The market continued its low volatility streak with the Dow in a 46 point range.
The Dow recovered to lose -3 points after trading down at the open and the S&P was flat. The Dow's 46 point range and 6 point range on the S&P was a continuation of the lack of movement that set records last week. There are no sellers and buyers are waiting for the dips.
If it were not for the +17 point spike in Apple the Nasdaq would have lost significant ground but instead it gave back only -0.38 points. It is too bad Apple is a $665 stock because I would love to write some puts against it but the cost of entry is too great.
Unfortunately for us the volatility is extremely low. The majority of new plays I looked at had very small put premiums. The VIX closed at a six year low on Friday. Normally that would mean we have a dip in our future but the VIX can remain low for weeks before that event arrives. It simply signifies that investors are either bullish or in this case complacent. Unless there is the threat of a downturn the put premiums will be very small.
The market acts like it wants to go higher but the volume is extremely low at only 4.8 billion shares today. We are still on QE watch and a large number of traders are trying to squeeze a vacation into the last two weeks of summer before Labor Day. Other than the Bernanke speech on August 31st there is not much in the way of "scheduled" headlines to push the market around. The FOMC minutes on Wednesday along with Hewlett Packard earnings will be the highlights of the week.
I am not going to be too aggressive in adding new plays until we get a dip but I have added a couple and offered suggestions on three more.
I remain cautious about increasing our positions significantly until we see a decent dip. We are way overdue.
Send Jim an email
Current Position Changes
FFIV - F5 Networks (Short Put - Stopped)
The short Sept $85 put on FFIV was stopped when FFIV dipped to $99.75 at the open on Aug 14th. I had raised the stop after the early August spike in order to save our profit on any decline.
This was a profitable position and the stop was painless.
Closed FFIV Sept $85 Put, entry $4.35, exit $1.13, +3.22 gain.
BBY - Best Buy (Short Put - Close)
We entered this position after the former CEO and founder of Best Buy made a tentative offer for the company in the $24-$26 range.
On Monday the company said the former CEO declined an offer from the company to examine the financials as part of his due diligence on the buyout. The reason for the breakdown in talks was a requirement for Schulze to wait until January to present his offer to shareholders. Schulze said he was still working on producing an acceptable offer for the company and he was "shocked" to find out they had broken off talks by reading about it in the paper. Shares of BBY fell -8% on the news. The former CEO may eventually make another offer but with the drop the stock has fallen back to our strike price and I would rather exit now for a breakeven than wait for a further decline if no offer is forthcoming.
Close: Short Sept $18 Put, entry $1.15, currently $1.13, +.02 gain.
New Short Put Recommendations
FFIV - F5 Networks (Short Put)
We were stopped out of our F5 position last week on the dip to $97. However, the stock rebounded over the next couple of days to close at $101.68 today. That dip to $97 created a support level that will let us back in the trade using a different strike.
FFIV has resistance at $104. If we can get a breakout over that level I think it will add $5 very quickly.
Do not enter this trade until FFIV and the S&P are both positive.
Sell short FFIV Oct $90 Put, currently $2.85, stop loss 96.50
VMW - VMWare (Short Put)
VMW has rallied through resistance at $95 and that level should now be support. The cloud is growing larger with every tick of the clock and VMW is a major part of that growth. The weakness from the early summer has passed and although volatile VMW has begun a new trend higher.
Do not enter this trade until VMW and the S&P are both positive.
Sell short FFIV Oct $87.50, currently $2.80, stop loss $92.50
Extra credit possibilities
I am not profiling these as active positions but they made my short list today. If you want to add more positions these would be a starting point.
They are NOT going to be followed in the newsletter.
Sym - Price - Mo - Strike - Premium
GS $105 OCT $97.50, currently $2.06
RHT $58 OCT $52.5 currently $1.35
AGU $101 OCT $95 currently $1.75
New Covered Call Recommendations
Long Term Recommendations
New Aggressive Recommendations
Existing Play Recommendations
Links to original play recommendation
EXXI - Energy XXI (LT Covered Call)
RIG - Transocean (Covered Call)
SBUX - Starbucks (Short Put Spread)
FFIV - F5 Networks (Short Put)
BBY - Best Buy (Short Put)
CRR- Carbo Ceramics (Short Put)
EBAY - Ebay Inc (Short Put)
CRM - SalesForce.com (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.