The Dow low at 12,903 to the close at 12,933 is a very lackluster rebound.
If you were looking for signs of bullishness you found very few today. The markets dropped hard at the open as expected and were unable to achieve any forward motion until noon. That fitful struggle ended at 3:PM when the sellers gained control again. It was not a complete rout but it was definitely not positive.
The 3:PM selling was probably caused by margin calls or automated margin selling. If that was the case then we should not see a repeat performance on Tuesday. However, there is also the possibility that traders long over the weekend were hoping for a stronger bounce for an exit. When it did not come a few decided to exit anyway rather than risk another downward gap on Tuesday.
The only bullish straw to grasp was the extremely low volume at 5.4 billion shares. That was the lowest volume since March 12th at 5.1 billion and the second lowest since New Year's Eve at 3.9 billion. Selloffs on low volume show a lack of conviction but what people don't realize is we are still losing money whether it is 9.0 billion or 1.0 billion shares. Low volume simply does not show conviction that we are going lower.
However, the lack of any buying volume on a substantial dip also shows the reluctance of investors to go bargain hunting.
The prospect for negative Q1 earnings received more press coverage on Monday and I suspect this is holding back traders who might have otherwise felt the urge to go shopping. S&P earnings are now expected to be -0.1% for Q1. That falls to -1.6% if you remove Apple from the calculation.
Based on today's market performance I am not adding any new plays tonight. We were stopped on RVBD and WFC. I have added/updated stop losses on the majority of our existing plays. If the market is going to roll over we don't want to be caught under the wave.
Send Jim an email
Current Position Changes
WFC - Wells Fargo (Long Term Combination)
WFC declined to hit our stop loss at $33.15 on the opening dip. We entered this position on Jan 23rd when WFC was $30.54. There were three components. Two of those were April options so we would have been forced to exit soon anyway.
The Feb $30 insurance put expired worthless in the Feb cycle for a loss of 64-cents.
The Short April $34 put @ $3.70 was stopped today for $1.31 for a gain of $2.39.
The Long April $31 Calls, we had two, @ $1.41 were stopped today for $2.43 for $1.02 gain each.
Long Feb $30 Put: -0.64
Short Apr $34 Put: +2.39
Long (2) Apr $31 Calls: +2.04
Total gain: $3.79
RVBD - Riverbed Tech (Short Put)
The short put on RVBD was stopped out when EVBD declined to our stop of $26.95. The option was trading at $1.12 when the stop was hit.
Closed RVBD June $26 Put @ $.70, exit $1.12, -0.42 loss.
New Short Put Recommendations
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)
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)
EXXI - Energy XXI (LT Covered Call)
UGA - US Gasoline ETF (Short Put)
BNO - US Brent ETF (Short Put)
RIG - Transocean (Short Put Spread)
RVBD - Riverbed (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.