The market has made zero progress since the end of March and the only trend has been sideways.
Last week's dip cost us some money in a couple stop losses but we finally saw the short put on the MolyCorp play trade at our target price of 25-cents to give us a profitable exit.
The market dipped to support at 12200 on the Dow and 1300 on the S&P but the rebounds were lackluster. The next two weeks have a lot of critical earnings and some important economic events like the FOMC meeting on the 27th. The possibility for volatility is pretty good.
The biggest earnings hurdle will be the twin bill of Intel and IBM on Tuesday after the close. Intel will give us an idea of the health of the retail tech sector while IBM will tell the tale of the business environment. We have seen a sharp pickup in manufacturing in late March and early April but we still don't know how much, if any, Japan has impacted the recovery. Guidance from these two tech giants will be critical.
Personally I believe the economy "was" proceeding forward at a moderate pace until the price of gasoline began to spike. That will impact consumer spending and corporate profits. Fuel costs are a critical economic problem for everyone.
Because of the rising fuel prices economists are slashing their GDP estimates for Q2 and 2011. Most analysts are now under 2% growth and that is down from 3.1% in Q1. Some numbers are in the 1.4% to 1.5% range. That is very close to no growth at all and it could suggest the Fed will maintain some sort of QE strategy past June in order to keep feeding the markets. Keeping the markets moving higher improves consumer sentiment and buying trends.
With strong overhead resistance and high volatility events in our immediate future I am not going out on a limb here with a bunch of aggressive plays but I am adding three to try and make up for the stops last week. This is also the point in the cycle where most companies have earnings over the next couple weeks so that limits the available plays.
VMWare has earnings on Tuesday so we need to exit the play at the open on Monday.
Current Position Changes
MCP - Molycorp (Target achieved)
The May $50 put traded at our target price of 25-cents to give us a $1.50 gain.
VMW - VMWare (Close play)
VMW has earnings on Tuesday so we need to close this play at the open on Monday. If the market and VMW are moving higher you might want to wait until later in the day to exit but the official exit will be at the open.
CTXS - Earnings April 27th
LULU - Lululemon Athletica $93.29 (Short Put)
LULU is pushing up against its recent high with a pretty decent cushion above current support. If the market cooperates and we get a breakout by LULU over $94 the premiums should deflate fairly quickly. Earnings are June 9th.
Do not enter this position unless LULU and the S&P are both positive.
Sell short LULU May $85 Put, currently $1.60, stop loss $89.50
Chart of LULU
AKAM - Akamai Technologies $38.09 (Short Put)
AKAM broke out of a two-week consolidation on Friday and closed over $38. This should cause further buying on Monday as shorts cover positions. AKAM has been beaten severely over the last two months and appears to be trying to mount a comeback.
Do not enter this position unless AKAM and the S&P are both positive.
Sell short AKAM May $36 Put, currently $1.10, stop loss $36.75
Chart of AKAM
SINA - Sina Corp $124.55 (Short Put)
SINA is breaking out to a new high and the recent volatility inflated premiums so that we can sell $20 out of the money for a decent price. Once SINA moves over $125 we should see that premium deflate quickly.
Do not enter this position unless SINA and the S&P are both positive.
Sell short SINA May $105 Put, currently $1.75, stop loss $115.75
Chart of SINA
New Long Term Recommendations
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)