Traders have placed their bets and now it is a waiting game until the Bernanke press conference.

This week is all about the Fed. Actually it is all about Bernanke and his press conference at 2:30 on Wednesday afternoon. He is expected to calm some of the uncertainty over the recent taper comments and that would be good for equities. However, after Monday's rally that may already be priced into the market.

The volatility has come back to the market after months of a slow climb with hardly any setbacks. Now it seems we have a triple digit gain or loss on the Dow almost every day.

Just getting past the Fed will temporarily solve one type of problem but it may create some new ones. If Bernanke clarifies the expectations for when the Fed might begin to taper QE purchases then analysts will begin to project those expectations and the market will react accordingly.

We are moving towards the summer doldrums but first we have to get past Q2 earnings. With the flurry of negative guidance in the Q1 earnings cycle we may find that expectations are too low for Q2. The sequestration may not have caused as much trouble as previously expected and companies could beat their prior guidance.

Unfortunately we won't know the outcome until it arrives so for now we are just going to keep adding positions slowly until we get a real pullback, probably in late summer.

I ran across one potential candidate today some readers might be interested in. The price of the stock and the timeline kept me from adding it as a play but if it fits your risk profile this might be worth adding.

The play is on Tesla Motors (TSLA). The stock is in a solid uptrend despite many traders betting against it. More than 75% of the stock is held by 10 entities and does not trade. It is very hard to short but people keep trying. The play that interested me was a September $110 covered call with TSLA at $102 today. The premium is $11 meaning a +$19 profit if called. That is roughly a 20% profit for a 90 day risk. Even if TSLA were to suddenly decline that would only increase the premiums and allow you to sell a new call to extend the position. I am not making this a firm recommendation so you won't see any follow up. You are on your own if you take this trade. Earnings are August 7th.

I added a couple longer term positions today because I could not find anything short term that was worth playing. The recent volatility was good for premiums but the individual charts are crazy.

Jim Brown

Send Jim an email



Current Portfolio


Current positions


Current Position Changes


IOC - Interoil (closed)

The chart is breaking down even further so I am glad I recommended we close this play last week. We took a minor loss compared to what it could have been.

Closed 6/11: IOC short July $80 Put, entry $7.70, Exit $9.36, -1.61 loss.

IOC Chart


PHM - Pulte Homes (Closed)

We had a June $23 covered call on Pulte with the stock at $20.64 last Monday. The call had deteriorated to 8 cents. I recommended we close the June call and sell a new July $22 call before it becomes the front month and the premium evaporates.

Closed PHM June $23 Call, entry .89, exit .07, +.82 gain.
Sold to open PHM July $22 Call, @ .50, no stop.

PHM Chart


PPC - Pilgrim's Pride (Close)

We have a June $12.50 short put on PPC that has deteriorated to 15 cents and will expire on Friday BUT the stock has suddenly begin to decline. I am recommending we close the position rather than wait for it to expire. Something is weighing on the stock and after the big spike the prior week I am not surprised.

Close PPC June $12.50 put, entry $1.30, currently .15, +$1.15 gain.

PPC Chart


New Short Put Recommendations


Z - Zillow

Zillow has been very volatile of late and that helped to inflate the premiums. After falling to support at the 100-day average at $50 in early June there was a slight rebound and then another test of support. Friday saw a +5% rebound that took it above resistance at $54. It would appear the weakness is fading but we need to see a move over $58 to confirm.

I am recommending an August $50 put, currently $3.10. If you wanted to be a little more aggressive you could sell the $55 put for $5.30.

Sell Z Aug $50 Put, currently $3.10, stop $51.25

Zillow Chart


New Covered Call Recommendations


None


New Aggressive Recommendations


None


New Long Term Recommendations


CRR - Carbo ceramics

Carbo Ceramics makes ceramic proppants for fracturing oil and gas wells. They were crushed back in April when they warned that the slowdown in gas drilling was impacting sales. Since then the oil services companies like Baker Hughes and Schlumberger have indicated an increase in drilling expectations. When drillers are planning a bunch of new wells the service companies get a heads up so they can prepare and make sure they have enough parts and crew to handle the extra wells.

Carbo appears to have found support just above $65 and has started moving higher. I am recommending a September $65 put, currently $3.30.

Earnings are July 25th. We will review this position ahead of earnings to make a close decision.

Sell short CRR Sept $65 Put, currently $3.30, no stop

Carbo Chart


TFM - Fresh Markets

TFM has completely recovered from a nasty drop in March and surged above prior resistance. It is currently fighting the resistance high at $53 from November when it suffered another gap lower on earnings.

TFM recently reported earnings on May 29th and they beat the street by 2 cents with earnings that rose +14.6%. Revenue rose +13%. After three quarters of disappointing earnings they appear to have turned the corner. They are opening 22 new stores in 2013.

Their next earnings are not until August 28th and we will make a close decision before that date.

Sell short TFM Sept $50 Put, currently $2.30, stop $49.75

TFM Chart


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.