Despite the 7% rally this week there has not been an entry point for new plays.

When the futures were up +21 points on Sunday night I did not add any plays for fear we would get filled on a monster gap open with premiums deflated from the gap. The Dow gapped up over 300 points on Monday.

The S&P rallied to resistance at 1200 on Monday and faded the rest of the day. It looked like a picture perfect short squeeze to resistance and then a failure. Not an ideal entry point when the market is selling off into the close.

Tuesday's opening rally to a couple points over 1200 and another fade into the close was a picture perfect failure at that same resistance level. Again, no real incentive to jump into high risk positions with resistance holding on both days.

Unfortunately the news from Europe, joint liquidity swaps by the Fed and a rate cut by China caused yet another gap open on Wednesday of more than 400 points. Another monster short squeeze that ended with nearly a +500 point gain.

Personally I can't imagine adding long plays after a +750 point Dow rally in three days. I could be wrong. Maybe market sentiment has changed dramatically but we are still in a headline driven environment. The same headlines that pushed us up here could be swapped for new ones that knock us back.

The S&P has strong resistance at the 200-day average at 1265 and that is 18 points away. Maybe this time is different but I am not convinced.

Short squeezes like we have seen this week only work for longs if you were already long before the squeeze occurs. While I am disappointed there has not been any entry points it has only been THREE days. There are plenty of days in our future and I would still rather err on the side of caution than jump into extreme volatility.

I am patiently waiting.

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


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)


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.