The Dow did not bounce at the close as it has for the last month. Did sentiment change?

The combination of Bernanke and the LTRO-2 from the ECB sent the dollar soaring and the euro plunging. Commodities and equities fell in unison thanks to the strong dollar. The indexes failed to rally at the close and that was a different type of sentiment than we have seen for the last month whenever a dip occurred.

Initially I thought it might be a change in sentiment and we really were going to have a decent dip. However, I think it was just dollar related and the trader reaction to no QE3.

Obviously we can't know for sure if buyers will appear on Thursday but I am willing to try launching that Brent crude ETF put play again. We did not enter the play on Tuesday morning because the BNO opened negative and canceled the entry.

The dollar spike may have been only temporary and a decline in the dollar will push crude prices higher. Crude dropped for three days but rebounded today from $104.84 (WTI) to $107. I suspect traders in WTI and Brent thought the -$5 drop from Friday's close was enough to start buying again.

I am neutral on the market in general until the Dow/S&P can post higher closes than they did on Tuesday.

Jim Brown

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Current Portfolio


Current positions

Current positions


Current Position Changes


None


New Short Put Recommendations


BNO - US Brent Oil Fund (Short Put)

Crude prices are very likely to remain high for the rest of the summer. Analysts are predicting WTI to go to $120 and Brent to $140. The BNO is the U.S. Brent Oil ETF. As the Iranian oil embargo and potential attack by Israel moves farther into the summer months the price of Brent should rise. We saw a decent bout of profit taking on Monday-Wednesday from the $87.60 level to $84.63 on Wednesday with a rebound back to $85.83.

Do NOT enter this position unless the BNO is positive at the open.

Sell short April $84 Put, currently $2.65, no initial stop.

Chart of BNO


New Covered Call Recommendations


None


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 (Long Term CC)

YHOO - Yahoo (Long Term Combo)

PHM - Pulte Homes (LT Leveraged Combo)

JEF - Jefferies (LT Leveraged Combo)

GLD - Gold ETF (Short Put)

WFC - Wells Fargo (Combination)

CRR - Carbo Ceramics (Short Put)

JJC - Copper ETF (Short Put)

WNR - Western Refining (Covered Call)

EXXI - Energy XXI (LT Covered Call)

RIG - Transocean Offshore (Short Put Spread)

USO - US Oil Fund (Covered Call)

UGA - US Gasoline ETF (Short Put)

MMR - McMoran Exploration (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.