The economic calendar is light but there is no shortage of market moving events.

The debt showdown in Greece, the Iranian nuclear standoff, markets breaking out to new highs and a serious debate over the validity of U.S. Economic numbers. Take your pick for the lead topic for Monday.

The Asian markets opened higher on the U.S. economic news but there is some serious confusion on whether those employment numbers are valid. Some say they are optimistic projections forced by the administration in an election year. Others claim they are historically wrong because of years of miscalculations on the seasonal adjustments. Regardless of whether they are right or wrong they still count for 99% of market participants. Those people never see anything but the headlines and behind the scenes calculations don't matter.

The payroll numbers along with the spike in the ISM Services report suggest the U.S. economy recovery is accelerating out of its infancy stage and into a growth spurt. Unfortunately the vast majority of the earnings guidance did not forecast a booming Q1.

Guidance was flat to negative but then that is what the market analysts had been predicting for the economy throughout all of January. Is it any wonder that corporations gave cautious guidance? Even if your company was not seeing that big of an impact you don't want to be the only one on the leading edge of positive expectations where any slight hiccup in Q1 could cause an earnings miss and the stock to be crushed. It is better to hang back in the crowd and be conservative. Don't draw attention to yourself and make sure you can beat the lowered guidance.

IF, and that is a capital IF, the economy really is accelerating then the stage has been set for a big round of Q1 earnings beats thanks to all the weak guidance.

As of 9:PM Sunday night the S&P futures have opened lower at -3.50 and appears to have a downward bias. Of course there is still a lot of darkness before morning. There are probably two drivers for the negative futures. The first is profit taking from the big short covering spike on Friday and the second is the rapidly failing Greek debt talks.

Greece has to provide an answer to the EU Commission on Monday on whether they will accept the latest terms on the second bailout of 130 billion euros. The EU has put a condition on the terms that the leaders of all the political parties in Greece must sign off on the terms. With an election coming up in April the EU does not want a new person elected that will immediately start working against the EU terms.

Several of the party heads have already said they would not agree with the EU terms but it is easy to appear tough in the press but when they actually have to vote for a Greek bankruptcy and the problems it would cause for the citizens and workers I suspect that bravado will fade.

However, the headlines for Monday will be "Deal or No Deal" for Greece. If there is no deal we could see a serious knee jerk reaction in the markets. I think the more likely headline will be "Deal is Imminent." Wait, they already used that one several times. Whatever the headline you can bet the EU and Greek officials will still be talking so this problem is not going to go away.

There are very few economic reports in the U.S. this week so any market movement will come from those European headlines and from the continuing earnings reports.

I am hesitant to launch a lot of new plays given the unknowns. However, indexes breaking out to new highs are normally bullish. I am going to take this opportunity to close several plays and cash out some profits.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Current positions


Current Position Changes


XOP - Exploration SPDR ETF (Close Short Put)

The XOP ETF has not moved very far from where we entered this play but the option premium has shrunk nearly to zero and rather than wait two more weeks for expiration I would rather exit now and pocket the profits rather than continue to be exposed to risk.

Close XOP Feb $50 Short Put, opened $1.42, currently $.18, +1.24 gain.


MCP - MolyCorp (Close Short Put)

The MolyCorp short put came very close to our 10-cent target last week but the stock has been rather volatile. Let's take our profits and escape this volatility.

Close MCP Feb $25 Short Put, opened $.76, currently $.18, +.58 gain.


IOC - Interoil Corp (Close Short Put)

Interoil rallied just after we entered this position but it has been perfectly flat for the last two weeks. When a stock quits going up there is always a good chance it could go down. We made a lot of money here so abandon ship.

Close IOC Feb $47.50 Short Put, opened $2.37, currently $.12, +2.25 gain.


CTSH - Cognizant Tech (Close Short Put)

We knew when we entered this play we would have to exit quickly. The company has earnings on Feb 8th and we do not want to hold over an earnings release. Close this play.

Close CTSH Feb $65 Short Put, opened $0.95, currently $.19, +.76 gain.


New Short Put Recommendations


LVS - Las Vegas Sands (Short Put)

Last Vegas Sands broke out to a new 52-week high on Friday when Wynn Resorts was giving back -5%. The space was weak after Wynn reported earnings that failed to impress and MGM is losing millions on expansion and renovation. LVS is suddenly the place to be as growth expands overseas. I like the concept of being long the stock that is breaking out to new highs while the rest of the sector is struggling. Anyone looking to buy a casino stock has got to be thinking LVS.

Unfortunately the put premiums are low thanks to their gains and the low VIX.

Do not enter this position unless the S&P and LVS are both positive before 10:AM

Sell LVS Mar $48 Put, currently $1.06, stop $49.75

Chart of LVS


New Covered Call Recommendations


MDR - McDermott International (Covered Call)

McDermott was a covered call in the past that expired out of the money. Our adjusted cost basis is $14.05 and MDR has rallied about $2 in the last two weeks and is nearing our cost. I am suggesting we sell a March $14 put. If called we will make a buck and if not we reduce our cost again. There is strong resistance at $15.

Sell MDR March $14 Covered Call, currently $0.85, no stop.

Chart of MDR


WNR - Western Refining (Covered Call)

Western is a small midwest refiner that has been benefitting from the glut of oil coming out of the shale areas. They can buy it cheaper than Brent, which is the price all the coastal refineries have to pay for oil. They sell their gasoline for the same price as everyone else so their profit margins are higher.

WNR is approaching strong resistance at $18. Since February is normally the seasonal low for oil prices any decline in price helps refiner profits. If oil prices don't decline then the oil sector should remain firm. Either way WNR should reach $18 and hopefully close just over that level.

I am not putting a stop on WNR. If it fails to reach $18 we will adjust our cost and write a new call next month. This is an inexpensive stock and we could conceivably write this same strike several times before being called.

Sell WNR March $18 Covered Call, currently $1.05, no stop.

Chart of WNR


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)

YHOO - Yahoo (Long Term Combo)

PHM - Pulte Homes (LT Leveraged Combo)

JEF - Jefferies (LT Leveraged Combo)

HITK - Hi-Tech Pharma (Covered Call)

LEAP - Leap Wireless (Covered Call)

MCP - MolyCorp (Short Put)

IOC - Interoil Corp (Short Put)

MMR - McMoran (Short Put)

CTSH - Cognizant Tech (Short Put)

WFC - Wells Fargo (Combination)

CRR - Carbo Ceramics (Short Put)

JJC - Copper ETF (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.