December is known for the Santa rally but so far we have only seen one day of decent gains.
So where is the Santa rally? The markets were down the first four days of December followed by a short squeeze on Friday. I am not sure if a short squeeze qualifies as a rally but they sometimes are responsible for starting one.
You could not tell it by today's trading. There was no follow through from Friday's squeeze and the markets traded in a very tight range with gains in the low single digits. I am never going to turn down a gain but I believe we have to be skeptical when the markets are not moving higher in a period known for seasonal gains.
Today could have been impacted by the calendar of Fed speakers. There were four Fed speeches today and the text of those speeches were about what we would have expected. When they did mention QE it was along the lines of "a taper could be considered at the December meeting next week" or "we will definitely consider our options when we meet." There was nothing concrete and nothing the market did not already know.
Traders held their breath until the speeches were over but then found nothing to trade on when they were delivered.
The rest of the week is devoid of any material economic reports but the budget deadline on Friday and the impending FOMC meeting next week could keep a lid on any gains.
I did add some plays but I am being more selective with the potential for volatility ahead.
I am interested in what type of plays you would like to see profiled. Do you want cheap stocks with small premiums in the under 50 cent category or are you happy with some of the larger priced stocks I have been recommending? I want to profile what you want to trade. It does none of us any good if I am writing about stocks you don't want to play. I personally prefer stocks with big premiums because it provides us a margin of safety if the trade goes against us. I hate to profile a $25 stock with a 45 cent premium because there is risk but very little reward. Please click the link below and let me know what you think.
Send Jim an email
Long Term Positions
Current Position Changes
FSLR - First Solar (Stopped)
FSLR declined on Friday to hit our stop loss at $57.75. Something happened to solar stocks on Friday and the declines continued through today. FSLR is down -$5 since Thursday.
Closed FSLR Short Dec $60 Put, entry $3.00, exit $3.45, -.45 loss
JCP - JC Penny (Close)
JCP lost traction after trading as high as $10.30. I want to take advantage of Monday's bounce and exit this position before any further damage is done.
Close JCP Short Dec $8 Put, entry .55, currently .29, +.26 gain.
VJET - Voxeljet (Close)
VJET continues to get hammered by the analyst community. However, the entire 3D printing sector is getting a bad rap after posting solid gains for the year. I think the sector was due for some end of year profit taking and the analyst drubbing just pulled it forward into early December. Support at $40 failed. Close the position.
Close Dec $40 put, entry $4.50, currently $4.40, +.10 gain.
DDD - 3D Systems (Stop Change)
The 3D printer sector is under pressure again but DDD is showing some relative strength. However, I want to change the stop just in case the volatility continues.
Short Jan $70 Put, raise stop loss to $73.95.
TSLA - Tesla Motors (Stop Change)
Tesla is holding its gains from last week but to be on the safe side I want to raise the stop loss to $132.75.
March $150 Put, raise stop loss to $132.75.
New Short Put Recommendations
NLNK - Newlink Genetics (Short Put)
We already have a covered call on NLNK that is deep in the money and will be called away in December. The option premiums for NLNK are positively huge and that normally means there is an earnings event in the near future or some drug trial information is pending. They reported earnings in November and I can't find any trial information pending.
We can sell a put well out of the money for a high premium and I think it is worth the risk. Genetics companies are volatile but NLNK has a lot going for it according to the recent press releases. Maybe there is such a thing as a free lunch. We will try this put and test that theory.
Sell Jan $17.50 Put, currently $1.45, stop loss $19.85.
New Covered Call Recommendations
New Aggressive Recommendations
NUS - NuSkin Enterprises
Zacks Equity Research is normally known for their conservative recommendations. I know the majority of the time I look up a stock I am hot on they are ranking it neutral or lower. Rarely do they get excited and recommend a stock as a strong buy. Last week they upgraded NuSkin to a strong buy and the recommendation was positively glowing. Read it here
They go on and on about products and earnings and rising sales around the world. Finally we agree on something. NuSkin has shaken off the negativity surrounding Herbalife and the multi level marketing stigma. They have great products, a motivated sales force and they are making money. What more could you ask?
Two weeks ago the company raised guidance for the full year to earnings of $7.25-$7.50 on revenue of $3.9-$4.0 billion. That was above analyst estimates of $6.66 and $3.62 billion.
After a short post announcement dip shares are headed up again. I am recommending a January $125 put, currently $3.30. I put this in the aggressive category because of the high stock price.
Sell short NUS Jan $125 put, currently $3.30, stop loss $126.75.
ILMN - Illumina
Illumina develops and manufactures life science tools and integrated systems for the analysis of genetic variations and biological functions. Basically they are an extremely high tech company in the health research field. I read their entire profile and I did not understand any of it. All I care about today is that they are spiking to new highs and I can sell a put under support for a big premium.
ILMN has been consolidating on support at $97 for three weeks. Over the last two days they broke out to $101 and appear to be moving higher. We can sell the $95 put, under support, for $2.30. That gives us safety to $93.70 with the stock at $101.33 and moving higher.
I put this in the aggressive category because of the high stock price not because of any significant volatility risk.
Sell short Jan $95 Put, currently $2.30, stop loss $97.50.
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
PHM - Pulte Homes (Covered Call)
PHM - Pulte Homes (CC Update)
CZR - Caesar Ent (Covered Call #1)
GMCR - Green Mountain Coffee (Covered Call)
SLCA - U.S. Silica Holdings (Covered Call)
LNG - Cheniere Energy (Covered Call)
CZR - Caesar Ent (Covered Call #2)
FSLR - First Solar (Short Put)
INTU - Intuit (Covered Call)
SLCA - U.S. Silica Holdings (Covered Call 2)
JCP - JC Penny (Short Put)
INCY - Incyte (Covered Call)
NLNK - Newlink Genetics (Covered Call)
VJET - Voxeljet (Short Put)
SRPT - Sarepta Therapeutics (Short Put)
DDD - 3D Systems (Aggressive Short Put)
TSLA - Tesla Motors (Long Term Short Put)
CRR - Carbo Ceramics (Long Term 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.