The markets faded after the republican proposal was released but the decline was orderly and on low volume.
Volume was only 5.6 billion shares across all markets. It was roughly 2:1 in favor of declining volume. The weak market was also due to a drop in the manufacturing ISM for November but the weakness there was due to Sandy.
Coming off the high volume Friday and the rebalance of the MSCI indexes Monday was a sleeper day. I don't think we can read too much into a -6 point drop in the S&P that closed right on the support of the 100-day average.
However, the first week of congressional posturing may have been interesting to watch but with less than two weeks to go before the congressional recess for the holidays the urgency to get something done is going to increase. With that urgency is going to come some increased hostility between the gang of four and the president and the increased frequency of the headlines.
Last week could have been the calm before the storm. This week could also be devoid of any major market moves but I am not betting on it. There is a sell off lurking behind one of the headlines in our future and we don't know today when it will appear.
I do believe we will eventually get a resolution even if they just kick the proverbial cans farther down the road to let the lame duck congressmen leave and the new crop arrive to assume their positions. That has already been discussed by more than one politician.
I only found one position I was willing to add today. I looked at several hundred charts and quite a few were starting to show signs of weakness. The market hates uncertainty and we have plenty heading our way. I went conservative today. We had a couple of great picks last week in VMW and DECK and there is no reason to waste money on new positions this week that are marginal at best.
There is always another play ahead as long as you have money left to play.
Send Jim an email
Current Position Changes
RGR - Sturm Ruger (Short Put - Closed)
Ruger has been so profitable they decided to declare a special dividend of $4.50 payable on Dec 21st to holders of record on Dec 7th. Because stocks normally go down when they go ex-dividend (Dec-5th) I recommended we close this position on Monday Dec 3rd to avoid the drop.
Closed Short Apr $45 Put, entry $3.40, exit $2.35, +1.05 gain
NFLX - NetFlix (Short Put - Closed)
I warned last Monday that NFLX had slowed its gains and could be due for some of the volatility it was known for. I recommended closing the short put at the open on Tuesday. NFLX opened at $82 on Tuesday and allowed us to exit for a nice profit. The decline began on Wednesday and it closed today at $76 for a drop of $6. Sure glad we took profits.
Closed NFLX Dec $65 Put, entry $2.03, exit 0.30, +1.73 gain.
EXXI - Energy XXI (Covered Call - Closed)
Lightning struck on the EXXI position and we were not as lucky as the NFLX exit. EXXI broke down on the 26th when MMR released bad news on a well where EXXI was a partner. I recommended we exit the next morning but EXXI gapped down again and killed our profit on the position. Sometimes these events happen and there is nothing we can do but take our lumps.
We wrote the first call with the stock at $38.12. We have taken in premium of $2.99, $1.39 and $2.76 for a total of $7.14. The stock opened Tuesday at $30.72. Exiting Tuesday gave us a total of $37.86 and only a little less than a breakeven.
Closed EXXI Dec $35 Call, entry $3.00, exit 0.24, +2.76 gain.
Sold EXXI stock, entry $38.12, exit $30.72, plus premium received of $7.14, -0.26 loss
New Short Put Recommendations
AthenaHealth is an Internat based business services company supplying billing, insurance claims, health care records and clinical services for hospitals and medical groups. Shares spiked up on the 19th after Raymond James upgraded them to strong buy from market perform. That was a two rating increase and came only two days after ATHN was named to the Deloitte Technology Fast 500. The combination of the two events added $8 to Athenahealth shares.
The gains stuck and even with the volatility last week they refused to decline. Shares are currently at resistance at $65 and gained +1.45 today in a down market. I am going to recommend a January $60 put to short.
Sell short ATHN Jan $60 Put, currently $2.15, stop loss $62.25
New Covered Call Recommendations
New 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)
NFLX - NetFlix (Short Put)
CAB - Cabela's (Short Put)
RGR - Sturm Ruger (Short Put)
FLS - FlowServe (Short Put)
PCYC - Pharmacyclics (Short Put)
VMW - VMWare (Short Put)
DECK - Deckers (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.