The painfully crafted Greek bailout is in jeopardy after weekend elections voted out the parties responsible for approving the bailout and imposing crushing austerity on the country.

With 80% of the votes counted the conservative New Democracy and socialist PASOK parties both of which supported the bailout and austerity measures, lost big in the elections. The New Democracy party won only 20% of the vote to see its seats decline to 111 out of the 300 member parliament. The PASOK, has been in power since 1981 saw its approval decline to 13.5% after winning with 43% in 2009. It will control only 42 seats, down from 160 after the last election. Those two parties saw their supplort fall to the lowest level since 1974.

The parties winning the votes were those who pledged to end the austerity and reject the bailout agreements.

Antonis Samaras, leader of the New Democracy party, said, "We are ready to take up the responsibility to form a new government of national salvation with two exclusive aims: For Greece to remain in the euro and to amend the terms of the loan agreements so that there is economic growth and relief for Greek society."

Under Greek law the top three parties with the largest percentage of votes will each get three days to try and form a coalition with enough other parties to create a government. With the broad range of parties receiving votes and the leading party only getting 20% it will require a serious amount of reconciliation and that does not appear likely. If a coalition government cannot be formed in the next 10 days there will be new elections.

The challenge is that the people want to keep their socialist welfare state with high wages, low taxes and government handouts but the government is broke. The people don't care and they will vote to continue the handouts even though that is not possible. There is a serious disconnect between citizen desires and governmental ability regardless of who is elected.

That means the likelihood of Greece defaulting on the bailout terms is very strong and the odds of them leaving the euro currency are also high.

Also this weekend the French voted conservative Nicolas Sarkozy out of office and socialist Francois Hollande in as president. "Austerity can no longer be inevitable" Hollande declared in his victory speech. Sarkozy was voted out of office because of the anti austerity sentiment taking over France and the rest of Europe.

Hollande promised help for the poor as well as an increase in public spending and social programs. France has an AAA credit rating but is deep in debt. Seeing the government shift to a socialist agenda with a president that is calling for more stimulus programs is not going to set well with the ratings agencies.

Also, Hollande as the president of France and will be seen as the speaker for the downtrodden citizens of other countries also suffering under forced austerity. He has pledged to tax the rich at 75% of their income making him a hero to the working class. He plans on lowering the retirement age to 60, favors legalizing euthanasia and wants to eliminate nuclear energy in France.

The S&P futures are down -15 points Sunday night as a result of these elections and the direction Europe appears to be headed. If the rest of Europe follows in the footsteps of France then long term economic conditions are going to worsen.

Last week was the worst week of the year for the U.S. markets and this week is not starting out well if the futures retain their losses into Monday's open. This is not a market where we should be opening new plays. We need for the smoke to clear and a recognizable trend to appear. The last three days were directional but they don't make a trend.

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


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Current Position Changes


GLD - Gold ETF (Stopped)

The gold ETF fell through our revised stop loss at $158.75 last week to take us out of that trade. We exited with a nice profit so no complaints there.

Closed Short GLD $160 Put, Entry 20.60, exit 11.50, +9.10 gain.

GLD Chart


New Short Put Recommendations


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Existing Play Recommendations


Links to original play recommendation

GLD - Gold ETF (Short Put)

EXXI - Energy XXI (LT Covered Call)

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.