President Nicolas Sarkozy lost in the first round of the French elections to socialist Francois Hollande.

The pair face a runoff vote on May 6th. Hollande had 28.5% of the vote and Sarkozy 27.1%. Three other candidates garnered a total of 39%. Asian markets fell on the results and U.S. futures are lower.

The problem with Hollande is that France will turn away from managing the EU debt crisis and focus on jobs and growth in France with the help of a social spending program. The vote for Hollande was seen as a vote against austerity.

While that may not be bad for France it will mean the breakup of the dynamic duo of Merkel and Sarkozy running dominant over the EU. The Merkozy relationship saw Sarkozy toning down the stringent demand by Merkel into something the EU would accept. With Hollande saying he would renegotiate EU agreements and stop bailouts it casts further worries over Spain and Italy and eventually Greece when they come back to the forefront.

If the election was not enough to cause EU jitters the Dutch lawmakers failed to resolve differences over budget cuts needed to bring the Dutch deficit back within the EU limit of 3% of GDP. The Dutch government is expected to resign this week and call for elections later in the year. This is another example of lawmakers being forced out of office by the EU financial crisis.

Demonstrators in the Czech Republic turned out in the greatest numbers since 1989 to protest budget cuts and tax increases required in the proposed austerity program.

European citizens are not happy about the austerity programs and that uneasiness will make European leaders less likely to come to the aid of Spain and Italy if conditions continue to worsen.

In the U.S. the equity markets face another FOMC meeting with a Bernanke press conference on Wednesday. Economics have been weakening with the employment reports suggesting jobs are headed for a losing streak again. The stakes are high for the FOMC and recent comments by the Fed presidents suggest they are not planning on any new stimulus. If nothing is announced the market is not going to be happy.

Market volatility returned last week with four days of triple digit ranges on the Dow and the Nasdaq big caps are finally selling off. The Nasdaq is close to a breakdown unless a lot of tech stocks post some strong earnings next week. After leading to the upside for three months the tech stocks could be telegraphing a change in direction if support at 3,000 breaks.

Nasdaq Chart

I am going to recommend we don't add any new positions until after the FOMC meeting. Opening new plays early this week is a coin toss and I prefer the odds to be more in our favor before we put money at risk. We had a good run over the last three months and there is no rush to give all the profits back.

Cash is a position.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Current positions


Current Position Changes


GLD - Gold ETF (Stop change)

I raised the stop loss on the GLD naked put to $158.75. With the Fed not likely to implement any QE3 plans at this week's meeting the dollar should rise and that could depress the price of gold. The uneasiness in Europe could support prices but there is always the risk of the dollar strengthening and overcoming that headwind. We are up +$10 in this position so no reason to give it back.

Raise stop loss on Short GLD $160 Put to $158.75

GLD Chart


RIG - Transocean Offshore (Closed put)

RIG gapped open on Friday to deflate the premium on our long put but that portion of the combination trade was closed for a gain. Now we need RIG to rally on all the good news coming out of the drilling sector so our short put deflates.

The expiring April $55 put, entry $1.32, was closed for $3.65, +2.33 gain.


UGA - US Gasoline ETF (Closed put)

The gasoline ETF also rallied at the open on Friday and that allowed us to exit that position for a nice profit.

Closed Short UGA April $55 Put, entry $2.35, exit $0.20, gain +2.15


New Short Put Recommendations


None


New Covered Call Recommendations


None


Long Term Recommendations


None


New Aggressive Recommendations


None


Existing Play Recommendations


Links to original play recommendation

GLD - Gold ETF (Short Put)

EXXI - Energy XXI (LT Covered Call)

UGA - US Gasoline ETF (Short Put)

RIG - Transocean (Short Put Spread)


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.