It was not exciting and we did not end with a gain but the Dow rebounded +79 points from the opening low at 12,884.

The Dow blue chips saw a steady stream of buying all day long but a -25 point hiccup just before the close kept it from ending with a gain. The Nasdaq was not that lucky. Both Nasdaq indexes lost over 25 points and that was after a pretty good spike at 3:PM. The culprit was Apple.

Apple shares rallied to $547 at the open but shortly thereafter dipped to $526 on a major volume spike. Twenty eight million shares traded for the day but 2.5 million of those came in a five minute period on the dip. Somebody with a lot of shares wanted out and once the sell stops started getting hit the express elevator kicked in and it was a quick ride lower. The Apple faithful immediately bought the dip but the damage to sentiment was done and shares faded as the day progressed.

Apple Chart

The Nasdaq chart was a carbon copy of Apple since Apple is a major weighting in the index. The -25 point loss was the biggest decline of the year for the Nasdaq.

Nasdaq Chart

Other factors roiling the market was a growth warning out of China and weaker economic numbers out of the UK. China's premier, Wen Jiabao, lowered the growth forecast for 2012 from 8.0% to 7.5%. That may not seem like a lot but with growth in recent years in double digits it represents a continuation of the decline. China saw 9.2% growth in 2011. Also, most analysts actually expect lower growth than 7.5%. China is not going to come out and say "we only expect 5% growth for 2012" because it would crater the markets. However, they can lower expectations slightly every couple of months and get to that 5% number by year end. (I just used that 5% as an arbitrary example.)

In Europe the UK PMI Services fell to 53.8 in February from 56.0 in January. Analysts were expecting a minor decline to 54.8. Anything over 50 is still growth but that was a significant decline.

The PMI Services for the entire EU fell to 49.4 in February from 50.4 compared to estimates for a small gain to 50.6. The manufacturing PMI rose slightly to 49.0 from 48.8. Any number under 50 is a contraction. This decline for the entire EU should not be a surprise given the forced austerity in so many countries.

Also impacting EU sentiment was news out of Greece the private sector debt swap may not be going as planned. The Greek Finance Minister Evangelos Venizelos warned private sector investors not to hold out in hopes of a better deal. "Whoever thinks they will hold out and be paid in full, is mistaken. We are ready to activate the Collective Action Clauses to enforce losses if needed." There are three days left in the debt swap offer for a 53.5% face value haircut and -75% cut on the present value. At least 66% of the private sector group must vote to accept the cut in order for Greece to enact the CAC and force the holdouts to take a cut as well. If the PSI group failed to hit that 66% threshold the second Greek bailout would fail. That debt cut is a prerequisite for getting the bailout. The majority of the bailout funds are going to fund the private sector bond swap.

Lastly the semiconductor sector tanked after the semiconductor billings for January declined -2.7%. That was the third month of declines with a -5.5% drop in December and -2.3% in November. In theory the decline in billings is related to the slowdown after the Japanese earthquake and the Thailand floods. However, the decline was a serious drag on the Nasdaq with the $SOX down -2.5% for the day.

Given all the negativity I remain hesitant to add new plays. However, the Russell 2000 actually posted a gain for the day of just over a point. With the Nasdaq down -25 the Russell should have also been down. Closing with a gain was positive for market sentiment but volume was only about 65% of the prior three days so there was a definite lack of conviction.

I am going to add one play today in spite of the overall negativity. I think there is enough underlying sentiment to slow any further decline and this particular stock appears to be bullet proof. (Famous last words)

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Current positions


Current Position Changes


None


New Short Put Recommendations


None


New Covered Call Recommendations


None


Long Term Recommendations


ATHN - Athenahealth Inc (Short Put)

Athenahealth is a business services company providing ongoing billing, clinical support, and other related medical group practices primarily in the USA. Insurance claims collection is a major application they provide. They also provide electronic health record management for patients. http://www.athenahealth.com/

The company reported earnings in mid February and revenue rose +33% to $92.5 million thanks to new doctors migrating to their services. They beat the street by 2-cents on earnings of 26-cents.

ATHN has been in rally mode since mid December but they paused last week to consolidate. I would not normally recommend a long play on a stock with gains like this but it was up $1 today in a down market and looks like it wants to break out for another leg higher. I am recommending the $65 puts well below the current price and support at $70.

Sell short ATHN June $65 Put, currently $3.30, stop $69.25

Chart of ATHN


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.