The last couple months have been a tough market to trade from the long side. I would like to think that is about to change but we have to wait for a new trend to appear rather than try and jump in front of it.
Last week was a down week for the indexes but a positive week for us. We managed to initiate several positions but the weak market kept them from prospering. The one that did the best, WYNN, has earnings on Monday after the close so we want to exit that position on Monday.
This is a hard week to sell naked puts because the majority of stocks report earnings over the next two weeks. Since I don't want to hold a naked put over earnings I am recommending some covered calls this week. They are both in the energy sector so we can be pretty sure there will be no negative surprised.
I am making one of the calls a long term play with the intent to write calls on the stock every month until called away rather than constantly initiating a new position.
If it is Sunday night the futures must be negative. Yep, a quick check shows the S&P -3.75. There were new developments in the Greek debt crisis over the weekend that could weigh on our markets this week so be prepared.
Current Position Changes
WYNN - Wynn Resorts (Close position)
WYNN reports earnings after the bell on Monday. We do not want to hold over the earnings report. Close the position at the open on Monday.
New Short Put Recommendations
New Covered Call Recommendations
WNR - Western Refining $21.13 (Covered call)
Western has been on a roll recently as it profits from the $20 spread between WTI and Brent prices. That spread allows Western to sell gasoline and diesel at prices indexed to Brent but buy oil indexed to WTI. It is a big win for Western.
I am going to put a wide stop on WNR at $19. While I don't expect a 10% decline it is always possible. What I expect is the possibility of WNR declining below our $22 strike and putting us in a position to sell it again next month.
Earnings August 4th.
Don't enter this position unless the S&P and WNR are positive.
Buy/Write WNR August $22 Covered Call, currently $21.12-$1.00, stop $19.00
Chart of WNR
New Long Term Recommendations
RRC - Range Resources $61.78 (Covered call)
Range Resources is considered one of the top shale drillers and production companies. With the BHP bid for Petrohawk on Friday Range Resources rallied +12%. I believe they will eventually trade much higher and eventually be bought by someone else.
To capitalize on this trend I want to start a covered call program on RRC where we sell calls on it every month. It has strong support at $54 and the 100-day average. I am going to put a wide stop on the trade because I don't want to be stopped out. I believe we can sell $2 in premium every month until called away for a profit. We are going to sell the call and then wait for the month to expire and then sell another call. RRC has $2.50 strikes so we are never more than $2.50 away from the next higher strike. We might get lucky and be able to do this 2-3 consecutive months before we get called away.
I AM EXPECTING the price to decline on Monday. Possibly as low as $58. That will guarantee our $62.50 call will expire worthless and we can then sell a $60 call.
Earnings are July 25th and we will hold over.
There is no requirement for RRC and S&P to be positive to enter the trade.
Buy/Write RRC $62.50 covered call, currently $61.77-$2.50, stop $53.50.
Chart of RRC
New Aggressive Recommendations
None until a positive market trend returns