The president passed the buck to Congress and the attack on Syria has been put off for 2-3 weeks.

The result is a +16 point bounce in the S&P futures as of Monday evening. This suggests the market will gap up strongly on Tuesday with the Dow gaining something in the range of +160 points.

The bounce is likely to be temporary and lasting two days before payroll data on Thursday either kicks the market higher or causes a crash back to support.

The September headlines that will likely send the market significantly lower will not begin until the following week. Those are the debt ceiling debate, budget battle and FOMC decision on QE. Add in what is sure to be a hostile debate over Syria and the week of Sept 9th could be ugly.

What new plays would you put on ahead of a +16 point S&P gap and the likelihood of a sharp decline later in the week/month. The answer for me is none. Cash is a position.

If we do get a significant dip the following week we can load up on puts because October is projected to see a potential rally. The key will be the headline war in Washington.

September is normally the worst month of the year for the market and this one is shaping up to be a dozy.

I did add a new covered call on PHM since it is already in inventory and we could get a spike at the open on Tuesday to boost premiums.

There is no need to force plays just to have something to do. We have had a good run the last several months so be patient and limit your positions.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions - None


Current Position Changes


QIHU - Qihoo (Close)

Qihoo rallied to $77 on news from China and I recommended closing the position rather than be exposed to unknown risk. When the option has declined to 10-cents there was no reason to keep it open.

QIHU Sept $55 Put, entry $2.65, exit .10, +2.55 gain.

QIHU Chart


TSLA - Tesla Motors (Closed Sept Put)

We had a short Sept $120 put that has declined to 80 cents. I recommended we close it and launch another one.

TSLA Sept $120 Put, entry $7.00, exit .80, +6.20 gain.

TSLA


SCTY - Solar City (Close)

We have a short Oct $40 put on SCTY and the stock has gone into dive mode with a $5 decline last week alone. I thought support at $34 would hold but it failed on Tuesday and the decline accelerated.

Originally I had planned to let the stock be put to us because of the inflated call premiums. However, four weeks of declines have killed those premiums.

I hate to take a loss this big but with September volatility ahead i don't want it to get bigger.

S&P futures are up +16 Monday night and hopefully we will see some short covering at the open on Tuesday that lifts SCTY higher and gives us a less painful exit.

Close Oct $40 Put, entry $4.60, currently $10.00, -5.40 loss.

SCTY


New Short Put Recommendations


None


New Covered Call Recommendations


PHM - Pulte Homes

We have written three calls on Pulte but the homebuilder sector has taken it on the chin recently and the stock is well off its highs. I don't want to risk selling something close to the money to be called out for a big loss. We took a hit when PHM collapsed in late July over a two day period.

I am going to recommend a January call and hopefully the builder trend will change by then.

Sell to open Jan $18 call, currently 0.84, no stop.

PHM Chart


New Aggressive Recommendations


None


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

PHM - Pulte Homes (Covered Call)

PHM - Pulte Homes (CC Update)

BZH - Beazer Homes (Covered Call)

JASO - JA Solar (Covered Call)

LGF - Lions Gate Films (Covered Call)

LGF - Lions Gate (CC Update)

BBRY - BlackBerry (Covered Call)

CSIQ - Canadian Solar (Covered Call)

JASO - JA Solar (Covered Call)

QIHU - Qihoo (Short Put)

TSLA - Tesla Motors (Short Put)

SCTY - Solar City (Aggressive Short Put)

GMCR - Green Mountain Coffee (Covered Call)

TSLA - Tesla Motors (Covered Call)

JCP - JC Penny (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.