I hope this is not the start of a new trend with Mondays dictating the direction for the week.

The Cypriot bail-in moved one step closer to reality on Monday but the result was detrimental to global markets. The new head of the EU Commission said the plan to tax depositors could be a template for the rest of the eurozone. That set off a firestorm of controversy because that is what everyone had been afraid of all last week. They feared the program would be seen as easy money for regulators and then applied to other countries with debt problems like Spain, Italy, Portugal, Ireland and Greece.

If the EU government can reach across country boundaries and just take money out of private accounts then nothing is sacred and EU citizens, already in fear of the EU government run by Germany and France, immediately worried their deposits were no longer safe.

The Dow lost -160 points from the opening high to the midday low but recovered slightly to end down -64 after the official tried to take back his comments saying each country was a special situation and bailouts would have to be crafted that were unique to each country. Nobody believed him because that just means the wording will be different but the actions the same.

The U.S. markets are especially nervous since the indexes have stalled at their highs for over two weeks now. The closer we get to the end of the quarter the greater the nervousness.

Traders believe fund managers will prop up the markets through Thursday but then take profits next week ahead of what could be an ugly earnings cycle. If by chance we manage to get through April without a market disaster the "sell in May" cycle could be especially rough this year.

I don't want to add a bunch of new plays ahead of next week. This is a period to be cautious and look for a dip to buy.

I am adjusting the stop losses on nearly all of our current plays just in case the market does roll over.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


HLF - Herbalife (Stopped Out)

Herbalife shares had declined over the prior week on a lack of headlines to close at $37.91. I raised the stop loss to $37.50. After stopping us out at that level last Tuesday shares of HLF spent the entire week at that level. Icahn and Ackman may not have called a truce but they have both been very quiet.

Closed: May $36 Put, entry $2.90, exit $3.48, -.58 loss

Herbalife Chart


Z - Zillow (Short Put)

Nice trend in progress and we should be safe at $45 but raise stop to $50.85 just in case.

Short Z May $45 Put, Entry $1.40, Stop loss $50.85

Zillow chart


VRTX - Eertex Pharma (Short Put)

VRTX closed at a new high today but raise stop to $50.90 just in case.

Short VRTX APR $49 Put, Entry $2.35, Stop loss $50.90

VRTX chart


QCOR - Questor Pharma (Short Put)

Questor hit a new high last Thursday but then lost $4 in three days. Raise the stop to $31.25 to cap our loss on any further declines.

Short QCOR APR $30 Put, Entry $1.35, Stop loss $31.25

QCOR chart


TSLA - Tesla Motors (Short Put)

TSLA fell off a cliff the prior week but is finally moving higher again. The founder tweeted today there was a big announcement later this week. Shares rose +2.5%. Raise the stop to $34.75 just in case the market does not like the announcement.

Short TSLA APR $37 Put, Entry $2.90, Stop loss $34.75

TSLA chart


RIG - Transocean Inc (Covered Call)

Transocean shares are going the wrong way as news from the BP trial is weighing on stock prices. We have a May $57.50 covered call @ $2.73 that has deflated down to 38 cents. I am recommending we buy back that call and sell a new May $50 call, currently $2.65. So far we have collected $5.22 from call premiums and our original entry into the stock was $54.52. We could close it today for a minor profit. If we sell the May $50 call and the stock closes below that level at expiration I would hold off on writing a new call because once the trial is over the stock should surge.

Buy to close Short RIG May $57.50 Call, entry $2.73, currently 0.38. +2.35 gain.
Sell to open RIG May $50 Call, currently $2.65, no stop

RIG chart


New Short Put Recommendations


SSYS - Stratasys Ltd (Short Put)

Stratasys was unbeatable in its Q4 rally to more than $90 but competitor 3D Systems (DDD) ran into some trouble that tarnished SSYS in guilt by association. Since mid February SSYS has been moving higher and closed at a six week high on Friday. Option premiums are high because of the volatility so we can sell well out of the money and still get a decent premium.

Sell short SSYS May $65 Put, currently $2.55, stop $67.50

SSYS chart


RPRX - Repros Therapeutics (Short Put)

RPRX has some important drugs in the pipeline awaiting FDA stage approvals. Since these events can be volatile the premiums on this stock are very high. However, on Monday they announced the American Urological Association (AUA) had accepted data on Androxal for presentation at the annual meeting in early May in San Diego. Having the AUA want to present your study data suggests the drug is going to succeed. Shares of RPRX rallied +9% on Monday. More importantly the news could have halted a long decline. I am going to recommend the $7.50 put with the stock at $9.59. If disaster were to strike the call premiums are also extreme so we could easily write ourselves out of trouble. Open interest is huge.

Sell short RPXR May $7.50 Put, currently $1.30, no stop

RPRX chart


New Covered Call Recommendations


None


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)

Z - Zillow (Short Put)

CREE - Cree Inc (Short Put)

CRR - Carbo Ceramics (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.