I have some seriously mixed emotions about entering plays this week but nothing ventured, nothing gained.

I believe we could be facing a market that will weaken as we move into August. The China PMI that was supposed to resurrect positive feelings towards China's economy was released on Sunday evening. The headline number was 51.2 and the third consecutive monthly decline. However, it was not as bad as the whisper numbers, some were under 50 and in contraction territory. Any number over 50 means the economy is growing.

China has been trying to cool its overheated economy for several months and it appears they are headed for a soft landing but the PMI needs to tick higher soon to prove it.

Regardless of the expectations the S&P futures opened higher by about +5 points. While it is too early to determine an overnight trend I am hoping the better than expected number will give the U.S. markets a bounce on Monday.

However, the S&P is fighting resistance at the 200-day average at 1113 and the 50% Fib retracement level is 1115. This is strong resistance and the earnings parade and the wheelbarrow and shovel brigade is approaching.

While I expect the market to weaken in August there is always the possibility the improving global economy could give the market a boost.

I am going to put qualifications on all the plays this weekend and I will keep the stop losses tight if the market begins to weaken. I suggest you not take these plays if you can't keep the stop losses updated.

Jim Brown



Current Portfolio


No Open Positions


New Recommendations


POT - Potash - $104.95

POT spiked from $96 to $106 last week after reporting strong earnings and raising guidance. There is also a rumor that BHP might bid for Mosaic so the sector is bullish this week.

I am picking a strike that is nearly $10 out of the money but still give us $1.82 in premium.

ENTER TRADE ONLY IF POT is positive at 10:AM and S&P-500 is positive. If either is declining from a higher open do not enter the trade.

SELL September $95 PUT (POT-10U9500) currently $1.82 stop POT @ $101.00

Chart of POT


IOC - Interoil - $60.00

Interoil does not have earnings until August 16th and has been on a bullish sprint for several weeks. It is testing resistance at the 200-day and a breakout here could test $70. We want to be out of this play before earnings. IOC typically has a smoke and mirrors presentation for earnings and we need to be safely back in cash before that happens. Earnings are August 16th. EXIT on Friday the 13th at the open if the play is still open.

I am picking a strike that is $10 out of the money but still give us $1.67 in premium.

ENTER TRADE ONLY IF IOC is positive at 10:AM and S&P-500 is positive. If either is declining from a higher open do not enter the trade.

SELL September $50 PUT (IOC-10U5000) currently $1.67 stop IOC @ $55.00

Chart of IOC


FFIV - F5 Networks - $87.83

F5 reported strong earnings last week and did not lose ground as so many companies did. They are testing new high resistance at $87 and a breakout would be into blue sky territory. Since earnings are past and it is showing decent support at $85 I am willing to give this tech stock a chance even though techs don't normally do well in August.

ENTER TRADE ONLY IF FFIV is positive at 10:AM and S&P-500 is positive. If either is declining from a higher open do not enter the trade.

SELL September $80 PUT (FFIV-10U8000) currently $2.20 stop FFIV @ $84.00

Chart of FFIV


FLS - Flowserve - $99.16

FLS reported earnings last week with strong guidance and did not lose ground as so many companies did. They spiked about $6 on the news. They are testing 200-day resistance at $101 and a breakout could run to $110. We have decent recent support at $96.

ENTER TRADE ONLY IF FLS is positive at 10:AM and S&P-500 is positive. If either is declining from a higher open do not enter the trade.

SELL September $90 PUT (FLS-10U9000) currently $1.60 stop FLS @ $95.00

Chart of FLS


CRM - SalesForce.com - $98.87

SalesForce.com has earnings on August 20th. It has been moving higher in volatile trading since late 2009 and the dips can be in the range of $10. With earnings only three weeks away I am hoping it can keep its forward momentum during that period. If the play is still open we want to exit the trade at the open on August 19th to avoid any earnings volatility.

ENTER TRADE ONLY IF CRM is positive at 10:AM and S&P-500 is positive. If either is declining from a higher open do not enter the trade.

SELL September $90 PUT (CRM-10U9000) currently $2.75 stop CRM @ $96.00

Chart of CRM


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)


Prices Quoted in Newsletter

At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted just send us an email and we will use your price.