The rally fizzled and the path of least resistance is still down.
The Nasdaq may have finished fractionally positive but the S&P closed down -6 points. Resistance was simply too strong and now that Cisco has reported earnings there is little to keep investors interested.
Unfortunately the CH Robinson play perfected the dead cat bounce and hit our stop loss intraday. The price at the stop was $1 on the option and CHRW rolled over after lunch and the option is still $1.00. I am recommending we go back into CHRW at the same strike and price as though nothing happened. The dead cat bounce is over reality is settling in.
I am also adding two new plays on the expectations that the market will continue lower.
I had a reader ask me what the maximum risk was on the AMD play with a call write at $7 and the stock at $7.81. The premium was $1.10 with a stop at $8.30. On the surface the risk appears to be roughly 20 cents. In reality the risk on any naked call write is UNLIMITED.
Let's say Qualcomm decided they wanted to get into processors in a lot bigger way now that their current processor is such a hit. If they decided AMD (market cap $5 billion) was a cheap way to acquire a lot of technology and decided after the close to offer $15 a share in cash then AMD would gap open to roughly $15 the next morning. Our short call would have no chance to stop out and we would be looking at an $8 loss the next morning. Is this possible? Absolutely. I have been trading stocks/options for over 20 years and I can't count the dozens of times I have turned on the PC in the morning and seen some news event either cut a stock in half or double it overnight.
I had sold 10 contracts of a MicroStrategy PUT at $200 back in the Nasdaq bubble days and I woke up one morning to see it trading at $100. My first thought was "I didn't know they had a stock split." Unfortunately it was not a split but an accounting irregularity. My $10 puts were now $100 and I was short. I ended up trading out of it without a loss over the next couple weeks but I can still remember that sick feeling in the pit of my stomach when I realized what had happened. With puts there is still risk but it is much less than with calls. BUT with any naked write there is always more risk than the premium you receive.
I am using DTN.IQ for my portfolio tracking and I doubt these symbols match anything you are using. You will have to take the English description and get the right symbol for you on your quote system.
CHRW - CH Robinson Worldwide $53.55 (Naked Call Write)
CH Robinson bounced and stopped us out at $54.05 and $1.00 on the option. I think the bounce is over and I want to reenter the same CHRW short call here at the same price we were stopped. I am raising the stop to $54.40.
Sell March $55 Call CJQ1020C55 (CJQ-CK) currently $1.00, Stop at CHRW $54.40.
Chart of CHRW
XLE - Energy SPDR - $56.55 (Naked Call Write)
The price of oil rallied on a short squeeze and a sharply falling dollar. The dollar is recovering and rising crude inventories should push energy stocks lower over the next week. I am selling this call at the money and there is only two weeks left until expiration. With any luck any drop in oil prices will depreciate this call quickly and we can exit early.
Sell Short February $57.00 Call XBT1020B57 (XBT-BE) currently $.90, Stop XLE at $57.45
Chart of XLE
IWM - iShares Russell 2000 $61.10 (Naked Call Write)
The Russell failed at resistance on Wednesday and gave up ground despite a buy program at the close. If the market does continue lower we should see the Russell retest support at $60.
Sell Short Feb $61.00 Call DIW1020B61 (DIW-BI) currently $1.29, Stop IWM at $61.75
Chart of IWM