That was an interesting week for the market and for solar stocks particularly.

The JA Solar covered call did not work out exactly as planned. The stock was $9 when I recommended the $10 call. It gapped open to $11 the next morning and while that provided a call premium of $2 it was over the strike price. We had expected a premium of $1 so all things considered the play remained the same.

The volatility continued on Wednesday when the market dipped and the fast rising solar stocks were punished for their recent gains. Nothing changed in the solar sector and this was simply a consolidation of the prior week's gains coupled with market volatility.

The market is likely to see some further stress next week after the Japanese Nikkei fell another -3.2% on Monday on comments from China that slower growth would be ok under the right circumstances. The Nikkei is still up +35% for the year so there is still room for profit taking. The worry is that it will spread to the U.S. markets in sympathy.

Tuesdays after a holiday are typically bullish so let's hope that trend continues.

I am keeping the new plays to a minimum today until we see if the dip is going to stick or rebound. Futures are up +5 late Monday so assuming nothing changes before morning we could be off to a good start.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


None


New Short Put Recommendations


IOC - Interoil Corp

We have played IOC several times in the past with good results. Their option premiums are always high because they are a headline driven company. They typically issue a press release every week about something and sometimes the claims are hard to believe. This time they have a tiger by the tail.

They have an exclusive license to 3.9 million acres and they have spent $384 million drilling exploration wells. They have found an estimated 9 Tcf is gas. However, they have no way to get it to market. This has been the delay in turning the gas into cash. They planned an LNG terminal but because of the cost Papua New Guinea told them they had to partner with somebody with deep pockets and experience in the LNG business.

They went out for big on an LNG terminal and tried to find some partners without any success. Last week they announced they had entered into exclusive talks with Exxon. You won't find any deeper pockets than those. Since IOC is prone to over exaggerating any news headline the stock spiked sharply then sold off to end the day with a loss. Over the weekend Exxon confirmed it was in talks with IOC and reminded everyone it already had an LNG facility in Papua New Guinea that will begin delivering LNG in 2014. The spokesman said a deal with IOC could induce Exxon to add another train to the existing facility. Secondly, since Exxon will be in production mode in 2014 they could begin to take gas from IOC as early as next year rather than IOC waiting the 4-5 years for a new train to be built.

This is a big deal for IOC. They have finally hooked a whale and this one looks like a winner. There is no deal yet but all the pieces of the puzzle are in place. This should put a floor under the stock as this process flows to conclusion.

Sell short IOC July $80 Put, currently $8.25, no stop.

IOC Chart


TSLA - Tesla Motors

The short squeeze continues. More than 75% of TSLA shares are held buy the top ten holders and the shares do not trade. This means the 41% of the float that is short is racing to find shares to cover. The company has had nothing but good news in recent weeks and the stock closed at a new historic high on Friday. The market dip had no impact at all.

Option premiums are very high because of the short squeeze volatility.

Sell short TSLA July $85 Put, currently $5.60, no stop.

TSLA Chart


New Covered Call Recommendations


None


New Long Term Recommendations


None


New Aggressive Recommendations


None


Existing Play Recommendations


Links to original play recommendation

SCTY - Solar City (Covered Call)

HLF - Herbalife (Covered Call)

CCJ - Cameco (Covered Call)

PHM - Pulte Homes (Covered Call)

BZH - Beazer Homes (Covered Call)

GMCR - Green Mountain Coffee (Covered Call)

PPC - Pilgrim's Pride (Short Put)

SLW - Silver Wheaton (Covered Call)

BSFT - Broadsoft (Covered Call)

JASO - JA Solar (Covered Call)

HLF - Herbalife (Short Put)

SCTY - Solar City (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.