The combination of the EU bailout for Spain's banks and the blowout trade numbers for China has pushed the S&P futures up +16 points on Sunday night.

My title last week was Gloom, Doom, and no Boom. This week it looks like we are going to get the boom. For the first week in a long time the futures are positive on Sunday night and unfortunately they are too positive at +16. It would be next to impossible to enter a position at the open on Monday that was not the high of the day on option premiums. Market makers are going to open the bid ask spreads to the point where you could drive a truck through because they don't know what is going to happen. Will the rally hold or will be there be a flash crash right behind it? Remember Greece votes on Friday.

Pushing the futures higher was news the EU will lend Spain "up to" 100 billion euros to recapitalize its banks. Spain has to put the money in a segregated fund and use the money only for the banks. This does not solve Spain's financial problems but it does kick the can farther down the road.

The dollar imploded and the euro exploded on the Spain bailout news. The dollar declined at the open nearly a full percentage point. That lifted commodities with oil up +2.62 to $102 for Brent crude.

Also helping push oil prices higher was a blowout number from China on trade. Chinese exports rose +15.3% in May compared to 4.9% in April. Imports rose +12.1% compared to only +0.3% in April. These numbers are very strong, especially on the export side and that suggests the global economy may not be as weak as some expected. It also shows there is still demand in China.

China said auto sales rose +16% to 1.61 million units in May. That is a huge increase that pushed the year to date numbers up +1.7% to 8.2 million units. More than 6.44 million of those vehicles were passenger cars for a +5.48% increase year over year. China is on track to sell as many as 20 million vehicles in 2012.

Because of the monster spike in the futures there are no plays for Monday. I will look at the setup again on Monday night and see if there is a trend we can play. If Monday turns into a pop and drop we will be safe on the sidelines.

Jim Brown

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Current Portfolio


Current positions

Current positions


Current Position Changes


IOC - Interoil Corp (Short Put)

Interoil declined to hit our revised stop loss at $60.75. The higher stop took us out of the position for a minor 13 cent loss.

Closed IOC short put, entry $4.05, exit $4.18, -13 cent loss.

IOC Chart


XHB - Homebuilder ETF (Short Put)

The XHB declined to hit our revised stop at $18.95. Unfortunately the bid/ask spread was about $2 at the time and we suffered a $2.33 loss.

Closed short XHB Put, entry $2.07, exit $4.40, -2.33 loss.

XHB Chart


NUS - NuSkin (Short Put)

NuSkin declined to hit our stop at $40.50. The stop was tight enough to prevent a material loss. NuSkin fell hard on Monday to hit the stop but immediately recovered the lost ground.

Closed short NUS Sept $40 Put, entry $4.50, exit $4.90, -.40 cent loss.

NUS Chart


RIG - Transocean (Covered Call)

Please lower the stop loss to $44.65 on the short Nov $50 Call. BP is talking about a settlement with the government and real numbers are being discussed. That suggests there could be a settlement event in the coming weeks. With oil prices firming on the China data I would like to stop out of this short call if RIG breaks resistance and then resell a higher call after a couple days of gains. We have a higher base cost in RIG at $54.52 so I don't want to be called away on a sudden spike to $50.

Lower stop loss on short RIG Nov $50 Call to $44.65

RIG Chart


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

EXXI - Energy XXI (LT Covered Call)

RIG - Transocean (Covered Call)

SBUX - Starbucks (Short Put Spread)

XHB - Homebuilders ETF (Short Put)

HLF - Herbalife (Short Put)

NUS - Nu-Skin (Short Put)

IOC - Interoil Corp (Short Put)

CLR - Continental Res (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.