One of our recent positions surprised us with an acquisition today that pushed the position to a maximum profit.
There is a saying, "I would rather be lucky than good" but I like the revised versions better. "Luck favors the prepared" or "Preparation, not luck, is the key to success."
Obviously we can never know in advance but when I added Global Industries to the play list last week it was not a new play for me. I have mentioned several times in the OilSlick.com newsletter that Global was a takeover candidate.
Sunday night Global announced it had agreed to be acquired by Frenceh company Technip for $8 a share in cash. That is a 55% premium to Friday's closing price of $5.15. Global had been under pressure from the lack of drilling permits in the Gulf and at their depressed price they were ripe for a takeover.
We were short the March 2012 $5 put @ $1.17 and long the March $5 call @ 87-cents. We entered the play for a 30-cent credit and I am recommending we close it on Tuesday for a $3.05 profit. The put is bid at 10-cents and the call at $2.85. You can leave the put open to squeeze that last 10-cents but it is tying up margin and there is always the possibility of something going wrong with the deal. Take the money and run.
I am really encouraged about the IWM position we entered this morning. There was absolutely no weakness in the Russell even with the Dow down -168 points. That suggests traders are done with the selling and they are going to start adding to position ahead of the Fed.
TSCO was only negative for about 10 min and closed at the high for the day. CAT was a little weaker with selling in the Dow ETFs pushing it down intraday but it did close near its highs.
Current Position Changes
New Short Put Recommendations
New Covered Call Recommendations
New Long Term Recommendations
New Aggressive Recommendations
Existing Play Recommendations
Links to original play recommendation
COG - Cabot Oil & Gas (Short Put)
VIX - Volatility Index (Naked Call)
BAC - Bank of America (Long Term)
BAC - Bank of America (Update 8/31)
DRC - Dresser Rand (Long Term)
WLT - Walter Energy (Long Term)
BZH - Beazer Homes (Long Term)
MDR - McDermott International (Long Term)
BK - Bank of New York Mellon (Long Term)
GLBL - Global Industries (Long Term)
NVDA - Nvidia (Long Term)
CAT - Caterpillar (Short Put)
TSCO - Tractor Supply (Short Put)
IWM - Russell ETF (Aggressive Combo)
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.