The major drop at the open was bullish for the market because it wiped out all the weak holders from the earlier rebound. Everyone wishing they had bought last week's dip got another chance at an entry.

The increased volatility raised the option premiums and the dip and rebound showed us which stocks had the best relative strength. I am expecting an end of quarter rebound as the window dressers add some positions before next weekend.

I believe the dip/rebound was a bullish event. With all the bad news this morning we could have broken those critical lows from last week but we didn't and the Nasdaq and Russell actually finished in positive territory.

I am not confident enough to back up the truck and pile on a lot of positions but I do want to get back into the market after two weeks of watching it drop.

Jim Brown



Current Portfolio


No Open Positions


Current Position Changes


None


New Recommendations


MCP - MolyCorp $54.02 (Short Put)

MolyCorp has had a rocky ride recently. They had a massive share lockup expire and they priced a secondary offering of $230 million in convertibles. The stock was hammered. Those events are now passed and it appears to have found a bottom just over the 200-day average at 46.68. I believe the long-term prospects for rare earths and for MCP in general are good. I am going to recommend it for a short put and a covered call.

Enter this position only if the S&P and MCP are both positive

Sell Short MCP July $47.50 put, currently 95-cents. Stop $51.

Chart of MCP


GMCR - Green Mountain Coffee $84.90 (Short Put)

Green Mountain has sprouted wings and actually closed at a new high on Thursday. Business is booming and so is the stock prices. The intraday decline on Thursday was minimal so it would take a tsunami to crack it. That means a short put $7 OTM should be a decent risk.

Enter this position only if the S&P and GMCR are both positive

Sell GMCR July $77.50 Put, currently $1.00, stop $82.

Chart of GMCR


CLF - Cliffs Natural Resources $86.53 (Short Put)

Cliffs was another big gainer on a bad day in the market. The morning dip only knocked it back to $82 and it closed at a new high for the week. Coal has rebounded as a global fuel with the "coal supercycle" theory being spread by the Peabody Energy CEO.

Enter this position only if the S&P and CLF are both positive

Sell CLF July $80.00 Put, currently $1.02, stop $83.

Chart of CLF


I looked at quite a few plays but decided to only list the three above for safety's sake given the highly volatile market. I considered FFIV,BIDU and LULU but did not include them as official plays. Here are the details if you want to add a couple more positions.

Symbol Price Strike Premium
FFIV $107.65 $97.50 $1.25
BIDU $129.24 115.00 $1.35
LULU $106.65 $95.00 $1.00


New Long Term Recommendations


MCP - MolyCorp $54.02 (Covered Call)

MolyCorp has had a rocky ride recently. They had a massive share lockup expire and they priced a secondary offering of $230 million in convertibles. The stock was hammered. Those events are now passed and it appears to have found a bottom just over the 200-day average at 46.68. I believe the long-term prospects for rare earths and for MCP in general are good. I am going to recommend it for a short put and a covered call.

I am recommending the in the money $50 call at $7.20 if disaster strikes we will be covered by the premium received down to $47. By selling in the money we are guaranteed to be called away unless the stock drops significantly and hits our stop.

Enter this position only if the S&P and MCP are both positive

Sell MCP August $50 Covered Call, currently $7.20, stop $50.75.

Chart of MCP


New Aggressive Recommendations


None until a positive market trend returns


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)