The S&P is pressing resistance at 1773 for the third time in two weeks.
While nothing specifically suggests the S&P will suddenly rush higher the two week consolidation just below resistance has just about reached its limits. After two weeks of no gains traders could decide that it is time to take some chips off the table. OR, investors waiting to buy a dip may become impatient and begin throwing money at the market to make sure they don't miss the rally when it comes.
One thing for sure with the VIX at a three-month low of 12.53 there may be a volatility event in our future. The VIX is a measure of bearishness. When traders are scared they buy puts and the VIX rises. Nobody seems to be scared today and that is dangerous. Whenever the VIX dips close to 12 it is time to be cautious. "When the VIX is low it is time to go!"
Fortunately the earnings cycle has run its course. The number of companies we can play has grown now that the majority of earnings announcements are behind us. Now the VIX is our enemy because of the low premiums for puts but we can deal with that a lot easier.
If you have any specific plays you would like to suggest please send them to me. I am not bashful about using your ideas. As long as we can all make money it does not matter where the ideas come from.
Send Jim an email
Long Term Positions - None
Current Position Changes
NUS - NuSkin (Closed)
NuSkin posted strong earnings on October 22nd and gapped higher only to give it all back intraday. It took four days for the stock to recover and it was on the verge of setting a new high again. There was no weakness in the stock and all the fundamentals were good. Those positive comments came to a screeching halt on Thursday when NuSkin fell nearly $10 on no news. I was unable to find anything specific to move the stock. However a Seeking Alpha article was critical of multilevels in general and that may have triggered since nervousness.
We were stopped out at $113.25 on Thursday.
Closed: short NUS Jan $110 put, entry $5.02, exit $6.54, -1.52 loss.
GMCR - Green Mountain Coffee
We currently have a December $77.50 covered call on GMCR. The call has declined to only .93 cents and we have nothing more to gain by waiting for expiration. I am recommending we buy back the short call and sell a new call with more premium.
Close short GMCR Dec $77.50 call, entry $4.34, currently .93, +3.41 gain
Sell short GMCR Dec $65.00 call, currently $3.30, no stop.
New Short Put Recommendations
DDD - 3D Systems
A reader suggested puts on DDD and SSYS for this week. His crystal ball must have been working great because the 3D stocks rocketed out of the gate this morning.
DDD announced a consumer model 3D printer for $399. This is going to be a game changer in the printer space. The SSYS version is over $1,400. The cheaper printer is going to put the capabilities of 3D in the hands of the everyday consumer much like HP did for the high volume laser printer more than a decade ago.
Sell short DDD Dec $70 put, currently $3.10, stop $66.75
FSLR - First Solar
First Solar posted blow out earnings and the stock gapped higher to nearly $60 and then added to the gains over the next couple days. After a brief dip on Thursday is roared off to close at a new high on Monday. I think we have seen a change in attitude on solar stocks after months of worries over pricing.
Sell short Dec $60 put, currently $3.00, no stop.
New Covered Call Recommendations
INTU - Intuit
Intuit is getting a lot of mileage out of their Super Bowl ad competition. Basically they offered small businesses a 30 second Super Bowl commercial valued at $4 million. After receiving tens of thousands of entries into the competition they narrowed the field to 20 and then they announced the final four this week.
The chance for a small business to have a $4 million ad is huge. The publicity Intuit is getting out of the contest is worth more than $4 million for the company.
Shares of Intuit are wedging up to resistance at $72.50 and appear ready to breakout to a new high. I propose we launch a covered call on Intuit at the $75 level. If called we will make about $4 over 60 days. That is not a lot of money but INTU has low volatility and the Super Bowl buzz should keep INTU on an upward trend.
Buy write Jan $75 call, currently $72.28-$1.15, No stop
New Aggressive Recommendations
New Long Term Recommendations
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)
CZR - Caesar Ent (Covered Call #1)
GMCR - Green Mountain Coffee (Covered Call)
SLCA - U.S. Silica Holdings (Covered Call)
LNG - Cheniere Energy (Covered Call)
YOKU - Youku Toudou (Covered Call)
GDX - Gold Miners ETF (Covered Call)
CZR - Caesar Ent (Covered Call #2)
RH - Restoration Hardware (Short Put)
IOC - Interoil Corp (Short Put)
NUS - NuSkin (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.