I am still not convinced the markets will favor us with a few days of bullish movement but I am ready to stick my toe in the water with some old picks that have served us well.
The S&P futures are -6 points off their overnight highs but still positive by nearly 3 points as we head into the Monday session. I have been negative on the markets for good reason for the last couple weeks and we have been flat and waiting patiently on the sidelines for the decline to end so we can go back into the market.
While I am not convinced that the decline is over there is a possibility that the markets could at least be neutral this week as traders await the Non-Farm Payrolls on Friday.
I scanned my list looking for some inflated premiums with decent charts on the underlying and came up with three candidates. If the market rolls over they will fail so I plan on keeping the stops tight.
No Open Positions
FSLR - First Solar - $128.89
The chart of the entire solar sector looks an EKG with a short. There is no trend and several stocks have been slapped around pretty hard. First Solar has been trading in a range from $122 to $130 and closed Friday at the top of its range. If we do get a positive market and FSLR breaks through $130 the premiums on the lower strikes could drop quickly.
SELL September $120 PUT (FSLR-10U12000) currently $1.73 stop FSLR @ $124.50
Chart of FSLR
CMG - Chipolte Mexican Grill - $153.09
Chipolte closed at the high end of its recent range and break over $155 would be a new high and could trigger some significant short covering. CMG began rebounding back on Wednesday and had a very strong day on Friday as shorts began to cover.
SELL September $145 PUT (CMG-10U14500) currently $1.80 stop CMG @ $148.00
Chart of CMG
CLF - Cliffs Natural Resources - $60.16
Cliffs is an iron and coal producer with mines around the world. They were beat up over the last couple of weeks by the decline in economic indicators. They had a nice rebound on Friday and should do ok now that Bernanke has promised an active Fed. Stock action is all about perception and should the global economics take another turn downward we will probably be stopped out on this position so plan accordingly when deciding to enter this position. Cliffs is a great company and a strong business but when the market is taking the elevator down every stock gets a free ride.
SELL September $55 PUT (CLF-10U5500) currently $1.11 stop CLF @ $57.50
Chart of CLF
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)