It should not come as a surprise that Greece still has not agreed to the terms required to get the second bailout from the EU.

This continued failure to take the necessary steps needed to earn the next bailout is weighing on the equity markets. They did agree to cut 15,000 government jobs in 2012 as part of the 150,000 the EU is demanding. In Greece a government job is guaranteed for life. Greece wants to reduce the workforce by attrition but unfortunately there is almost no attrition in the government ranks. They are paid up to 20% more than other EU workers. They get to retire earlier and with higher benefits. Why would anyone want to quit?

Another condition appeared in the troika's demands this week. Germany and France are now demanding the portion of the bailout money required to cover debt payments and interest should be put into a separate account where Greece cannon access the money except for debt payments. This is a challenge for Greece since they need every euro they can get their hands on just to cover the daily bills. Restricting much of the bailout funds is a good idea but Greece is completely against this idea for obvious reasons.

The troika is also demanding another 3.9 billion euros in budget cuts in 2012. That equates to 1% of GDP. Party leaders are rebelling against the constant list of new demand by the EU. The troika has given them a deadline of Tuesday to accept all the terms.

The equity market apparently does not believe Greece is going to concede and all the indexes finished in the red today but only by a small amount. This was more than likely simple profit taking from Friday's big short squeeze along with some reservations over the outcome in Greece.

I am canceling the play recommendation on Las Vegas Sands because it traded down today and Wynn traded down a lot. I replaced it with a couple new recommendations for Tuesday.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Current positions


Current Position Changes


LVS - Las Vegas Sands (Cancel Short Put)

We had an open recommendation to initiate a short put position on LVS for Monday morning. The S&P was negative at the open to the recommendation was not triggered. Cancel that recommendation. Do NOT enter the LVS short put position. WYNN lost another $2 today and even though LVS is currently the strongest stock in the sector I am having second thoughts about the impact of Macau. Cancel the recommendation.


XOP - Exploration SPDR ETF (Closed Short Put)

Closed XOP Feb $50 Short Put, opened $1.42, exit .26, +1.17 gain.


MCP - MolyCorp (Closed Short Put)

Closed MCP Feb $25 Short Put, opened $.76, exit .22, +.54 gain.


IOC - Interoil Corp (Closed Short Put)

Closed IOC Feb $47.50 Short Put, opened $2.37, exit .13, +2.24 gain.


CTSH - Cognizant Tech (Closed Short Put)

Closed CTSH Feb $65 Short Put, opened $0.95, exit .30, +.65 gain.


New Short Put Recommendations


FIO - Fusion IO (Short Put)

We found out this week that Fusion IO is the largest data center provider for Facebook. The CEO was on CNBC on Monday talking about barely scratching the surface on speed and capacity. Their storage memory platform increases the speed of processing and the efficiency of services from companies like Facebook, Apple and SalesForce.com, three of their biggest users. The stock was depressed for the last couple weeks because they reported low margins with earnings. The CEO said today they were in high growth mode and margins would be low but they were tuning that effort and margins would improve with market breadth.

Sell March $22.50 Put, currently $1.60, stop $23.50.

Chart of Fusion IO


New Covered Call Recommendations


None


Long Term Recommendations


EXXI - Energy XXI (Covered Call)

Energy XXI reported blowout earnings last week and the stock is breaking out to a new high. This is a small offshore driller that specializes in shallow water work over of existing wells. The company buys existing leases with old production and reworks the wells using new technology. They have been very successful and their expanding resource base and small market cap makes them a takeover candidate as well.

Sell June $38 Covered Call, currently $3.40, no stop.

Chart of EXXI


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)

WNR - Western Refining (Covered Call)

MDR - McDermott (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.