Monday's decline could have been a lot worse.

The minor -5 point decline on the Dow could have been a lot worse after the ISM Manufacturing report came in much worse than expected. The Index fell from 54.2 to 51.3 and just barely over contraction territory. That is the lowest reading since December.

Economists are expecting further declines as a result of the sequestration spending cuts. Falling so close to contraction in just one month suggests the summer months could be negative.

Traders shook off the bad news and the Dow recovered to trade flat at the close. This came after the Dow traded over 14,600 at the open and opposite other markets that opened down. The Doe retained its Teflon coating but the Nasdaq was not so lucky.

The Nasdaq lost -28 points for the day but it was still a higher low from the prior dip. The Nasdaq has put in four higher lows since March 19th. Apple was the biggest drag at -13 points.

Historically April is the best month of the year for the Dow because of its blue chip composition.

I am skeptical the markets are going to keep moving higher without a decent bout of profit taking. I would love a decent dip to buy. Until that happens I remain cautious about adding new plays.

We were stopped out on two today and I don't want to add new ones just to see them stopped out tomorrow. After the first week of April the markets tend to move higher until May 1st so after the next few days we should be ready to try some short term strategies.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


VRTX - Vertex Pharma (Short Put)

VRTX gave back a little ground but still above trend. Raise stop to $52.75 just in case.

Short VRTX APR $49 Put, Entry $2.35, Stop loss $52.75

VRTX chart


QCOR - Questor Pharma (Short Put)

Questor fell -3.5% to hit our stop at $31.25. We still exited with a minor gain.

Closed: Short QCOR APR $30 Put, Entry $1.35, exit $1.05, +0.30 gain

QCOR 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 had a May $57.50 covered call @ $2.73 that has deflated down to 38 cents. I recommended we buy back that call and sell a new May $50 call at $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.

Closed Short RIG May $57.50 Call, entry $2.73, 0.36. +2.37 gain.
3/26/13: Sold to open RIG May $50 Call @ $2.67, no stop

RIG chart


CRR - Carbo Ceramics (Short Put - Stopped)

Carbo declined sharply on Thursday and again on Monday on news the active gas rig count declined by -28 rigs last week. Fewer rigs means less demand for proppant to fracture gas wells. We took a big hit here with the sudden decline and the rapid inflation of put prices.

Short CRR May $85 Put, entry $1.60, exit $3.80, -2.20 loss.

Carbo Chart


SSYS - Stratasys (Short Put - Raise Stop)

Stratasys closed flat on the day after a decent gain at the open. The trend is still up but I want to raise the stop loss to $70.85.

Short SSYS May $65 Put, entry $2.30, raise stop to $70.85.

SSYS Chart


RPRX - Repros Thera (Short Put - Close)

RPRX spiked $7 on Thursday to put our short put well out of range. I recommend we close it to avoid a random lightning strike.

Buy to close RPRX May $7.50 Put, entry $1.30, currently 0.10, +1.20 gain

RPRX Chart


New Short Put Recommendations


None


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)

SSYS - Stratasys (Short Put)

RPRX - Repros Thera (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.