With the futures up so strongly this morning and the dollar imploding it appears we are going to blast over current resistance.

The Dollar Index is down 61-cents to 75.04 at 5:AM and still falling. That is a new two-week low and the 52-week low is 74.94 back on Oct 22nd. Equity futures are exploding. The S&P futures are up +9.50 and still rising. Oil is up +1.25 at 78.75 on the falling dollar. Gold hit almost $1110 and shows no signs of weakening.

I had hoped the conditions would ease slightly before the open because we have not done real well selling into opening gaps. They tend to deflate premiums then when the morning short covering ends the premiums reflate and go against us.

At least the current Russell ETF position should see a huge bounce at the open so we will be able to profit from the rally.

Oil futures are starting to ease overnight as the track for Ida moves eastward towards Alabama and Florida. Very few oil wells in that direction. That would keep me from making an oil play on Monday.

I am going to take a chance and add a couple positions this morning on the hopes that the opening gap does trigger some short covering and a new rally takes hold. The Dow is about 70 points away from strong resistance at 10100 and the Dow futures are up +78. Resistance on the S&P is 1100 with a close at 1069. Futures are now over 1076 so there should be a resistance test if the futures hold.

We have two weeks until November expiration and hopefully we can chalk up some wins before that happens.

Jim Brown



Current Portfolio




New Recommendations


GG $41.30 - GoldCorp

Goldcorp Inc. (Goldcorp) is engaged in the acquisition, exploration, development and operation of precious metal properties. The Company’s principal product is gold. In addition to gold, the Company also produces silver and copper.

Profits more than doubled in Q3 thanks to higher prices and lower costs. If gold continues higher so should GoldCorp. I am going to play it cautious here since gold was up +$55 last week and another $10 this morning. I am going to recommend slightly in the money at $41 in hopes that any bounce fails to return to the current level.

Sell to Open Nov $41 Put GAG-WE currently $1.33, Stop loss GG @ $40.75

GG Chart

MOS $50.33 - Mosaic

The Mosaic Company (Mosaic) is a producer and marketer of concentrated phosphate and potash crop nutrients for the global agriculture industry. The Company operates through business segments: Phosphates, Potash and Offshore.

Mosaic appears to have put in a bottom and is breaking out over resistance at $50. Part of the reason Mosaic is rising is the special $1.30 per share dividend it is paying to shareholders of record on Nov 12th. That will return $580 million in cash to the shareholders. It is also a reason why we want to be out of this trade on the 12th, which is Thursday. I would like to shoot for a $2 gain on this position and close it.

Sell to Open Nov $55 Put MOS-WK currently $5.15, Stop loss MOS @ $49.50

MOS Chart


Methodology

We do not sell out of the money puts for a few cents and then hope the market does not correct and cost us a fortune to exit. I don't like to risk a dollar to make a quarter.

The concept for Option Writer is to find solid momentum plays with enough volatility to inflate the option premiums. We will sell in the money naked puts ahead of the stock price and let the stock rally to our strike.

Selling in the money puts allows us to capture nearly dollar for dollar the movement in the stock price.

Because we are selling in the money that same dollar for dollar move can go against us as well. For this reason we establish tight stops to take us out of the play for a loss of a few cents rather than let the losers grow and "hope" they rally again. In a typical month we could get stopped out of twice as many plays as we close for a profit but those stops will be minimal and the winners worth the trouble.

If you do not have the ability to sell options you can turn the plays into spreads by buying a lower strike put. This will decrease your margin requirements but it will also decrease your profits.


Margin Requirements:

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)