Two days of market gains certainly don't make a trend but the extreme oversold conditions suggest we could see further upside. I don't want to back up the truck but I am willing to venture back into the game.
The oversold conditions are equivalent to the Flash Crash in 2010. The Dow declined more than 2,000 points in three weeks and even with a +864 point rebound last week it still ended the week down -175 points. Extreme oversold conditions could last for several more days.
On the European crisis Merkel and Sarkozy are meeting on Tuesday to try and put another band-aid on the crisis or at least kick the can far enough down the road they can get the much larger bailout fund voted on and approved by all 18 countries. The results of the Tuesday meeting could be market positive.
I am not convinced the market is headed back up but we can't wait on the sidelines forever for a clear sign that may never come. Investing involves risk. If it didn't there would be no reward.
I am adding several plays today and I am providing a list of a few more in case anyone wants to be more aggressive. There is plenty of opportunity if you are willing to take the risk.
No Open Positions
Current Position Changes
New Short Put Recommendations
DECK - Deckers Outdoor Corp $93.50 (Short Put)
Deckers was sold hard the prior week with nearly a $30 drop. The stock began recovering on Wednesday despite the major market sell off and those gains continued through Friday's close. This stock is showing good relative strength and should continue higher. There is strong support on the 200-day average at $83.
Do not enter this position unless the S&P and DECK are both positive by 10:AM
Sell Short Sept $80 Put, currently $2.25, stop $87.75
Chart of DECK
WYNN - Wynn Resorts $145.30 (Short Put)
WYNN, MGM and LVS all appear to be recovering nicely from the market correction and from the recent activity boost in Vegas and Macau. MGM was the latest casino to report and they beat the street with profits of $3.44 billion. Casino operators claim Vegas is nearly fully booked for the next 60 days and that is a strong profit generator.
Do not enter this position unless the S&P and WYNN are both positive by 10:AM
Sell Short Sept $125 Put, currently $3.10, stop $133.00
Chart of WYNN
HANS - Hansen Natural $80.85 (Short Put)
Hansen reported earnings of 90-cents compared to estimates of 84-cents thanks to better than expected sales of its Monster Energy drink. Sales increased +26% and Hansen garnered a couple upgrades after the report. Despite the market weakness the stock rebounded strongly and is close to breakout to a new high.
Do not enter this position unless the S&P and HANS are both positive by 10:AM
Sell Short Sept $75 Put, currently $2.25, stop $77.75
Chart of HANS
I realize many readers may not be content with the three stocks I recommended so I am providing this list of alternates for your own research. I think these would be good choices but I am not making them official recommendations.
Stock, Price, Strike, Premium
MCP 58.93 50.00 2.23
CLR 56.70 50.00 1.50
CLF 77.23 67.50 2.01
LULU 58.19 47.50 1.45
ARUN 23.08 19.00 0.88
VMW 90.84 80.00 2.05
CREE 36.77 32.50 1.29
LUFK 68.40 60.00 1.80
FFIV 81.90 70.00 2.04
EMN 84.95 75.00 1.70
MCP 58.93 50.00 2.23
New Covered Call Recommendations
New Long Term Recommendations
New Aggressive Recommendations
None until a positive market trend returns
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)