I am actually very happy we got the implosion in the market today. That gave us some much stronger premiums and only a couple of changes.
I sent the email early this morning telling everyone not to enter any of the positions recommended over the weekend until we saw what was going to happen in the markets. The damage was -186 on the Dow and -54 on the Nasdaq. The S&P lost -24 and closed right on initial support at 980. I believe we would get a test of 970 on Tuesday just because it is there.
Asia is doing better tonight but not yet doing great. The markets are bruised and need a couple days to get over the pain. The U.S. futures are up as I am writing this at 2:AM ET.
I wanted to wait to send this email until I could see what happened to Asia and how our futures reacted. I apologize for getting it to you at the last minute but Asia does not run on our time. When choosing when to put new money at risk it is best to consider all the factors.
I am only going to make a couple of changes to the weekend recommendations. I changed a couple of strikes and several stop losses. I believe we are going to be in a more profitable situation thanks to the dip. Of course that assumes that the U.S. market does not break below that SPX 970 level. Keep your fingers crossed.
I am going to relist all the recommendations just like it was a weekend newsletter since we did not enter any of them and the charts have changed.
All recommendations are active as of Tuesday morning.
New Recommendations - Conservative
MEE - Massey Energy $27.68
Massey Energy Company (Massey) produces, processes and sells bituminous coal of steam and metallurgical grades, primarily of a low sulfur content, through its 23 processing and shipping centers, called Resource Groups, many of which receive coal from multiple coal mines.
Coal companies have been upgraded in recent weeks despite the cap and trade proposals to be discussed in the fall. The majority of our electricity comes from coal. The same is true with the majority of the developing nations including China.
Sell September $27 Put MEE-UT currently $1.80, initial stop loss $26.
Chart of Massey
BTU - Peabody Energy $33.74
Peabody owns majority interests in 30 coal mining operations located in the United States and Australia. In addition, it owns a minority interest in one Venezuelan operating mine through a joint venture arrangement.
Peabody is the largest coal company in the U.S. and also supplies a lot of coal to China from the mines in Australia. Profits are increasing and prices are rising.
Sell September $33 Put BTU-UN currently $1.75
Chart of Peabody
BUCY - Bucyrus $30.17
Bucyrus International, Inc. designs, manufactures mining equipment for the extraction of coal, copper, oil sands, iron ore and other minerals in mining centers throughout the world.
In order to mine coal to power an economic recovery you need to buy equipment and that is where BUCY makes its money.
Sell September $29 Put HBU-UT currently $1.65
Chart of Bucyrus
AA - Alcoa $12.42
Alcoa Inc. (Alcoa) is engaged in the production and management of primary aluminum, fabricated aluminum, and alumina combined. It's products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, and industrial applications. Alcoa is a global company operating in 35 countries.
The potential for the resurgence of the global economy means Alcoa is going to ship more aluminum. The chart has taken off and broken out over resistance at 12.50. If there is more news about a slowing rebound overseas Alcoa could get hit. Maintain your stops.
Sell September $15 Put AA-UC currently $2.73
Buy September $12 Put AA-UM currently .65 for net credit of $2.08
Chart of Alcoa
BEXP - Brigham Exploration $6.81
Brigham Exploration Company is an independent exploration, development and production company that uses three-dimensional (3D) seismic imaging, drilling and completion technologies to explore for and develop domestic onshore oil and natural gas reserves.
BEXP is very active in the Bakken Shale and has been recently upgraded.
Sell September $7.50 Put QBJ-UU currently $1.05
Chart of Brigham Exploration
NOV - National Oilwell $35.38
National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry.
NOV is a premier supplier to the oilfield and continued deep water drilling as well as the accelerated efforts in the Bakken Shale should keep NOV profits rolling.
Sell September $35 Put NON-UG currently $1.80
Chart of National Oilwell Varco
ATVI - Activision Blizzard $12.03
Activision Blizzard is a combination of Activision and Vivendi in 2008. Activision has the most popular multi player game on the Internet, World of Warcraft, with 12 million active monthly subscribers and a rabid following.
Sell September $14 Put AQV-UN currently $1.95
Buy September $12 Put AQV-UL currently .65
Chart of Activision
New Recommendation - Speculative
EMN - Eastman Chemical $51.33
Eastman Chemical Company (Eastman) is a global chemical company, which manufactures and sells a portfolio of chemicals, plastics, and fibers. Eastman has 11 manufacturing sites in seven countries that supply chemicals, plastics, and fibers products to customers throughout the world.
Eastman is on a roll although it has decent resistance at $60.
Sell September $60 Put EMN-UL currently $9.10
Buy September $50 Put EMN-UJ currently $2.05
Chart of Eastman Chemical
HIG - Hartford Group $18.49
The Hartford Financial Services Group, Inc. (The Hartford) is an insurance and financial services company. It provides investment products, individual life, group life and group disability insurance products, and property and casualty insurance products in the United States.
Strong earnings and a revised outlook garnered HIG some upgrades over the last month. There was a strong demand for a $900 million stock offering earlier in August. Plenty of room to run.
Sell September $25 Put HIG-UE currently $6.70
Buy September $17 Put HIG-UW currently $1.20
Chart of Hartford
CLR - Continental Resources $33.33
Continental Resources, Inc. is an independent oil and natural gas exploration and production company with operations in the Rocky Mountain, Mid-Continent and Gulf Coast regions of the United States. The Company focuses on exploration activities in new or developing plays that provide it the opportunity to acquire undeveloped acreage positions for future drilling operations.
Continental is now the largest landholder in the Bakken Shale with 525,000 acres. The recently proved the existence of a fourth pay zone in the Bakken, which makes their leases even more valuable.
**** NEW STRIKES ***
Sell September $40 Put CLR-UH currently $7.20
Buy September $30 Put CLR-UF currently $1.25
Chart of Continental
WLT - Walter Energy $52.34
Walter Energy, Inc. (Walter Energy), formerly Walter Industries, Inc., is a producer and exporter of premium United States metallurgical coal for the global steel industry. The Company also produces steam coal and industrial coal, metallurgical coke and coal bed methane gas.
Walter broke out back in July and refuses to slow. I am hoping the rally continues.
Sell September $65 Put WLT-UM currently $13.10
Buy September $50 Put WLT-UJ currently $2.75
Chart of Walter Energy
COF - Capital One $32.00 Sell Sept $30 Put COF-UF
BAC - Bank America $16.00 Sell Sept $15 Put BYO-UO
There are several different formulas for determining margin requirements for naked put writing. These are normally broker specific and some can require larger margin requirements than others.
Here is the most common margin calculation for naked puts.
100% of the option premium + ((20% of the Underlying Market Value) - (OTM Value))
For simplicity of calculation simply use 20% of the underlying stock price and you will always be safe. ($25 stock * 20% = $5 margin)