Sandy shook up the Northeast over the last four days but the elections are going to control the market for the next four days.
I can't remember when we have had such a difference in choices in presidential candidates. However, our view of prior elections tends to fade over the years since they occurred. However, this is the first election in recent history without campaign finance restrictions. This has opened the floodgates for advertising in many shapes and sizes. This has allowed both parties to spread untruths and out of context claims on a scale never seen before.
A local Denver TV station said last week there had been more than 30,000 campaign ads run in the Denver market over the last several months. I did not catch the start date for their claim. I think I have heard most of that 30,000 and could probably recite them from memory.
The rest of the country has been blasted by the same volume and if you are a resident of a "swing state" you probably heard a lot more.
The result of this tidal wave of advertising is an election that is basically a dead heat. Either party can win even though the policies of the candidates are dramatically different.
This uncertainty over what the election will bring is the equivalent of the proverbial fork in the road. The markets have reached a point where there are two potential outcomes and no clear leader. To put it bluntly investors don't know how to place their bets.
This suggests the next four days could see some additional selling in order to avoid making a wrong decision. It will be safer to be holding cash at the close on Tuesday than be heavily invested in a sector that could be dramatically impacted by the election result.
That uncertainty coupled with the continued storm impact and hundreds of companies still reporting earnings could keep the markets volatile. I am only adding one play tonight but next week could see us back up the truck. I am pretty sure the market is going directional after the election. We just don't know which direction until the votes are counted.
The markets are holding on support at Dow 13,100 and S&P 1,400 so anything is possible.
Send Jim an email
Current Position Changes
GG - GoldCorp (Short Put - Stopped)
GoldCorp crashed when the price of gold fell to $1700 on the 24th. Our stop was hit at $41.25 and we escaped with a minor loss. That dip to $41 was a 6-week low and it rebounded to $45.50 three days later.
Closed: GG Jan $43 Put, entry $2.40, exit $2.65, -.25 loss
NUS - NuSkin (Short Put - Stopped)
NuSkin collapsed to support at $40 on the 24th and triggered our stop loss at $41.50. We escaped with a minor gain of 85 cents so all was not lost. I could have been a little more lenient on the stop placement to something less than $40 but we have seen in the past that NUS and Herbalife (HLF) can move quickly so I wanted to err on the side of caution.
Closed: NUS Nov $35 Put, entry $1.55, exit $0.70, +.85 gain
CLB - Core Labs (Short Put - Close)
CLB has gone nowhere since the initial rebound a month ago. The stock is stuck in the $103-$105 level and that worries me. Whenever a stock fails to maintain its forward momentum I begin to worry. We are positive +1.35 on the position and the put premium is only 40 cents. We have very little to gain by staying in the position and a lot to lose. I am recommending we close the position and protect our profits.
Close: CLB Nov $95 Put, entry $1.75, currently $0.40, +1.35 gain
New Short Put Recommendations
NFLX - NetFlix (Short Put)
Netflix has received a lot of attention recently. Last Friday the stock shot up from $60.50 to $70 on a rumor Microsoft was considering acquiring Netflix. Both companies said the rumor was not true. On Wednesday Carl Icahn disclosed he had taken a 10% stake in Netflix because he believed the company was an acquisition target and was undervalued for the right buyers. Shares rallied +14% on the news to close at $79.
Obviously Icahn says the same thing about every company where he has acquired a large stake. He acquires the stake, talks up the benefits of owning the company and hopes someone comes along with a fat checkbook. Even if a buyer does not appear the publicity pumps up the stock price and Icahn exits with a profit in many past cases. In some he is not so lucky but that is another story.
I have believed for a long time that Amazon would eventually buy Netflix. I just felt they were waiting for the right price. Netflix has been bouncing along in the low to mid $60s range for the last six months and the naysayers can't seem to push it lower. The sellers seem to be exhausted even though the stock is loaded with shorts.
That would appear to be a recipe for a continued short squeeze now that Icahn has entered the picture. We don't care how the scenario plays out months from now. We just want the headline buzz to squeeze the shorts so we can profit from selling a short term put.
I am going to recommend the December $65 put, currently $1.90 but I personally would be comfortable selling the $70 put. I think the Icahn news will prompt others to buy the stock on the remote chance he can find a buyer.
Sell short Dec $65 Put, currently $1.90, no initial stop loss.
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)
GG - GoldCorp (Short Put)
ADSK - Autodesk (Short Put)
BMRN - Biomarin (Short Put)
CLB - Core Labs (Short Put)
SHLD - Sears Holding (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.