On Monday I wrote "I hope we get a dip to the 50-day at 1306" and a rebound so we can add more plays. Wish fulfilled.
The S&P dipped at the open to 1305.26 and immediately rebounded to close at 1319. That was a little more rebound than I would have wished for but I guess we can't be picky.
It stalled right at decent resistance at 1320. With a couple more days of window dressing potential ahead of us I expect that resistance to be broken but the resistance at 1330 to probably hold.
At least I think we have a floor for the next few days.
The dip at the open did knock us out of the Flowserve position. The stop was $122.95 and the low for the day on the opening dip was $122.94. Since we have missed being stopped by a couple cents many times we can't complain about this exit. The dip produced the high of the day on the option at 65-cents and we entered the position at $1.40 so no harm, no foul.
CAT, CF and FLR are still well above the stops.
I am only adding two plays just in case the window undressing is ugly once the new quarter arrives.
Current Position Changes
DNDN - Dendreon $35.88 (Short Put)
Collins Stewart initiated coverage on Dendreon with a buy rating on Tuesday saying the company is rapidly increasing production in order to meet demand. He set a price target of $55 and the stock is only $36. Dendreon is a biotech company specializing on cancer.
The trend over the last week has been vertical and the upgrade applied extra fuel for the fire.
Do not enter this position unless the S&P and DNDN are both positive.
Sell short DNDN May $33 Put, currently $1.25, stop $33.75
Chart of DNDN
New Long Term Recommendations
MCP - MolyCorp $59.65 (Short Put)
MolyCorp is a rare earth miner. They acquired the largest mine outside China and are in the process of reopening it. Rare earths are in high demand and China has cut back on exports by about 85% in the last two years. They will be a net importer by 2015. The price of rare earths has more than doubled in the last year.
JP Morgan raised the price target on MCP on Tuesday to $74 from $66 and has a buy recommendation.
By selling the May put at $10 out of the money we have a significant amount of congestive support at $55.
Do not enter this position unless the S&P and MCP are both positive.
SELL SHORT MCP MAY $50 Put, currently $2.10, stop $54.95.
Chart of MCP
New Aggressive Recommendations
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.