The markets continue to creep higher despite weeks of gains and worries over the eventual correction.

If we continue to wait for the dreaded correction it may never come. Directional changes in the market almost never come when expected. If everyone is waiting for the correction there is nobody selling. Everyone is waiting to buy the dip and eventually they get tired of waiting an buy something.

I gave up waiting this week and I am going to list several new plays. There is something for everyone including some covered calls.

If the market were to suddenly implode overnight please do not blindly enter these positions. Be reasonable. If the meltup is continuing then party onward but if you see signs of an earthquake I would suggest finding something to hang onto.

The S&P is nearing its historic high close at 1564 and that could be the trip wire that triggers profit taking. That would be a triple top since the S&P has been to 1550 and back three times in the last ten years.

Exercise caution!

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


None


New Short Put Recommendations


VRTX - Vertex Pharma (Short Put)

Vertex broke out of a consolidation phase on news their new flu drug could be a blockbuster. This is a news related spike but the effects may be long lasting.

I am using an April option so the premium decay should be fast.

Sell VRTX April $49 Put, currently $2.40, stop $49.25

Chart of VRTX


QCOR - Questor Pharma (Short Put)

Questor received news last week that the drug Acthar was being prescribed by doctors at a rapid rate. Nearly 50% of 91 doctors surveyed had prescribed the drug and they believed the drug would gain broader use. The stock was punished in September after Aetna would restrict insurance coverage of the drug. Now that the drug is taking off we could see Aetna change their plans. Either way consumers are getting the benefits.

Sell QCOR April $30 Put, currently $1.45, stop $29.75

QCOR Chart


New Covered Call Recommendations


BSFT - Broadsoft (Covered Call)

Broadsoft fell at the end of April on a weaker than expected outlook. However, it appears the news of their death was greatly exaggerated. Shares are rocketing higher from the drop to $22. This volatility has inflated premiums and we can make some decent money if BSFT can recover the $30 level over the next 60 days.

Sell BSFT Covered Call May $30, currently $1.45, stop $24.00

BSFT = $27.22, premium $1.45, profit if called = $4.23

BSFT Chart


GMCR - Green Mountain Coffee (Covered Call)

Green Mountain burst through resistance at $48 and is streaking higher after announcing a deal with Unilever to sell Lipton Tea for its single serve brewers. This set the stock on fire again after a month of consolidation.

I believe the rally in GMCR will last so I am going to recommend a covered call. If by chance it does dip we will sell again the following month. GMCR always has high premiums.

Sell GMCR Covered Call May $60, currently $3.70, no stop
GMCR = $53.99, premium $3.70, profit if called = $9.71

Chart of GMCR


New Long Term Recommendations


None


New Aggressive Recommendations


GMCR - Green Mountain Coffee (Short Put)

Green Mountain burst through resistance at $48 and is streaking higher after announcing a deal with Unilever to sell Lipton Tea for its single serve brewers. This set the stock on fire again after a month of consolidation.

I am going out to May to sell some really high premiums.

Sell GMCR May $50 Put, currently $3.80, stop $49.85

Chart of GMCR


Existing Play Recommendations


Links to original play recommendation

RIG - Transocean (Covered Call)

WLT - Walter Energy (Covered Call)

TSLA - Tesla Motors (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.