It will be interesting to see if the markets rally on the new Prime Minister in Italy or if they find something else to worry about.

I am going to jinx the open by telling you the S&P futures are up +8 at 7:PM on Sunday night. Every time I have reported those numbers in the last couple weeks the market has reversed before the open.

The installation of Mario Monti as the PM in Italy should calm the bears because he is an expert in economics. He is non partisan, if any politician can actually be that, and his sole task is to float the sinking ship. The markets have immediately expressed their displeasure to recent political errors in Greece and Italy and hopefully they will greet this current news with some bullishness.

Granted the problems have not been solved but at least they are headed in the right direction. Maybe the bulls can seize control ahead of the normally bullish Thanksgiving week and continue pushing the market higher.

U.S. economics continue to improve and there are plenty of reports this week.

I added three low dollar plays this week using December options. Our existing portfolio is doing well so there is no need to pile on new plays.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


None


New Short Put Recommendations


GMCR - Green Mountain Coffee (Short Put)

Green Mountain was crushed last week when it reported earnings that did not live up to the monster expectations of investors. The stock has had a rough couple of months falling from $116 to $40. At this point I believe all the bad news is priced into the market. Q4 is a blockbuster quarter for GMCR with Keurig single cup brewers and K-cups by the millions. The company recently signed deals with Dunkin Donuts and Starbucks and sales will continue to grow. At the current price range there is even talk about a larger company like Nestle making an acquisition bid. All we care about is the next five weeks.

The volatility surrounding the earnings has inflated their premiums and we can sell the $35 put for $1.36 with the stock at $44. There is strong support at $40. I think it is worth the risk.

Sell short GMCR Dec $35 Put, currently $1.36, stop $38.75.

GMCR Chart


New Covered Call Recommendations


MMR - McMoran Exploration (Covered Call)

McMoran is an oil and gas exploration company with some major projects underway in the Gulf of Mexico. When I say major I mean it. They have multiple wells targeting 28,000 feet deep but in less than 100 feet of water. The first ultra-deep well is scheduled to come online before the end of December and they are saying the flows from this one well could be in the trillions of cubic feet. The stock is accelerating based on expectations for this well and the others currently being drilled.

I am recommending the December $15 call with MMR at $14.33. The option premium is over a dollar and there is another 67 cents of stock appreciation. This is a very lucrative covered call, relatively speaking. The stock is cheap and the premiums are high.

If MMR gaps open on Monday you may want to move to the $16 call.

Sell short MMR Dec $15 Call, currently $1.06, stop $12.75.

Alternate on a gap open:

Sell short MMR Dec $16 Call, currently $0.72, stop $12.75.

McMoran Chart


GBX - Greenbrier Companies (Covered Call)

Greenbrier manufactures railroad cars. Business is booming. The need to ship millions of pounds of pipe and frac sand to the various shale gas/oil fields is creating a huge boom in boxcars and flat cars. At the same time the demand for tank cars to ship oil and natural gas liquids back to the Gulf is also strong. Rail traffic in general is booming as more companies resort to rail for shipping because of the high price for diesel fuel. Greenbrier and American Railcar both said demand was so strong they were at full production and expected to remain there through 2012.

I am going to recommend the $25 call with the stock at $23.63. That gives us a nice profit on the stock appreciation and on the option premium.

Sell short Dec GBX $25 Call, currently $1.00, stop $20.75

Chart of GBX


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)

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)

COG - Cabot Oil & Gas (Short Put)

OXY - Occidental Petroleum (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.