Author’s Note: Ahem. Real quick, I need to emphasize that what follows is not an endorsement to buy or sell shares or options on DLTR stock. I’m simply using a recent couple of trades for sharing purposes. I think you will be amazed at the PLAY I’m going to share with you today, not pumping up demand for a particular company. That said…

Get this: I recently showed my FUSION Subscribers a riskless spread trade in which I picked up a credit… watched and waited for a while… closed that riskless spread trade for ANOTHER credit… and then I just recently put on another riskless spread. Indeed, money seems to be growing on my DLTR Dollar Tree.

Whoa, there Nelly! …Kurt, did I read that right? Did you just say you could put on a spread trade at a credit and incur ZERO RISK? And what’s this about CLOSING that same spread for another credit.

Heh… it’s TRUE… it’s possible to make a riskless spread trade. Provided of course that the context of that spread that it’s nested inside another position.

Take a look at this cool setup for DLTR first:

Now that’s the beginning point. I start all of my trades off with protected shares of stock; no matter how bad the market goes against me, I can’t possibly lose more in the above trade than 6.9%.

Now for the cool, “riskless spread trade” part:

On the same date (October 13, 2011) of the above setup, I sold to open four November $82.50 calls. Then, using SOME of that premium generated, I also bought to open two November $80 calls. Here’s how that went:

Sell to Open FOUR November $82.50 calls at $1.80 X 4 = $720 received
Buy to Open TWO November $80.00 calls at $3.10 X 2  = $620 spent
TOTAL Income                                                                = $100 bucks!

Now, here’s the deal. NORMALLY, a ratio call spread like the one described above would impose INFINITE risk. That’s because there are FOUR short calls and only TWO long calls. As the stock goes up higher and higher, that makes for a worse and worse situation because you would have to buy stock at whatever price it was trading, to deliver it at $80. Not cool.

Of course, that is the situation when doing the Ratio Call Spread all by its lonesome. But remember? I was showing it in the context of ownership of 200 shares of DLTR stock.

Ta-daaa! No risk. If DLTR were to have gone up in that timeframe, I would be obligated to deliver 400 shares at $82.50 all right… but I would have gotten 200 of them at $79.85 (see the setup above) and could get 200 more at $80 (because of the two long $80 calls I’ve been paid to own).

Well, it wasn’t to be. I had hoped that DLTR would go and stay above $82.50 a share but come November 15, just three days before November Expiration DLTR was trading in the low $78s, high $77s.

Not to worry! Since it seemed almost a GIVEN that DLTR would not get back to $82.50 (it didn’t, BTW) by expiry… I did the following move to close the ratio call spread:

Sell to Close  TWO November $80.00 calls at $0.85 X 2 = $170 received
Buy to Close TWO November $82.50 calls at $0.30 X 2  = $  60 spent
TOTAL Income                                                                = $110 MORE bucks!

So to date it’s $210 income into the account, being set against the cost basis of those 200 shares of DLTR.

The puts are still in place.

And on 12/16 I was able to put the following ratio call spread AGAIN:

Sell to Open FOUR January $82.50 calls at $2.30 X 4 = $920 received
Buy to Open TWO January $80.00 calls at $4.00 X 2  = $800 spent
TOTAL Income                                                             = $120 bucks AGAIN!

That’s another reduction in the cost of the stock that’s protected by the May $82.50 puts. If this keeps up, soon I will be BULLETPROOF, meaning that there will be no remaining risk at all.

Now, I know what you may be saying. “Why not just sell a covered call to generate those premiums?”

Well, the point of doing these ratio call spreads is to CAPTURE a little extra green when the stock DOES go up. In the case of the November ratio call spread, that didn’t work out. Although it IS nice to get PAID to close a trade.

BUT..!

The really cool thing that MAY happen this time around is that DLTR may close above $82.50 this time.

Should that happen, two of those calls will cause my shares of DLTR to be liquidated, unless I do something to keep ‘em.

My puts will still be worth something, so I’ll cash them in too.

What will that leave in place? Oh, only two bull call spreads… formed by the two remaining short calls, offset by the two LONG calls… that I got PAID to own.

Catch that? It means that since all those aforementioned calls will be closing in the money… since DLTR is above $82.50… I get to collect the maximum payout on two bull call spreads ($500 extra!)… and let’s say this again: I got PAID to own those bull call spreads.

Ahhh.. the joys of trading RadioActively…

Hey, come check out the year-end special we have going now on RadioActive Trading education materials. Since they are 100% guaranteed, there’s no risk to THESE trades either…

http://www.radioactivetrading.com/products.asp

Happy Trading!

Kurt

In this post: a trade that is truly unique and you have likely never seen anything like it before. Also, in tomorrow’s webinar… the unveiling of a seriously amazing offer for folks that have been considering picking up The Blueprint or RadioActive Trading Home Study Kit.

So, what would you say if I told you that you could do a spread trade with ZERO risk…

…that later that trade might capture even more premium…

…and that you OPEN it at a credit and potentially CLOSE it at another credit?

Would you think that was a purty awesome arrangement?

Well, I think so too. That’s why I would like to invite you to Tuesday’s groundbreaking webinar to see the details of the management of this trade. RIGHT NOW I’ll give you some of the particulars:

On November 10, 2011 my FUSION Members got to see me record this RadioActive Profit Machine. I’m adjusting numbers for a stock split that has happened since:

Now, the RadioActive Profit Machine setup is scalable. Rather than picking up 100 shares and 1 put for example, my play was with 400 shares and 4 puts. But the ‘bottom line’ is still this: there is no more than 7.1% of the underlying issue AT RISK, no matter what happens to the underlying stock.

Okay, so here’s what happens next… On December 2, the $45 calls were asking $1.80, while the $46.25s were bidding at .93 cents.

I sold to open eight December $46.25 calls, while using some of the proceeds to buy four December $45 calls. There was a small net credit of .06 cents per 1:2 spread at the open of this play on December 2. That’s what happened at the beginning of this “Money Net” Income Method: I was PAID to do the spread. Not much, but something’s better than nothing. This was a 4:8 Ratio Call Spread, a play that NORMALLY imposes infinite risk. That’s because four of the eight short calls are ‘naked’… if the stock goes up, I could get hurt… BADLY (gulp)!

That is… except for the fact that I have 400 shares of the stock on hand. Which makes all that risk go away. Whew! Cool… so, what happened next?.

By December 16, ROST had gone up dramatically. It closed on Friday at $47, up over 7% from where I got in at $43.90.

The $46.25 calls were asking .84 cents toward the end of the day. My Fusion Subscribers got an email saying, buy to close four calls at .84 cents.

Now, that seems like a debit, doesn’t it? After all, the .06 cents received on the front end don’t make up for the .84 cents I had to spend to hold on to the stock…

But, WAIT! Remember I said I bought four $45 calls, sold eight $46.25s… at a net credit of .06 cents. Now, I’m only closing four calls, spending the .84… WHAT does that LEAVE in PLACE?

Why, it leaves four long $45 calls and four short $46.25 calls. Four Bull Call Spreads. And, incidentally, they are the VERY BEST Bull Call Spreads I could ever have been paid to own (!) because with ROST at $47, they are definitely paying out their maximum amount!

In the middle of the night, “automatic exercise” happens; the online broker sees ROST at $47, and I’m holding four calls, granting me the right to buy at $45. “Automatic exercise” is also in effect, obligating me to deliver 400 shares at $46.25.

So… I get PAID the difference of $1.25 per share… a total of $500 (in the middle of the night)… without having to do anything. Cool, yeah?

Oh… and I’m still holding ROST shares which are up 7% from where I bought in.

Now, .06 cents IN, .84 cents OUT, followed by $1.25 IN equals a net .47 cent credit I get to keep. MAYbe that doesn’t seem exciting to you, but here’s the kicker: I’m getting PAID this .47 cents (about 1% for two weeks) to SIT on a stock that’s GOING UP. 7% so far. Nothing like being paid while you wait.

If I had sold a plain-vanilla covered call, I might have had to PAY OUT to hold onto this stock, but in this case got a substantial credit.

Welcome to the “Money Net”, one of several zero-risk ‘nested spread trades’ that I teach for fun and profit.

Now, if you liked how the ROST play turned out, you’ll LOVE how my play with V (Visa) ended up.

Come at 12:00 noon Tuesday to see that and a few other no-risk trades, as well as a special year-end offer on The Blueprint and the RadioActive Trading Home Study Kit.

Happy Trading,

Kurt

“Bulletproof” is that wonderful status when the net cost basis for your stock and put is LESS than that put’s strike price.

What that means is… while you are sitting on a stock that’s doing well, there is no limit to how much it can gain. On the other hand, if the market suddenly turns there’s no skin off your nose. Get it? Net cost basis for XYZ plus the $50 put on XYZ is LESS than $50. You can win, but can’t lose from there.

Can it be done? Yes, and more easily than you might think. Consider the following, actual trade that’s been posted on the blogosphere for more than five years:

September 24, 2006
Buy 100 shares DIA             $115.00
Buy 1 January 2007 $119 put   +$  5.00
Total Invested Amount          $120.00

Folks that understand “moneyness” will look at the above trade and see that the put option is four dollars in the money. That is, there’s four dollars difference between what the stock is trading for now ($115) and the put’s strike price ($119). Therefore four dollars of the put’s pricing is ‘intrinsic value’, while the remaining dollar of the put’s pricing is ‘extrinsic’, or ‘time value’.

Now, as DIA went up… the put option came DOWN. That makes sense, right? On October 19, less than a month later, DIA was trading at exactly $120 intraday. What do you suppose the value of the put option was? It was down to $2.05.

Hmmm… interesting. The put wasn’t at ZERO because there was so much time left to expiration… still about three months to go. The stock had gone up five dollars, but the put dropped by only $2.95.

Why is this significant? Well, if you recall… the “time value” of the Jan 2007 $119 put option HAD been $1… but now that the stock has gone up and even though nearly a month has passed… the time value of that put has actually INCREASED to $2.05.

(BTW, this phenomenon happens nearly every time I buy a stock and a put option that’s far out in time… and the stock goes TO or ABOVE the strike price of the put. I wrote about this in a book I call The Blueprint back in 2002.)

Now, you might point out that, though the time value of the put has inflated, the total value is down significantly. All of the put’s intrinsic value is gone, and the put is after all down in price by $2.95.

Then I would point out, “SO what? Yes, the intrinsic value of the put went away, but in order to do that the stock had to go up by at least as much. And I own BOTH.”

Ahh… starting to see where I’m going with this, Traders?

Now here’s the simple trick I was telling you about in the title of this blog post: I sold the Jan 2007 $119 put and in its place bought the Jan 2008 $128 put.

Buy to Open Jan 2008 $128 put    $9.70
Sell to Close Jan 2007 $119 put -$2.05
Net DEBIT                        $7.65

I call this play the ATM Machine. That’s because you can take money out of an ATM… but only if you first put some in! Also, because you can do this play when the stock is At The Money of the protective put.

The exciting part is this:

Buy 100 shares DIA             $115.00
Buy 1 January 2007 $119 put   +$ 5.00
Total Invested Amount          $120.00
Plus the Net DEBIT…         +$  7.65
NEW Total Investment           $127.65

Now I’ve spent $127.65… but now I am sitting on stock plus a put option that guarantees me at LEAST $128. That’s what I call Bulletproof; if the stock goes up I win, but if it goes down, so what? I cannot fail but to take more out of this position than I have ‘put’ in it. Furthermore..! Instead of 3 months to expiration, there are now 15 months to expiration. Did I mention that DIA pays a dividend? Heh heh heh…

I could bore you now with the details of what happened next… but I’d rather let your imagination run.

So, we’re Bulletproof, we’re sitting on a stock that pays dividends, and there are TEN different Income Method techniques to continue to milk this bad boy for income.

If you’ve ever come to one of my free twice-weekly webinars, you know that I give away one, two… sometimes THREE of these Income Methods. The most intriguing are the ‘nested spread’ trades that, just like the bulletproofed married put… CAN win, but CAN’T lose.

Can you imagine doing a credit spread that couldn’t possibly come back and bite ya? Heh… I can…

Hey, consider coming to one of these free webinars. We hold ‘em every Tuesday and Thursday at 12:00 noon. Today, Tuesday December 13 and again on December 15 I’ll be showing two other absolutely risk-less spread trades. Come and check it out!

Happy Trading,

Kurt

No kidding, I have a press release from a “covered call guru”, probably the best-known in his field. It’s dated October 4, 2011. In it he says that his method is ‘guaranteed effective’, that ‘done correctly’ it will ‘generate 3-6% PER MONTH returns’, and do it ‘regardless of market condition’. He further goes on to claim that people may choose to “live on the reliable monthly income”, or use these monthly returns to “dramatically compound one’s portfolio.”

Hogwash.

I’ve interviewed scores of graduates of this snake oil salesman’s classes, and many of them have lost money. Many more say they have done okay but that the 3-6% monthly returns are a gross exaggeration, and completely fall apart when you take into account the fallen value of some of the stocks they are holding, wishing and waiting for a comeback.

The internet is rife with self-proclaimed prophets that preach a gospel of reliable monthly income… all you gotta do is come to this $3,000 weekend seminar. Oh, but if you can’t make it work, you must be doing something wrong, and this $5,000 seminar will help you fix that.

Yeah, right. In contrast, RadioActive Education, Inc. has always been about educating the unfortunate consumer of these pie-in-the-sky promises what it really takes to succeed in the markets.

Hence, the “unwelcome prophet” moniker I’ve claimed for myself.

IN Biblical times, the prophet Jeremiah was committed to speaking the truth… and that truth was not popular with the parties in power or the people. Jeremiah’s immediate reward? He was lowered waist deep into a sewage container and left for three days.

YUCK! Well, while I don’t deal with problems like his, I still have some things in common with the weeping prophet. For example, it seems that few want to hearken unto the real truth… but I can’t help myself and feel compelled to keep speaking it.

Recently a great looking trade with POT came up, and some pupils of mine and I both got in.

Hi Kurt – You had asked me to keep you appraised of my RT trade in POT. Here is my closeout report.  This is an excellent example of how [RadioActive Trading] protects you when, despite all my due diligence, my research into the high marks on both fundamental screens and technical screens, and good option characteristics, a trade goes sour. -Dom B.

At the time of entry, POT was on top of several fundamental screens that I use, including some top numbers from Zacks. We entered at a price of $56.59, and purchased a married ‘put’ for protection.

I wanted to point out something from the above post. Dom stated correctly that if if he had simply entered the stock on the technical’s and fundamentals alone, he would be looking at a 28% loss. Instead, he only had a two-point-eight-something loss… one-TENTH of what it would have been without the protective power of a properly purchased put option.

What if we had entered this position with an October 2011 covered call trade? There would certainly be a little bit of premium collected… but at the end of a month… the 6% return we were promised looks really a lot like a 20%+ loss.

It may be unpopular to acknowledge that losses happen… oh, after all, we all make 3-6% every month, compounded, don’t we? To talk about controlling losses as THE most important part of the trading process is to bring them to the forefront of our thought. And we don’t like to do that.

But more and more enlightened individuals are embracing the fact that this or that 6% gain is nothing to brag about whilst you are sitting on a 28% loss in one of your stocks.

Think about it, those if you that are ‘compounding your stock earnings’… 6% per month compounded is a 100% year over year gain. That means that if you started with $100,000, you may now liquidate your account for $200,000.

Oh, and 6% compounded monthly happens regardless of market direction, right? So I wanna see the bank statements of those guys that made $100,000, starting with $100,000… trading covered calls in 2008.

What? Not even a nibble? NO ONE can step forward and show you that? Then quit giving up ten times what The Blueprint costs for a weekend seminar that will make you feel good for two days, then leave you empty when it comes to real answers.

Dom and I, we’ll be trading our accounts with protection so that when a gain comes along… we KEEP it. ’Nuff said.

Happy Trading,

Kurt

P.S. Come on folks… let’s put the gurus to the test.

Today, a story from my high school days. Now, there IS a moral to this story, one that relates to your trading success and mine… so stay tuned:

In my Senior year of high school one of the math teachers also happened to be the football coach. The jocks at that school gravitated to “Coach’s” class.

I wasn’t on the team.

As a high school senior at sixteen, I wasn’t on any athletic team sponsored by the school. So I wasn’t necessarily ‘in’ with the ‘in’ crowd in this particular math class… though I WAS an athlete. Most of you that follow my blog know that I’m a martial arts instructor by trade.

“Coach” had a curious punishment he liked to inflict whenever someone showed up late: he would make that knucklehead (his word, not mine) do 10 pushups for every minute he came late.

He even made one of the more particularly attractive and popular cheerleaders do pushups when she came late, though she tried to negotiate to do only half the required amount. ‘Coach’ wouldn’t let anybody slide. She cajoled and even try to flirt a bit but ‘Coach’ wasn’t gonna have it. She ended up cranking out fifteen pushups and he let her stop there, because technically she wasn’t FULLY two whole minutes late.

So the day came when I walked in ten minutes late. Every jock in the room was saying “whoaaaa…” “Awww, MAN! You’re in a WORLD of hurt!” “Frankenberg, you shouldn’t have even come. You shoulda SKIPPED this class today”.

‘Coach’ looked up from his desk and dismissed my 125 pound, 5’6″ frame. “Aww, that’s all right Frankenberg. Just give me ten and sit down.”

I was affronted by ‘Coach’s” dismissive attitude. After all, he didn’t even let the cheerleader slide. “Well how many do I GOTTA do? I mean, what’s it supposed to be?”

Because I was not on the football team, or the basketball team, or the baseball team… heck, ANY team… I wasn’t even on his radar as any kind of respectable athlete.

“Well. It’s uh… SUPPOSED to be 100 pushups, but uh…” Coach trailed off as his gaze started at my feet and moved up my slim frame, looking for any sign of oversized muscle. “Well. Let’s just see. Go ahead Frankenberg, let ‘er rip. See how many you can do.”

It was one of those old west saloon moments where all you could hear was the non-sound of people holding their breath in anticipation. As I took a spot with my knuckles on the floor, I asked for someone to lay in front of me to hold out their fist. One of Coach’s team members obliged. I told him, “Don’t count unless my chin touches your fist.”

At first there was a lot of jeers and snickers. Once I passed thirty and showed no sign of slowing a player said, “Dabroski, he’s doing more than YOU can!”

As I passed fifty there were whistles and gasps of amazement. What started out as doubtful whispers became excited cheering as I knocked out the seventies. The whole room counted down last twenty pushups. One of the players came and picked my spent body off the floor some time after one hundred. Everyone was slapping me on the back and telling me how amazing that was to them. The cheerleader had big wide eyes, that’s the part I remember best.

My status in that classroom… in Coach’s eyes, the players… heh, even the cheerleader… were forever changed in less than two minutes. I transferred into a different math class shortly thereafter, but ‘Coach’ always gave me the chins-up nod he reserved for the boys on his team whenever I passed him in the hall.

SO, I told you there would be a moral to this story… one that has to do with trading… and there IS.

The moral is: “Luck” is what happens when Opportunity meets Preparedness.

See, anyone who has ever attempted 100 pushups knows that it’s not going to happen just because you will it so, if you have never trained your body for that kind of performance. You just don’t get mad or happy or determined enough to do 100 pushups and knock ‘em out… you HAVE to have put in some work ahead of time.

Fact is, 100 pushups is just another one of several Black Belt requirements at my martial arts studio. ’Coach’ had no way of knowing, but I was no stranger to pushups and other calisthenics. I had gradually, over time  made steady progress from only being able to do three or four solid pushups to crankin’ em out like a sewing machine. It wasn’t a matter of making a determined decision right then… it was a matter of training beforehand.

One might say that my episode in “Coach’s Class” was a fortunate accident, one that allowed a wiry little fella fifteen minutes of fame and paved the way for some small social advantage… and that it was a freak occurence. 

But I say that opportunities like this abound all the time. The difference between the opportunity being a stumbling block, an ‘opportunity’ for embarassment only… or a stepping stone… lay in the preparation ahead of time.

Too often, traders put too much faith in themselves and not enough in a system… a system of rules that fences in their natural tendency to fear when they should hope and hope when they should fear.

More often however, they put all their faith in a system and not enough in how THEY will OPERATE the system… training for that moment when they will be called upon to make a decision for better or worse. To seize an opportunity when it counts. To lock in a profit at the best possible moment. Or to stop the bleeeeeding before it gets too bad.

Training BEFORE the event is the true arena in which the battle is won… long before fighters ever glove up, long before players don their jerseys and kiss their sweethearts and put on their “game face”. No, the battle is won in the preparation done ahead of time.

Then, when Opportunity meets Preparedness, the lonely champion may shine. He may suffer defeat but it will be an honorable defeat by a very small margin. Or he may know victory, and will at that time have no doubt as to whether it was ‘luck’… or earned.

Let me encourage you who are in the trenches, battling it out with the bulls and the bears, to take some time and actually write out your trading plan, both long term and for each individual trade. Let me encourage you to write down what you wish to reasonably accomplish and write out as well what you intend to give in exchange for this success.

I’ll see you at the top.

Happy Trading!

Kurt

P.S. This letter was inspired by one of my Subscribers that wrote in and told me that he had gotten to 100 pushups using my program. I thought you might like to see some videos he found. I’m not advocating doing pushups to the crowd that reads this blog… but the PRINCIPLE is a good one.

How to do 100 Pushups Video

53 Years Young… 100 pushups!

Special Breathing Exercises for Higher Numbers

I want you to take a minute and look at the stock chart below:

If you look closely at the above chart, you’ll note that I didn’t make as much money as someone playing just the stock as it went up. Awwww. BUT..! As the stock went down, I didn’t lose nearly as much as someone playing the stock either.

Chew on this for a second: IN both cases I set up Married Put trades that risked at maximum, 6% of the total amount invested. Once I won, once I lost… so…

• Trading Record: 50% wins. Not exemplary.
• Timing: LOUSY. Wrong once… lucky once.
• Entry/Exit: Flawed. Don’t look at this kid as a ‘market prophet’..!
• Bank Account: Now this part I like. It’s UP because I sorted out losers QUICK

When the stock went up, it went up 17.3%, and when it went down, it tanked by 21.8%. Anyone playing the stock only took a bath between those two plays. But..! I made money. The reason is that the Married Put (or Protective Put as it is sometimes called) limited my possible losses down to single digit percent levels. Between the two plays, nearly a thousand bucks was netted

So while stock players got hurt getting in for a 17.3% gain and getting out at a 21.8% loss during the same times I played it… I had a net PROFIT. Nearly a thousand bucks.

I don’t know about you, but the prospect of being wrong more often than right and STILL making money excites me. ‘Cause I’m not always right.

Hey gang, my name is Kurt Frankenberg, the ‘Champion of Married Puts’.

BTW, “Champion” is used in the context of “one that fights for another”… meaning the ‘champion’ of a cause.

In this business of options trading education, only passing acknowledgement is given to the one strategy that ACTUALLY PRACTICES the famous trader’s maxim: “Cut your losers short, let your winners run.”

Without egotism, let me state that NO ONE has written more passionately, more often, or discovered more ways to use a Married Put trade than this handsome fella above If you are looking to learn how to keep your risk down in the single digit range… and also be able to use Nested Spread Trades to take money OUT of your Married Put… without necessarily closing it…

Then you need to stay tuned to this channel.

Come check out the free webinar that we do every Tuesday and Thursday at www.radioactivetrading.com. Hope to see you there!

Happy Trading,

Kurt

Today I want to tell you about ONE investment that I have found, that ALWAYS pays off. This particular investment is one that can be made at any time in your career, from when you are twelve years old cutting grass, to ninetey-something sitting on a huge nest egg, the cumulative sum of all your years of stewarding your work and finances.

That investment is… YOURSELF. Your education, that is.

As much as you know, you always can learn a bit more.

Today’s question comes from a RadioActive Trading Webinar attendee that asks if his nest egg of $3,000 is good to trade RadioActively. Now, folks that know my story know that I began my “RadioActive Profit Machines” with only $2500 in capital back in October 2002. However..! In honesty we had to let this Trader know that we don’t recommend trading with that small a sum. RadioActive Trading is all about responsible position sizing, and a few thousand dollars is not enough capital to practice that.

Greg in the office wrote this fella and gently advised him not to trade options just yet. His answer was right on the money… no pun intended… but I felt as though I better follow up.

See, my experience is that when you tell someone that they don’t have enough money to trade, the usual first move they take is to ignore that advice and go buy a course from someone that tells them that they DO. That’s a treacherous ‘course’ for them to take, yes? YES.

So, here was my reply to James, the fella that posed the question. It may seem a bit self-serving because I recommended that he buy MY book… The Blueprint… but when I think about it, there are few options trading courses that I possibly could recommend in clear conscience and mine is one of them.

Hi James,

Greg already answered you and I support his answer, but let me weigh in as well.

The BEST investment that you can ever possibly make– at ANY time– is in yourself. If it were me, I would pick up The Blueprint even if you do not have the funds (yet) to invest on the scale that it usually uses.

You never know when you might receive a financial windfall: an inheritance, a business idea that suddenly takes off… once I actually had someone GIVE me several thousand dollars while I was working a program to help single moms, saying “I believe in what you are doing, if this helps, use it.”  I reinvested that in the very program and was able to help many more single moms.

Another time a small business venture that I was partners in was purchased by a third party for almost $90K! I got half of that; a sudden windfall that weeks before didn’t seem possible.

You never know when you might come across opportunity. The question is what will you do with that opportunity? Your ‘options’ are limited by your knowledge and PREPAREDNESS.

So, while $3K is a bit low to be playing the options market, the $350 for The Blueprint  invested right NOW can get you ready for when you do have more. Being prepared in advance will cut down on your learning curve in the future. 

Say you suddenly had over $47,000 to use tomorrow that you did not today…. would you know what to do with it? Probably not. But if you had gotten The Blueprint and mastered the material already, you would not be playing ‘catch-up’.

Again, let me affirm Greg’s answer to you…. $3K is not a nest egg you should put into options plays just yet… but let me also state that your investment in yourself today may pay great dividends, sooner than you think. So think seriously about getting The Blueprint and getting started NOW to prepare for that day when you do have more capital and need to grow and protect it.

Traders, I have a short list of other books and materials that may be of assistance in your quest for wisdom:

For unique marketing, service, and business strategy: Anything by Seth Godin.

For taking your ideas and putting them into action, making your thoughts into material things: Anything by Napoleon Hill.

For facing facts, getting of your @ss and taking responsibility for your own life and money: Anything by Larry Winget.

For personal finance, bugeting, saving, and get-out-of-debt strategies: The Richest Man in Babylon and anything by Dave Ramsey.

For just about anything above and more: the Holy Bible. Whether or not you like everything else it says, most everything that’s good in the above books are derived from it. ‘Nuff said.

So think about picking up one or more of these great books, to make the one best investment you can ever make… one in your own knowledge and wisdom. Oh… and if you get to it, my book should be on the list too: The Blueprint, for limiting risk in your stock investments to single-digit percents, while leaving your upside potential open.

Happy Trading,

Kurt

Sooo… I’m the ONLY stock and options trading ‘guru’ I’m aware of that brags about his LOSERS. But it makes sense. See, if you are a fanatic about controlling losses, then you can swing a better line when you have a winner.

I’m writing to you today about POT, my most recent loser. Just closed ‘er now for a 6% loss, though the stock itself is down 18.7% from where I got in. You’ll see how that happened below.

But, I wanted to post something for your enjoyment first: the consensus of stock analysts…

Isn’t THAT a daisy? Heh… out of 18 analysts covering the stock, only 4 exhibit any kind of caution with a “hold” recommendation. 3 say “moderate buy”… meaning buy it, but don’t make it the mainstay of your investing portfoolio. Ahem. PORTFOLIO.

A shocking ELEVEN out of EIGHTEEN analysts say this stock is juuuust ducky. “Strong Buy!” they urge. “You should pin your hopes on this one, ‘cuz it’s a shoo-in!”

Just sayin. Oh, and there were NO “Moderate Sell” or “Strong Sell” recs, even thought the stock did this:

Wow. So, is picking stocks the way to go? I’m not trying to trash the reputation of the anal-ysts that thought so highly of this stock that’s in the toilet now. I’m just saying caveat emptor… “let the buyer beware.”

Now, I was silly enough to buy this stock. Shucks, I’m silly enough to do LOTS of things… but here’s how I buy stocks: with an unlimited upside potential but also with a hedge so that if things go horribly wrong, I can get out with only a single digit loss.

Here was the announcement to my FUSION Subscribers four weeks ago when I picked up POT:

POT (Potash Corp. of Saskatchewan Inc.)	Buy to Open	200	@	$56.90
POT 2012 MAR 60.00 PUT	Buy to Open	2	@	$8.35

Bought shares of POT	$56.90
BTO Mar 2012 60 Put	+$8.35
Total Investment	$65.25
Guaranteed Return	-$60.00
Total amount AT RISK	$5.25	or 8.0%

In honor of all the ‘dispensaries’ opening in my little town of Palmer Lake, CO… I’m going to buy me some POT!

Heh… don’t get too excited… I mean Potash Corporation of Sasketchawan, not the green leafy stuff.

This is my first foray back into the market and I’m beginning again to be optimistic. Checking the bid-ask spread on POT’s options make ‘em look real good for Income Methods; when they are too wide it’s difficult to make a good spread work at the right price. But POT looks liquid and popular enough to be on my dance card.

200 shares and 2 contracts would make this a fine addition to a $100K portfolio with just about 1% portfolio risk.

Okay Traders! Be looking for our new FUSION course… available without charge to you lucky subscribers… to be made available in the very near future. For now,

Happy Trading!

Kurt

SO that was 28 days, four weeks ago, today. At that time, POT was showing strength in an otherwise, shall we say ’pressured’ market. I had no idea that she would take a dive to the tune of nearly twenty percent, but then neither did any of these analysts.

Thank GOD for the Married Put play, which protects you and me to the tune of only single-digit losses in case we’re unlucky enough to buy a stock that doesn’t behave. Here’s was my post today to FUSION Subscribers:

IM Close	Sell to Close Stock	POT	200	$46.26	9/23/2011
IM Close	Sell to Close Put	2012 MAR 60.00	2	$15.10	9/23/2011
Hide Trade Briefs from 9/23/2011 OUCH! Lookit THAT crash… Well, I’m glad to have been RadioActive. “Put” me down for a small, single-digit loss instead of this precipitous plunge. Happy Trading, Kurt

Instead of exercising the put option, sometimes it’s profitable to sell the stock and the put separately. That’s the technique you’re seeing above. Instead of hitting the maximum 8% loss, instead we have a 6% loss. This is because the put still has some time value left, being waaay out to March Expiry.

SO why am I the only stock trading ‘guru’ to BRAG about his LOSERS? Because no one else wants you to look at theirs… it kind of rains on the parade when you have to admit you’re wrong now and again, and that those losses reeeeeeeeally cut into the cherry-picked gains.

Look, here’s the math: 6% loss beats the living puddin’ out of an 18.7% or worse loss. I now am in position to play again, but in case it’s a winner I get to play with 94 marbles instead of 81… get it?

I’ve proven this again and again, and done it publicly: tightly controlled losses plus open-ended gains equals long-term success.

All righty, gang! See you in the trenches. Til then,

Happy Trading!

Kurt

I still don’t understand what I’m missing on that example… how is the Bear Call position “Bulletproof” without putting another option in place?

Regards,
Ray D.

MY REPLY:
Hi, Ray!

It’s not the Bear Call Spread that is Bulletproof… it’s the stock. That is, if HL goes down there is no way that our investor can be hurt because he has locked in a sell price of $9, for a total ‘cost’ of $9.06… and to boot the Bear Call Spread is paying him .33 cents!

If HL goes down or even sideways, that .33 cents will be locked in… the net cost of the stock plus the put will be ($9.06 – .33) = $8.73… so the position cannot hurt him if the stock goes down anytime before Jan expiration.

On the other hand, there is no limit to how much he can make if the stock goes up. For the Bear Call Spread to hit its maximum loss of .67 cents, the stock has to go up by more than a dollar. If it DOES go up by more than a dollar, then our investor gains a dollar on the stock side… get it? If you look at the graph, there is no way that this play can lose anything and unlimited upside in case the stock goes up.

Now, as you might have guessed there are some management techniques that come into play if the stock goes up, to keep it from being assigned… but that’s why I took the time to write a book about it

Happy Trading!

Kurt

Traders, let’s take a look at the risk/reward graph from the trade in question. The investor that had originally written in had shares of HL at a $7.31 cost basis. I pointed out that he might at that time (as HL was trading at $7.98) pick up a January 2012 $9 put option for $1.75, and simultaneously sell an October 2011 $8 call at .60 cents and buy an October 2011 $9 call at .27 cents for a net, GUARANTEED GAIN:

The above graph represents what adding those three options… a January 2012 $9 put, a short October 2011 $8 call, and a long October 2011 $9 call… would do to the stock already purchased with a cost basis of $7.31.

As you can see, there is no longer the possibility of losing. AFTER October expiration, we might be looking at a new position that includes only stock and a put option, and the combined cost basis for both of those instruments being LESS than the strike price of the put. This is what we mean around here when we say a stock is Bulletproof.

Happy Trading,

Kurt

P.S. Hey, wanna come and see ANOTHER way you can take all the risk out of owning a stock, but leave the upside potential completely open? Come take a look at one of our free Webinars twice per week held LIVE during market hours, or an archive at www.radioactivetrading.com/webinars.asp