I thought we had a good chance at a positive rebound after the news driven day on Friday. Our new plays are off to a good start.
I wrote in the Option Investor commentary over the weekend that investors and traders should look at the market at 10:AM today and decide if it was time to buy puts or buy the dip. The low for the day was exactly 10:AM.
I expected clearer heads to prevail and for the bulls to decide it was a buying opportunity. The indexes closed right at support on Friday and that gave them a good launch point today.
The real question now is will the rally last? Tuesday is million-man march day in Egypt and that many people, all hostile at the government, could be a problem. As long as it comes off without an escalation of violence I think the Egypt news will fade from the headlines.
Because there is always the possibility of another news event knocking the legs out from under this market I tightened up all the stop. Please check the graphic for the new numbers.
I am leaving the F5 Networks play in the mix because I believe they will eventually turn higher again. Once that happens the momentum traders will pile back in.
Stop losses are still critical in this environment.
Current Position Changes
New Long Term Recommendations
None - Waiting for a "real" market dip, not a one day wonder
Current Aggressive Recommendations
FFIV - F5 Networks (Put Spread)
I am looking for a snap back bounce in F5 but it may take a couple days to appear. Investors are afraid of buying the dip before the dip is over. I am going to recommend shorting an April put and buying a short term February put. This way we get the most bang for the buck on the long put side.
I am putting a sell stop trigger on the play so we only enter the trade if the stock is moving up.
Enter trade ONLY if S&P is positive and FFIV trades at $115.
Option prices will decline before entry if FFIV is moving higher.
Sell Short FFIV Apr $130 Put (FFIV11P13000) currently $22.80, no stop, no target
Buy Long FFIV Feb $110 Put (FFIV11N11000) currently $5.30, no stop, no target
Chart of FFIV
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 please let us know.