The government of Cyprus may be having second thoughts about its planned tax on bank deposits.

It may have sounded like a good idea at the time but the uproar over the proposed Stability Tax is giving the parliament second thoughts.

The planned vote on the tax on Tuesday has been cancelled. The unannounced bank closures that took place on Monday has been extended and banks are scheduled to reopen on Thursday with accounts minus the tax payments.

Accounts under 100,000 euros were to be charged 6.75% and those over 100,000 at 9.9%. That totaled 5.8 billion euros in taxes. In the latest news the EU has now said they don't "favor" taxing accounts under 100,000 euros. However, the country of Cyprus will still have to come up with the money to reach that 5.8 billion.

Late commentaries suggest the government of Cyprus may try to impose a smaller tax on the smaller accounts because they have no other source of funds. The government received an emergency loan of $3.3 billion from Russia last year. The newly elected leader of Cyprus said on Monday the only two options were to either accept the EU bank tax or file bankruptcy.

The S&P futures are up on Monday night on expectations the original tax proposal will be modified. However, any bank tax on depositors sets a dangerous precedent. Italy and Spain are too big to bail and their banks are already underwater. When their bailout talks begin again the worry over a potential bank tax in those countries will create a monumental run on the banks.

The Dow opened down triple digits on Monday and recovered to trade slightly positive just before the close. Unfortunately fear of darkness caused a last minute sell off to close down -62 points.

Seeing the Dow recover more than 100 points intraday surely encouraged the dip buyers and those waiting on the sidelines for a buying opportunity. Decent support at 14,400 was tested and followed by an instant rebound. We may have put in two days of losses but those losses were minimal and represent a consolidation in place as long as that 14,400 support holds. The S&P dipped below support at 1550 briefly but recovered. If the market returns to its winning ways on Tuesday there could be a rush of money into the market ahead of month end.

The Cyprus incident will provide one more reason for the Fed to continue QE at the meeting this week. They may put out an even more forceful announcement warning about the risk of global financial markets in an effort to bring money to the U.S. and keep our rally going.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


HLF - Herbalife (Raise Stop)

Herbalife shares have declined over the last week on a lack of headlines to close at $37.91. I am raising the stop loss to $37.50. There is no reason to let this position deteriorate if the 800-pound gorillas have decided to move on to some other more appealing target.

Raise stop on May $36 Put to $37.50.

Herbalife Chart


New Short Put Recommendations


Z - Zillow (Short Put)

Zillow broke out to a new high on Monday at $54.75 after a nationwide panel of 118 experts predicted home value growth would exceed pre-bubble rates over the next five years. The Zillow Home Value Index is expected to show 22% growth in prices by 2017. The positive news gave Zillow shares a lift.

Sell short Z May $45 Put, currently $1.60, Stop loss $49

Zillow chart


CREE - Cree Inc (Short Put)

Cree shot up on March 5th when an analyst spoke highly of their new under $10 LED bulb for home use. Cree has been announcing new products routinely and the long term chart looks like stairs. The bulbs are reportedly selling faster than expected and Cree is hiring 200 more workers just to produce these bulbs. They are now being sold in Home Depot and they are selling faster than the compact fluorescents.

Sell short CREE May $50 Put, currently $2.69, Stop $51.50

CREE Chart


CRR - Carbo Ceramics Inc (Short Put)

Carbo shot up to trade at a new 52-week high last week on news there were more than 20 new rigs added the prior week to drill gas wells. Carbo makes the ceramic proppants used in fracking gas and oil wells. The gas wells require more proppant and a returning gas rig fleet will use significantly more of these materials.

I am recommending the $85 put but the $90 has twice the premium if you are feeling a little more aggressive.

Sell CRR May $85 Put, currently $1.60, stop $88.25

Carbo Chart


Other potential plays. - Not official recommendations

CZR $17.50, May $15, $1.20
CSTR $56.36, May $50, $1.75
SSYS $69.70, May $60, $2.05


New Covered Call Recommendations


None

You might consider Nektar. Up strong today on no news but not an official recommendation.

NKTR $10.49, May $11, $.80


New Long Term Recommendations


None


New Aggressive Recommendations


None


Existing Play Recommendations


Links to original play recommendation

RIG - Transocean (Covered Call)

HLF - Herbalife (Short Put)

TSLA - Tesla Motors (Short Put)

VRTX - Vertex Pharma (Short Put)

QCOR - Questor Pharma (Short Put)

GMCR - Green Mountain (Short Put)

BSFT - Broadsoft (Covered Call)

GMCR - Green Mountain (Covered Call)


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.