I am going to jinx the overnight markets by saying again, the futures are NOT down as of 8:30.

In hindsight we would have been ok entering those energy positions this morning but with the futures down -15 at 4:AM it thought it was better to hold off.

The rebound intraday and higher close despite some very confusing news from Europe seems to suggest the market is going higher as I wrote this weekend. We are not over resistance yet but every day with a gain is another day the bullish sentiment improved.

I am going to re-launch the OXY-COG plays for tomorrow. Hopefully we will get a tame open and then another melt up.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


None


New Short Put Recommendations


None


New Covered Call Recommendations


None


New Long Term Recommendations


None


New Aggressive Recommendations


COG - Cabot Oil & Gas (Short Put)

Cabot rallied +15% last week on better than expected earnings and production growth for 2012 is expected to grow by 50% or more. This company is hitting on all cylinders and when investors come back into the market for a year-end rally with oil at $95 this is one of the sector leaders that will be a fan favorite. It broke out to a new high on Friday and with oil prices testing $95 on Sunday night it should continue to run. However, if the market corrects the profit taking will hit the strong stocks as well as the weak ones.

I am recommending a relatively close strike at $72.50 given the recent volatility and the stock at $83.70. $10 is not a very big cushion on an $80 stock and a +20% move in one week. Be aware this stock can move quickly there is why there is a big premium.

!!!! New Strike due to premium bleed !!!!

Sell short Dec $75.00 Put, currently $2.50, stop $76.50

Chart of COG


OXY - Occidental Petroleum (Short Put)

Occidental is one of the strongest stocks in the energy sector. They are primarily land based. They have leases with "tens of billions of barrels" potential and they are cheap to drill. They claim "they don't find oil, they only produce it." They specialize in buying older producing fields and then using new technology to rework them and produce the remaining oil. The strategy means they have proven fields with proven geology. Most of these fields never had any comprehensive seismic done when they were initially drilled so there are major deposits that were overlooked. On one field in California they found an entirely new deposit that had never been drilled and it is estimated to have 10 billion barrels of oil. The only hangup to producing it is the slow permit process in California. Permits slowed to a crawl in 2011 with only 17 permits issued for the entire state out of more than 100 requests. The governor fired the department heads last week for unstated reasons but it suggests there is about to be a breakthrough. Drilling this oil will produce billions in jobs and revenue for California.

Occidental also had blowout earnings and is pressing a new three month high. I think it will hit $110 before year-end. I am recommending an $87.50 put but personally I would go even more aggressive to $90 or $95 to capture more premium because once over $100 I think the stock won't be back.

!!!! New Strike due to premium bleed !!!!

Sell short Dec $90.00 put, currently $2.56, stop loss $91.50

Chart of OXY


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)

SD - Sandridge Energy (CC + Long Term Combo)

YHOO - Yahoo (Long Term Combo)

PHM - Pulte Homes (LT Leveraged Combo)

XOP - Oil Exploration SPDR (Short Put)

UWM - UWM ETF (Covered Call)

JJC - Copper ETF (Covered Call)


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.