The increasingly bad news out of Libya with the death toll over 2,000 according to some reports, hammered the equity markets again on fears of contagion to Saudi Arabia.

It was not a good day in the markets. The selling continued almost non-stop although there was a small bounce before the close with the touch of S&P support at 1300.

A planned demonstration for March 11th in Saudi Arabia is gathering momentum. The "revolution of yearning" being promoted by a Facebook group has increased worries that violence could spread to Saudi. The worries forced King Abdullah to return home from overseas where he had undergone back surgery several weeks ago. He immediately announced reforms including interest free home loans and higher wages for government employees.

Saudi also created some worries when they announced yesterday they stand ready "with all its capabilities" to shore up the Bahrain ruling family if the protests in Bahrain did not end soon.

Tunisia has also demanded the return of ousted dictator Zine al-Abidine Ben Ali to stand trial for serious crimes committed while dictator of Tunisia. Saudi has ignored their requests.

All of this Middle Eastern/North African turmoil is building to a boiling point. If Saudi can't prevent or weaken a major demonstration with two weeks advance notice then we could have some serious trouble ahead. Saudi Arabia does not tolerate political dissent. With the world coming down on Qadhafi for attacking the protestors you have to wonder what Saudi will do when faced with the same problem. Do they react with force or do they learn a lesson from the last month of world reaction to violence and simply ignore the demonstrators until they get tired of sleeping in the street?

This is the things bothering the equity market. Add in the spike to $112 on Brent crude and we have a major headwind.

I really believe the low at S&P 1300 today could be the bottom of this dip but I am hesitant on adding new plays until we see a bounce. I also fear that once a bounce begins it could be very violent and retrace a substantial portion of the loss in the first day. That means there is something to be said for being proactive rather than reactive.

We were stopped out of everything today except for the IWM play.

Jim Brown



Current Portfolio




Current Position Changes


FSLR - First Solar (Stopped @ $162.95)

First Solar dropped to our stop loss at 162.95 at 10:36 AM with the option at $4.10. That is a loss of 30-cents on the position.


DD - DuPont (Stopped @ $53.95)

DuPont declined to the stop at $53.95 at 12:03 with the option trading at $1.70. That is a loss of 45-cents on the position.


WYNN - Wynn Resorts (Stopped @ $118.35)

Wynn declined to our stop at $118.35 at 12:06 PM with the option trading at $2.95. The position was entered at the open when both WYNN and the SPX were positive for about 10 minutes. The entry point was $1.63 just before the bottom fell out. This produced a serious loss of $1.32.


ESI - ITT Educational Services (Short Put)

The ESI opened in negative territory and never filled the qualifications to enter the trade.

Cancel this recommendation.


New Recommendations


SPY - S&P SPDR $131.02 (Short Put)

The S&P has declined to support at 1300 and there was a decent +10 point bounce. I believe 1300 should remain support but there is risk to 1280 if the crisis in Libya continues to weigh on the markets. I have a theory that important news events tend to lose their impact after 72 hours and that window has passed.

Obviously if this sell off is really just a bull market correction disguised as a news event then the selling can continue. Do not take this trade unless you are willing to take that risk.

This is a two part trade

Part one:
Enter this portion only if the S&P is positive at 9:45 AM to get past an opening head fake.

Sell short SPY March $129 Put, currently $1.95, stop $129.95

Part two:
Enter this portion only with an SPY trade at 132.15.

Sell short SPY March $134 Put, currently $4.31, stop $130.95

Chart of SPY


New Long Term Recommendations


None


New Aggressive Recommendations


None


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 please let us know.