The bulls bought the dip and all the indexes finished in the green.
There appears to be no fear in the markets. All manner of economic and geopolitical news is making headlines but nobody seems to care. This reminds me of an Alfred E. Newman market. "What, me worry?" For those who don't remember he was the cartoon poster child for Mad Magazine and that was his favorite saying.
Nobody seems to be worrying. Expectations for negative earnings are being glossed over like it was that cartoon character making the forecast.
Eventually fundamentals will matter but for now the U.S. markets are the lifeboat in a stormy sea. Cash is flowing in our direction and with the Fed buying all the treasuries there is nothing left to buy but equities.
I will be a believer if the indexes breakout to new highs but until then I remain cautious. Historically the first week of April is down and we got that right on schedule. The second week is a tossup and the last two weeks are slightly positive. With the Fed filling the punchbowl with a fire hose the historical trend should hold.
We were stopped out on several positions on the big dip and I am closing TSLA today. That does not leave us with much so I am going to try and add a couple of low risk plays but low risk means low reward at least in the short term. With the VIX at 13 for the last month the option premiums remain lousy for puts.
Send Jim an email
Current Position Changes
VRTX - Vertex Pharma (Short Put)
VRTX was stopped out at $52.75 on April 3rd.
Stopped: Short VRTX APR $49 Put, Entry $2.35, Exit 0.75, +1.60 gain
SSYS - Stratasys (Short Put - Stopped)
Stratasys declined to hit our stop loss at $70.85 on April 3rd.
Stopped: Short SSYS May $65 Put, entry $2.30, exit $2.73, -0.43 loss.
RPRX - Repros Thera (Short Put - Closed)
The RPRX position was closed at the open on Tuesday as scheduled.
Closed RPRX May $7.50 Put, entry $1.30, exit 0.10, +1.20 gain
Z - Zillow (Short Put - Stopped)
The Zillow position was stopped out at $50.85 on April 3rd.
Stopped: Zillow May $45.00 Put, entry $1.40, exit 2.10, -.70 loss
CREE - CREE Inc (Short Put - Stopped)
The CREE position was stopped out at $51.50 on April 3rd.
Stopped: CREE May $50.00 Put, entry $2.60, exit 3.00, -.40 loss
GMCR - Green Mountain (Short Put - Stopped)
The GMCR position was stopped out at $52.75 on April 3rd.
Stopped: GMCR May $50.00 Put, entry $3.90, exit 3.49, -.42 loss
TSLA - Tesla Motors (Short Put - Close)
Tesla spiked the prior week and we held the put open over the second announcement last week in order to let the premium evaporate. It is currently only 20 cents so it is time to exit the position for a nice profit.
Close: TSLA April $37.00 Put, entry $2.90, currently .20, +2.70 gain
New Short Put Recommendations
VLO - Valero Energy (Short Put)
Valero announced last week they were spinning off their retail division of 1,900 stations effective on May 1st. There was a post announcement sell the news dip that corresponded with the market dip on Tue/Wed. VLO is now rising again as traders buy the stock ahead of the spinoff. The effective date to qualify for the split is holders of record on April 19th, which is option expiration Friday. I believe this will provide a lift to the stock through expiration.
I am recommending we sell the April $43 strike with VLO at $42.12 today. That gives us 9 days to hold it so the premium should evaporate very quickly. I would plan to exit on April 18th.
Sell short VLO April $43 Put, currently $1.61, stop loss $39.75
New Covered Call Recommendations
New Long Term Recommendations
New Aggressive Recommendations
MNST - Monster (Aggressive Short Put)
Monster was rewarded with an upgrade from UBS saying the overseas potential was underestimated. This came on the same day Monster announced a new $200 million share repurchase program. Shares accelerated from their already positive trend. Monster has been rising since late March despite the weak market.
I am recommending we sell the May $52.50 put, currently $2.95 with MNST at $52. I believe the trend will continue due to short covering and the stock repurchase program.
Sell short MNST May $52.50 Put, currently $2.95, stop loss $48.75
Existing Play Recommendations
Links to original play recommendation
RIG - Transocean (Covered Call)
TSLA - Tesla Motors (Short Put)
VRTX - Vertex 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)
SSYS - Stratasys (Short Put)
RPRX - Repros Thera (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.