Some of the shock from the Dubai news appears to be wearing off but the futures are far from exuberant. The dollar is falling again and gold prices are flat.
The news out of the UAE is calming but far from a solution. The UAE said on Sunday that it will back banks in the Emirates with loans at .5% if there are any with problems related to the Dubai World news. The UAE said the Emirati banks were much stronger now than in 2008 and tried to downplay the situation.
The stock markets in the area were closed for religious holidays last week and Saudi Arabia, the biggest market in the area will be closed for a couple more days. The Dubai market will open on Monday and it will not be pretty. However, I think the rest of the world has accepted the news and is ready to move on.
The Shanghai Composite is up +2.4% at 11:30 Shanghai time and gaining strength. The Hang Seng Index is up +716 points (+3.39%) at 10:30 Hong Kong time. Gold is flat at $1179 and the dollar has begun to fall again and the dollar index has collapsed back to 75.60 overnight.
I wish the futures were a little more positive than +6.75 but I suspect everyone wants to wait and see what happens in the Middle East on Monday before going back to business as usual.
As I said in my Option Investor commentary this weekend I am cautiously bullish for Monday. The Russell and Nasdaq are the weak sisters and both are on the verge of a real breakdown if the Dubai negativity continues on Monday.
I am going to add a few plays for Monday because we should buy at support and we are definitely at support. The Friday drop took us out of the Microsoft play for a loss and those kinds of things happen. You can't plan in advance for a major meltdown or you would never trade at all.
If the futures reverse on some negative news from overseas PLEASE DO NOT enter these positions if the market opens down. If any individual stock recommended opens lower DO NOT open the positions. If the market dips at the open then recovers back into positive territory then make the entry.
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CCJ Cameco $28.44
Cameco Corporation (Cameco) is a Canada-based company. The Company, along with its subsidiaries, is engaged in the exploration, development, mining, refining, conversion and fabrication of uranium for sale as fuel for generating electricity in nuclear power reactors in Canada and other countries. The Company operates in four segments: uranium, fuel services, electricity and gold.
Uranium prices are rising and CCJ is one of the largest miners. They dipped slightly on a report last week then was knocked back to support by the Dubai market drop. This should be a safer play with three weeks to go and positive futures for Monday. I am putting a tight stop at the low from Friday.
SELL DEC $27 PUT CCJ-XT currently $.45, stop loss $27.75
Chart of CCJ
BHP - BHP Billiton $74.60
BHP Billiton plc is a diversified natural resources company. The Company is engaged in extracting and processing minerals, oil and gas from its production operations located primarily in Australia, the Americas and southern Africa. It sells its product worldwide with its marketing activities centralized in Singapore, The Hague and Antwerp. The Company operates in nine customer sector groups (CSGs): petroleum, aluminum, base metals, diamonds and specialty products, stainless steel materials, iron ore; manganese, metallurgical coal, and energy coal. Its Petroleum CSG is a global oil and gas business with producing assets in six countries and exploration opportunities in a further six countries.
BHP is actually a play on gold and oil. They are active in both sectors and in uranium. They are expensive for a put play but the premium should be worth it. BHP hit $78.50 on Wednesday and was knocked for a loss back to support on Friday's news. With gold and oil rising and the dollar falling they should resume their upward trajectory. Stop loss is under Friday's low.
SELL DEC $75 PUT BHP-XO currently $2.80, stop loss $73.25
Chart of BHP
GLD - SPDR Gold Shares $115.06
Gold ETF from State Street Global Advisors currently has 1,127 tonnes of gold in inventory with a value of $42 billion. It is the cheapest way to play the falling dollar.
There was an excellent buying opportunity on the GLD on Friday with the dip to $113 but you would have needed to be poised on your mouse to hit it. The dollar is not expected to regain its strength any time soon so gold should continue higher. I am going to recommend the $112 OTM put but also list the $117 for more adventurous traders.
SELL DEC $112 PUT GCZ-XH currently $1.42, stop loss $113.00
Alternate: SELL DEC $117 PUT GCZ-XM currently $3.70
Chart of GLD
OXY - Occidental Petroleum $81.20
Occidental Petroleum Corporation (Occidental) conducts its operations, through various oil and gas, chemical, midstream, marketing and other subsidiaries, and affiliates. The Company operates in three business segments: oil and gas segment, chemical segment, and midstream, marketing and other segment. The oil and gas segment explores for, develops, produces and markets crude oil, natural gas liquids (NGLs), condensate and natural gas.
OXY was knocked back from resistance on Friday's drop but was immediately bought at $80. With new discoveries in California and good prospects elsewhere I am betting $80 holds.
SELL DEC $75 PUT OXY-XO currently $.70, stop loss $79.00
Chart of OXY
FSYS - Fuel Systems Solutions $48.56
Fuel Systems Solutions, Inc. (Fuel Systems)designs, manufactures and supplies alternative fuel components and systems for use in the transportation, industrial and power generation industries on a global basis.The Company offers an array and combination of gaseous fuel components; solid-state components and software that monitor and optimize fuel pressure and flow to meet manufacturersâ€™ engine requirements; gaseous fueled internal combustion engines, or engines manufactured by original equipment manufacturers (OEMs) that are integrated with Fuel Systemsâ€™ fuel delivery and electronic controls.
FSYS was knocked back to support on Friday but recovered and actually closed up +46 cents for the day. This is an OTM position below support.
SELL DEC $45 PUT JQQ-XI currently $1.20, stop loss $45.75
Chart of FSYS
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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.
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)