Give Congress enough time and they will mess up anything. While the Q2 economy was nothing to brag about it may turn out better than Q3 thanks to Congress and the months old problem of the debt limit. Giving them something to do that impacts the market is worse than giving a 5-year old a box of matches.

The market sold off at the close on Monday and Tuesday as it became increasingly apparent there was no debt deal in the works. On Wednesday that sell off started at the open and became progressively worse as lawmakers traded jabs and cancelled press conferences. Tempers were rising and the calendar is growing short. That is not a good recipe for a market rally.

Compounding the news out of Washington was news from several corporations that economic activity decreased sharply in late June and early July as worries over the debt limit debate took hold and businesses and consumers alike closed their wallets and prepared to store food and board up the windows. The term soft patch is quickly being replaced by double dip in reference to a double dip recession.

Late Wednesday influential analyst Richard Bove told investors to liquidate everything and go to cash because of the approaching storm. He believes the debt debate has soured the reputation of the U.S. as the financial leader on the global stage and the pending debt default will have catastrophic implications for the U.S. financial system. The U.S. is facing a credit rating downgrade and the results will be disastrous.

The markets tried to recover from the opening dip but the lackluster rebound failed at 2:PM when the Treasury Dept issued a statement contradicting a Barclays article saying the default date was really in the range of the 10th to the 15th because of higher cash flows than expected. The Treasury said that claim was incorrect and August 2nd was the hard deadline to avoid a default. The market took it badly and the Dow gave up -198 points, S&P -27 and the Nasdaq -75.

We were stopped out of AGU on Monday at $90.75 for a nice gain of $1.35. Unfortunately we were stopped out of VMW, WNR and CAT on today's market implosion.

VMW was stopped at $101.65 with the option trading at $1.75 for a 40-cent loss.

WNR was stopped at $20.35 with the option trading at $0.95 for a 33-cent net loss.

CAT was stopped at $101.50 with the option trading at $1.63 for a $1.47 loss.

The covered call numbers are calculated by taking the entry price of the stock minus the stop loss price and adding in the remaining gain from the closed short call.

The Dow/S&P lost -3% in only three days so I feel we were fortunate to escape with such minor losses.

Range Resources (RRC) is holding the high ground and well out of danger. ANF lost -4.4% today but the relative strength is still good. Today was the first day of losses since last Thursday.

If there is any sign of a possible deal in Washington I think the dip buyers will appear.

Jim Brown



Current Portfolio


Current positions


Current Position Changes


See portfolio graphic for new stops/targets

RRC Earnings 7/25 - hold over
ANF Earnings 8/17 - No recommendation yet.


New Short Put Recommendations


None


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)


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.