Twice in a row now the market has been kind to us and gapped lower so that none of our plays were triggered.

Today actually helped us a lot because the put premiums re-inflated and will give us some better entries if the market cooperates.

I was also encouraged by how little decline there was in each stock. That relative strength should explode higher if the market cooperates.

We were stopped out on the SPY and IWM trades again and I am not putting them back in tonight.

I looked at all the potential plays again and the only one I canceled was FCX - Freeport McMoran. With gold up strongly today the copper component of FCX took control on the stronger dollar. We already have a big list so I am dropping that play.

I changed the strikes and stops again on several of the plays. Please check the list for the new values.

The S&P stopped right at strong support of 1175-1180 and in "theory" we should get a rebound on Wednesday. Futures are up +6 despite a big decline in China on the Korean problem.

As I said in my market wrap tonight I am still buying the dips to 1175 and selling puts is the equivalent of buying the dip since it is a long play. I also said I recommended caution. That means cutting back on position sizes or restricting the number of plays you take.

Wednesday could be a pivotal day. I would love to see another gap down and then an instant recovery on the day before Thanksgiving. Just to confirm, if we open lower and then turn positive then we will take the trade when the S&P and the individual stock are both positive at the same time.

Jim Brown



Current Portfolio




Current Position Changes


None


New Recommendations


LVS - Las Vegas Sands $48.95

LVS rallied on news of the canceled Harrah's IPO. What is bad for one casino group must be good for another. Everybody knows the story of LVS and WYNN and their improved fortunes because of their Macau casinos.

Enter this trade only if the S&P and LVS are positive

Sell Short LVS Dec $47 Put (LVS10X4700) currently $1.87, stop $48.50

Chart of LVS


AMZN - Amazon.com $167.78

Amazon rallied last week after announcing that customers can now buy and gift ebooks for the kindle or other Kindle app devices. You can give a gift book and it will show up on the recipient's Kindle. Amazon is expecting a blowout holiday season with the new Kindle priced at $139. It is a heck of a bargain and next to the iPad it will probably be the most gifted electronic device this year.

Enter this trade only if the S&P and AMZN are positive

Sell Short AMZN Dec $160 Put (AMZN10X16000) currently $2.87, stop $164.50

Chart of AMZN


FFIV - F5 Networks $128.80

FFIV declined after Cisco's earnings on the idea that every networker was experiencing the same problems as Cisco. After Dell's earnings proved it was a Cisco problem and not an industry problem the networking sector began to recover. A move over $125 by FFIV should trigger some short covering.

Enter this trade only if the S&P and FFIV positive

Sell Short FFIV $120 Put (FFIV10X12000) currently $2.55, stop $125.75

Chart of FFIV


OIH - Oil Service Holders ETF $127.70

The OIH is an ETF containing the major oil service firms like SLB, HAL, NOV, WFT, etc. This sector has almost fully recovered from the recession and from the BP disaster. The OIH is right on the verge of breaking out to a new high. With the dollar dropping, oil prices rising and the economy recovering this group should continue to do well.

Enter this trade only if the S&P and OIH are positive

Sell Short OIH Dec $125.00 Put (OIH10X12500) currently $2.54, stop $126.25

Chart of OIH


FCX - Freeport McMoran

The FCX play has been cancelled.


RIMM - Research in Motion $57.76

I am expecting RIMM to have a great holiday season and I believe other investors will expect that as well. The Verizon "buy one Blackberry, get three free" promotion is going to really add up for new subscriptions at RIMM. The stock has decent support at $56 and rallied for the last two days.

Enter this trade only if the S&P and RIMM are positive

Sell Short RIMM Dec $55.00 Put (RIMM10X5500) currently $1.84, stop $56.75

Chart of RIMM


VMW - WMWare $79.00

VMW has had an amazing recovery since the Wednesday dip to $74. The stock has found new life on the better than expected guidance from Salesforce.com. I do not expect this to slow down. That was a game changer for the cloud sector.

Enter this trade only if the S&P and VMW are positive

Sell Short VMW Dec $75.00 Put (VMW10X7500) currently $1.85, stop $77.75

Chart of VMW


New Long Term Recommendations


None


Aggressive Recommendations


OIH - Oil Service Holders ETF - $127.70

The OIH is an ETF containing the major oil service firms like SLB, HAL, NOV, WFT, etc. This sector has almost fully recovered from the recession and from the BP disaster. The OIH is right on the verge of breaking out to a new high. With the dollar dropping, oil prices rising and the economy recovering this group should continue to do well.

I had to choose the April strike on the OIH because the January strikes are non-standard. There was an adjustment for a merger, acquisition or dividend and the strikes are no longer even numbers. Sometimes they are for a non-standard number of shares as well.

We will not hold this put until April. We will only hold it until we have accumulated a decent profit or the sector appears to be in danger of a decline.

Enter this trade only if the S&P and OIH are positive

Premium $15.55 = $12.22 intrinsic, $5.16 time.

Sell Short OIH April $140.00 Put (OIH11P14000) currently $17.25, stop $125.75

Chart of OIH


VMW - WMWare $79.09

VMW has had an amazing recovery since the Wednesday dip to $74. The stock has found new life on the better than expected guidance from Salesforce.com. I do not expect this to slow down. That was a game changer for the cloud sector.

I chose this play because of the decline in October/November and the recent CRM earnings event. There is decent premium in the January strikes. I could see VMW making a new high before Christmas.

Enter this trade only if the S&P and VMW are positive

Premium $12.40 = $10.91 intrinsic, $1.69 time.

Sell Short VMW Jan $90.00 Put (VMW11M9000) currently $12.40, stop $76.85

Chart of VMW


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)