BTU lost $4 over the last two days and we were stopped out for a profit.
The cyclone in Australia that shutdown the coal port and backed up loading and production caused a sharp drop in Peabody Energy, a major supplier to the port. The position hit our stop at $47.25 on Friday and stopped us out at 60-cents on the option.
The market weakness in energy over the past two days has pushed several positions closer to the stops. Please check the graphic for new stop losses.
This will be the last week that April premiums have any real value so I am adding three more positions. I expect the market to weaken the first week in April so I hope to be out of these or at least have the stops high enough so that any drop takes us out with a profit.
TM - Toyota
Maintain bid to buy back the option at 10-cents or less.
Maintain stop loss at $75.75.
GMCR - Green Mountain Coffee Roasters
Maintain bid to buy back the option at 25-cents or less.
Maintain stop loss at $90.25.
PCP - Precision Cast Parts
Bid to buy back the option at 25-cents or less.
Maintain stop loss at $118.50.
UYM, FSLR, POT - No Change
IOC - Interoil Corp - $67.03
InterOil Corporation (InterOil) is an integrated energy company operating in Papua New Guinea and its surrounding Southwest Pacific region. The Company operates in four business segments: upstream, midstream, downstream and corporate. The upstream segment explores for and appraises natural gas and oil structures in Papua New Guinea with a view to commercializing discoveries.
We have played Interoil several times because its volatility creates large premiums. The big ramp the prior week and the decline to support last week has produced a put premium of $1.75 for the $60 strike even though it is $7 out of the money. IOC has respected the 100-day average for the last two months.
ENTER TRADE ONLY IF IOC OPENS ABOVE $65
SELL APRIL $60 PUT (IOC-10P6000) currently 1.75, stop IOC @ $62.50
Chart of IOC
MOS - Mosaic - $58.43
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. The Phosphates Segment produces phosphate crop nutrients and feed phosphate, which are used in crop nutrients and animal feed ingredients, respectively. The Potash segment mines and processes potash in Canada and the United States, and sells potash in North America and internationally. The Offshore segment produces and/or markets phosphate, potash and nitrogen-based crop nutrients and animal feed ingredients. The Company serves customers in more than 40 countries.
Potash (POT) raised earnings guidance significantly last week and provided lift to the entire sector. The drop in natural gas prices and oil prices pushed the fertilizer stocks lower even though their fundamentals are getting stronger by the day. I believe we should sell puts on this weakness in anticipation of a rebound.
ENTER TRADE ONLY IF MOS OPENS ABOVE $58
SELL APRIL $55 PUT (MOS-10P5500) currently 1.23, stop MOS @ $56.50
Chart of MOS
CREE - Cree Inc - $70.00
Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting products. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in North Carolina.
A beautiful long-term chart but plenty of weekly volatility to keep premiums elevated. CREE dropped to $70 on Friday and there should be plenty of support in the 68-70 range.
ENTER TRADE ONLY IF CREE OPENS ABOVE $68
SELL APRIL $65 PUT (CREE-10P6500) currently 1.05, stop CREE @ $66.50
Chart of CREE
March Recommendation History
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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)