It may be just fear of the Fed on Tuesday but the market indexes struggled to post gains today.
The Dow inched up +37 points thanks to Exxon and Procter & Gamble but it was still a struggle. The S&P managed a 0.22 gain while the Nasdaq lost -5.
Crude oil declined and that pushed three of our covered calls back out of the money with four days until expiration. However, the dollar is falling tonight and crude is rising again. Those three positions may be back in the money by tomorrow's close. If not we will write some new April calls and repeat the process.
The S&P futures are also rising tonight. I don't see any specific reason other than the declining dollar but I am not going to complain. If today's weak market action was just a digestion of last week's rebound then that is fine with me.
I am adding another play tonight plus a rerun of GMCR from last night.
We have several positions in RIG and MMR that need to be watched before Friday's expiration. I am not changing them tonight but expect another newsletter later this week.
Send Jim an email
Current Position Changes
New Short Put Recommendations
GMCR - Green Mountain Coffee
GMCR was crushed on Friday by the news Starbucks was going to sell a single serve coffee machine. The press went crazy and the stock lost -16%. If you actually read the announcement the new Verismo is an espresso and latte machine. Starbucks did not even say anything about a single serve coffee product and actually mentioned their partnership with GMCR in the Verismo announcement.
GMCR also expressed surprise that the Verismo was being discussed as a single serve coffee maker since Starbucks had only mentioned it to them as an espresso machine. GMCR has its own espresso machine in development as well. The Starbucks machine is not even due out until September.
I believe the selling in GMCR was way overdone. I am recommending a short put on GMCR in expectations of a bounce.
Update 3/12: I think we will see support emerge at $50. It traded there for two hours Monday afternoon and did not continue its decline. I changed the strike to $45.
Do NOT enter this position if either GMCR or S&P-500 are negative at the open on Tuesday.
Sell short GMCR Apr $45 Put, currently $1.72, Stop Loss $48.25
Chart of GMCR
CRR - Carbo Ceramics (Short Put)
We tried this two weeks ago and Carbo suffered a relapse. The stock rebounded right after we were stopped on the last play. The stock has now moved over the February resistance and is sprinting higher. The high volatility has juiced the option premiums and we should be able to sell an April put $12 out of the money for more than $3.
Do NOT enter this position if either CRR or S&P-500 are negative at the open on Tuesday.
Sell short CRR Apr $90 Put, currently $3.30, Stop Loss $95.95
Chart of CRR
New Covered Call Recommendations
Long Term Recommendations
New Aggressive Recommendations
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)
BNO - US Brent ETF (Short Put)
ATHN - AthenaHealth (LT Short Put)
GMCR - Green Mountain (Short Put)
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.