Good news, fat put premiums have returned.

The bad news is that the market trend has changed. Anybody selling puts in the market today may end up eating those positions. Market sentiment has changed dramatically over the last couple days. China economic data fell. Europe economic data is sinking. U.S. economics are worsening. Suddenly the markets are paying attention.

The U.S. data for April has missed estimates on 20 of the 22 reports so far this month. That is not a good sign for future months because the impact of the sequester will grow.

The slowing global economics caused a commodity implosion. When economics decline the demand for materials and metals to manufacture products also declines. The commodity sector normally leads the market as investors worry about future demand. When commodities decline the market normally follows.

Commodities have imploded over the last week. Gold has declined to 1350 in the daily session and is 1325 overnight. Oil fell to $87.50 and is still declining overnight with the last print at 86.54. Copper hit $3.19 intraday after trading at $3.80 in February. That is a -20% drop. Gold and copper are in a major bear market and global economics are not likely to get better in the near future.

At 3:50 ET this afternoon two bombs exploded near the finish line of the Boston Marathon. Several people were killed and more than 100 injured according to Boston area hospitals. The police are not calling it a terror attack but I don't know what else you would call it when two explosions a block from each other detonate only 15 seconds apart.

I have been amazed the U.S. has not seen more terror attacks at events drawing large crowds since 9/11. We offer terrorists hundreds of events a month with tens of thousands in attendance. We know there are sleeper cells in the U.S. because the border patrol has apprehended Middle Easterners trying to cross the Mexican border. They repeatedly find prayer rugs and Korans in the personal effects dumped by border crossers when they run to escape capture.

There have been fictional movies made theorizing about coordinated attacks in the USA. We are a soft target for anyone with a desire to organize random attacks. They could literally bring America to its knees with 100 or so bombings around the country. Consumers would retreat to their living rooms and refuse to go to the malls, restaurants, sporting events and church services. The economy would slow to a crawl.

From the pictures I saw today of the Boston bombings I believe that was home grown terrorism. The bombs were of limited power and placed in trashcans along the route. I believe an overseas terrorist would have constructed bigger devices because they are better trained in bomb construction and placement. If this was homegrown terrorism the injuries are the same but the long term impact will be negligible.

The Dow lost -265, Nasdaq -78, S&P -36, Russell -35, Transports -233. We will probably see a dead cat bounce on Tuesday but market sentiment has been damaged by today's events. I see no future in trying to launch new plays for Tuesday. We don't know what we are going to learn from the news tomorrow and how investors are going to react to the day's declines. It sentiment has been damaged the sell in May crowd may accelerate their exit plans and sell into any dead cat bounce.

Jim Brown

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Current Portfolio


Current positions


Current Position Changes


VLO - Valero Energy (Short Put)

Valero collapsed with the energy sector over the last three days and hit our stop at $39.75. The decline was ironic since lower oil prices are going to increase refiner profits. It just shows that when the tide goes out all the boats lose altitude.

Stopped: Short VLO APR $43 Put, Entry $1.55, Exit 3.25, -1.70 loss

VLO chart


TSLA - Tesla Motors (Short Put - Closed)

Tesla spiked the prior week and we held the put open over the second announcement last week in order to let the premium evaporate. I recommended we exit the position last Tuesday for a nice profit.

Closed: TSLA April $37.00 Put, entry $2.90, exit .25, +2.65 gain

TSLA 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)

TSLA - Tesla Motors (Short Put)

BSFT - Broadsoft (Covered Call)

GMCR - Green Mountain (Covered Call)

VLO - Valero Energy (Short Put)

MNST - Monster Beverage (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.