Let's take advantage of the drop in Apple shares.

Apple missed their earnings estimate and the stock dropped -$30 in after hours trading. I believe this drop will be short lived because it was related to the timing of the iPhone 4S release rather than a real problem with Apple.

Fortunately for us the $3o drop in Apple shares after the close should knock the Nasdaq down sharply at the open. I suggest we capitalize on the expected rebound but selling a put on the QQQ at the open. The Nasdaq futures are down about $22 overnight and that should equate to about a 20-25 point drop on the Nasdaq at the open. The S&P futures declined -$7 after the earnings release but rebounded to -5 and have held there all night.

I propose we sell the November $56 QQQ put, currently $1.12 and probably a lot higher at the open. The QQQ closed at $58.18 in regular trading and $57.55 in after hours.

I believe investors will buy the dip in Apple because it was a revenue recognition problem in the timing of the iPhone 4S release rather than a problem with Apple. The company sold $2.4 billion in iPhones last weekend alone.

This is a risky play since we are speculating on the dip and rebound. Worst case we will end up owning the QQQ for $56.

All our other positions were up, some strongly, except for Yahoo on Tuesday.

I waited overnight to see if the futures were going to worsen and as of 3:AM they are holding at the overnight rebound point.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


None


New Short Put Recommendations


QQQ - Nasdaq 100 ETF (Short Put)

Sell Short Nov $56 QQQ Put, currently $1.12, no stop

QQQ Chart


New Covered Call Recommendations


None


New Long Term Recommendations


None


New Aggressive Recommendations


None


Existing Play Recommendations


Links to original play recommendation

BAC - Bank of America (Long Term)

BAC - Bank of America (Update 8/31)

BZH - Beazer Homes (Long Term)

MDR - McDermott International (Long Term)

BK - Bank of New York Mellon (Long Term)

NVDA - Nvidia (Long Term)

SD - Sandridge Energy (CC + Long Term Combo)

YHOO - Yahoo (Long Term Combo)

HPQ - Hewlett Packard (Aggressive Short Put)

PHM - Pulte Homes (LT Leveraged Combo)

SLV - Silver ETF (Short Put)

XOP - Oil Exploration SPDR (Short Put)


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.