $1.25, which is not bad at all.
Subscriber Tim emailed me yesterday (Monday) morning before noon. He did it right. On Friday, his bull put spread was filled at $2.75 and early Monday, when the market popped up, he was able to close the position at $1.10. He locked in a $1.65 profit in less than two trading days. Great trading, Tim!
What’s almost as important is that Tim avoided all the bullshit drama we’re going through now. I suspect we’ll be just fine, but when you’re at the top of your game, life typically gets easier. There’s an old saying I will paraphrase, “Luck favors the prepared mind.” It’s very true.
A Plan For Tomorrow
It’s possible our anticipation of a large move is a big exaggerated. Maybe we won’t have reason to panic or to over-celebrate. Maybe the premium will just disappear, we can lock in some nice profit, and all live happily ever after . . . at least until next week. And maybe the Detroit Lions will make the playoffs. Prepare, my friends, prepare.
It’s also possible that the election won’t live up to our expectations and the market may tank. If so, it will likely be another over-reaction and might be another buying opportunity. I’ll be looking for a new December Core Portfolio position along with a Zero Plus position.
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CORE POROLIO POSITIONS
Core Portfolio November Position #1 – RUT Batman Condor – 712.89
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.
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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 – XEO Weekly Siamese Condor – 537.54
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.
Educational Portfolio – SPX Weekly Bull Put Spread – 1193.57
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.
Educational Portfolio #1 – ESRX SRS Ratio Strategy – 48.52
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.
Educational Portfolio #2 – UUP SRS Ratio Strategy – 22.24
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.
Educational Portfolio #3 – MS SRS Ratio Strategy – 24.61
On 9/27, with MS (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. To pay for this bull call spread, we sold two Nov. MS $22 puts at $.47 (x 2 = $.94). Net debit for entire position is $.16 ($16 per contract).
Educational Portfolio #4 – RIMM Ratio SRS Strategy – 55.90
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.
Educational Portfolio #5 – C Covered Call – 4.17
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 #6 – AAPL Ratio Put Spread – 309.36
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.
Educational Portfolio #7 – ALTR SRS Ratio Strategy – 31.60
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 #8 – GOOG SRS Strategy – 615.60
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.
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“TASTY” TRADE IDEAS PORTFOLIO
BWLD SRS Ratio (Stock Replacement Strategy) – 48.26
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 – 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.
