The flare up of the European credit crisis again and a lack of good news out of the debt limit talks in Washington combined to push the S&P futures down -9 points at the Sunday evening open.

I am beginning to think we will never be free from the European debt crisis problems. As problems in one country begin to dissipate another country immediately jumps into the spotlight and starts tanking the markets again. The country this week is Italy. The Italian index declined -3.6% on Friday with a loss of more than 600 points. The problem in Italy is the need for a second and even larger bailout than the first. The ECB said over the weekend it appears Italy and the Italian banking system is in urgent need of additional capitalization.

Italy has roughly $120 billion in plan bond sales on the horizon and the yield on the 10-year bond is approaching 5.5% and the pain threshold where Italy will no longer be able to afford to refinance. This helped push out futures lower on Sunday night.

Also negative for the markets is a continued lack of agreement by lawmakers on the debt limit crisis. The parties met with President Obama Sunday evening and nothing was resolved. The Republicans have thrown in the towel on the $4 trillion package saying there is no way to get a package of that size passed because republicans won't accept new taxes or major cuts in Social Security and Medicare. The republicans are willing to drop back to a smaller $2 trillion, two-year package to end the crisis and will accept the closing of minor tax loopholes in order to get it passed. However, they are demanding another extension in the individual social security payroll tax cuts for another year as part of the package.

Both sides are clearly leveraging their bets with eyes on getting reelected in 2012. Regardless of the outcome both sides will claim they won and they kept the other side from making drastic changes that would have hurt consumers.

Even with futures in the tank on Sunday night I am going to take a chance and add a couple plays with the normal qualification that the S&P and the individual stocks have to be positive to enter the trade. If the futures remain low and the markets decline then we will pass on the entries and look at it again on Monday night. If the futures recover and we open positive then we will be ready.

Jim Brown



Current Portfolio


Current positions


Current Position Changes


MCP - MolyCorp (Covered Call)

MolyCorp declined on Thursday to hit our stop at $55.95 and take us out of the play with a small profit of 80-cents.


New Recommendations


PNRA - Panera Bread $132.00 (Short Put)

Panera is building a solid wedge with resistance at $132 that should produce a breakout any day now. That resistance has been firm for four days with progressively higher lows. Earnings are July 26th so hopefully the earnings run will help push the stock higher.

Do not enter this position unless both the S&P and PNRA are positive.

Sell short PNRA August $125 put, currently $2.25, stop $129.25

Panera Chart


AGU - Agrium $89.87 (Short Put)

Agrium is in rally mode on the need for more fertilizer. The spring floods prevented many fields from being planted on time while others were being hit by drought. Globally there is a severe shortage of food, which means farmers get more for their crops and can afford to spend more on fertilizer. Earnings are August 3rd and AGU is currently wedging up to $90 in what could be a breakout any day now.

Don't enter this position unless the S&P and AGU are both positive.

Sell short AGU August $85 Put, currently $1.75, stop $86.75

Chart of AGU


WYNN - Wynn Resorts $161.15 (Short Put)

Casino stocks are rocking after recent news the business in Macau is booming. JP Morgan upgraded the casino stocks last week and WYNN went vertical. Wynn is expected to beat estimates for earnings that will be almost double the 52-cents they earned in the comparison quarter. Wynn reports earnings between July 25th and August 4th. No exact date set yet. We will want to exit before the earnings.

Do not enter this position unless the S&P and WYNN are both positive.

Sell short WYNN Aug $150 Put, currently $4.05, stop loss $154.25

WYNN Chart


New Covered Call Recommendations


None


New Long Term Recommendations


None


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)