Option Investor

Option Writer Portfolio - April

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CSCO - Hopefully you got the signal early enough to trade the position yesterday. If you didn't the trade's risk/reward is no longer favorable. If the stock should sell off into the Fed announcement, the 50 DMA at 24.36 should be the low threshold to enter.

WFR - MEMC Electronic Materials, Inc. produces wafers for the semiconductor industry worldwide. Its products include prime polished wafers, such as OPTIA and annealed products; epitaxial wafers consisting of thin silicon layer grown on the polished surface of the wafer; and test/monitor wafers for testing semiconductor fabrication lines and processes. The company's products are used in the manufacture of various semiconductor devices, including microprocessor, memory, logic, and power devices. The company is one of the primary suppliers of the solar power wafers. In a way, they are a semiconductor commodity play.

Sector - Technology

Industry - SemiConductor - Integrated Circuits

EPS Date - Apprximately April 24th

The initial premium is pretty high for an option that is 7 points out of the money. The initial premium you go for could be $2.95 or $3.00. We could also sell two contracts of the April 70 Put instead and gain another 5 points of downside. However, my Risk Profile tool places the estimated loss at 76.90, a key support level, is about $270 for the 70 strike and $190 for the one contract at the 75 put strike. An aggressive option writer could sell up to 3 of the April 75s and 5 of the April 70s.

The first support level is the 76.91 high from last Tuesday. Gaps like to get filled. This is just a warning. The 50 DMA is at 75.34 while the 200 is lower at 67.96. The stock price has been volatile since the peaks hit at the close of last year.

Risk Management for WFR
Strike Stop = $ 75.00
Cost Basis Stop = $ 72.08
Technical Stop = $ 76.91
Premium Stop = $ 74.50

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