2013 is one day from the history books and then we will start on making history in 2014.

The only question is whether it will be bullish or bearish history. Everyone has heard the various comparisons to the past and how a great year is normally followed by a good year. I would gladly settle for a good year in the 12-15% range but that would seem positively boring after 2013.

The majority of analysts are projecting a higher close in 2014 but how we get there is the $64 question. Quite a few analysts are expecting a midyear slump for one reason or another. Quite a few are predicting a correction in mid January as those profits from 2013 are taken off the board and put to work elsewhere.

I am in the January dip camp. However, I am not expecting it to be dramatic. Any dramatics we may get could come from the debt ceiling fight in February.

However, with three times as many guidance warnings as normal for Q4 the earnings cycle could get a little bumpy. This means we don't want to have a lot of risk exposure going into late January and early February.

Who knows the market may go straight up next week and never look back. That is the normal trend but even strong historical trends are subject to short term news events.

I am recommending we try to maintain a defensive posture in our new plays until we see what January brings. If we could get a decent 5% or greater dip to inflate premiums I would back up the truck.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


DDD - 3D Systems (Closed)

We were up strongly in DDD last week and I recommended we close it and take the risk off the table. DDD was up or down in 5% increments multiple times last week. 5 can turn into 15% very quickly.

Closed DDD Short Jan $70 Put, entry $2.70, exit .40, +2.30 gain.

Chart


NLNK - NewLink Genetics (Close put)

Newlink lost its momentum with a sharp drop on Friday. We are not in danger but I am recommending we take profits and close the play now. With only 40 cents left on the put premium there is not that much left to gain.

Buy to close JAN $17.50 Put, entry $1.45, currently .40, +1.05 gain.

Chart


ILMN - Illumina (Add stop)

No problem with ILMN but better safe than sorry going into January. I am adding a stop loss at $105.75.

Short Jan $70 put, add stop loss at $105.75

Chart


BA - Boeing (Add stop loss)

Boeing has also lost its momentum with a two day drop. I am adding a stop loss to prevent any further losses.

Short Feb $125 Put, add stop loss at $134.85

Chart


HLF - Herbalife (Add stop loss)

Herbalife continues to weaken with support at $76.75 only a heartbeat away. I am adding a stop loss at 76.50.

Short JAN $75 Put, add stop loss at 76.50.

Chart


NLNK - NewLink (Cov Call - add stop)

NewLink Genetics lost its momentum on Friday. I recommended closing the short put because we had nothing left to gain and increased risk. On the covered call we have a $2.85 premium to protect us against further declines. However, I am adding a stop loss on the position at $22.25. No reason to tempt fate.

Short Jan $22.50 Call, add stop loss at $22.25.

Chart


New Short Put Recommendations


NUS - Nuskin Enterprises

NuSkin was one of the very few stocks that had any premium left for the January strikes. I know it is expensive but the chart is strong and there was no real weakness over the last three days when the indexes were sagging. Earnings are Feb 5th so we should be able to get in for a three week play and exit.

Sell short NUS Jan $135 Put, currently $2.75, stop $135.75

Chart


New Covered Call Recommendations


HIMX - Himax Technologies

Himax is the company that makes the glass for the Google Glasses. Google has already taken a 6.3% stake in the company and as an option for another 8.5%. The company paid a dividend of 25 cents in 2013 or roughly $18.8%. The odds of Himax going higher are pretty dang good.

I am stretching on this play because the option premiums are so small. Earnings are Feb 6th.

Buy write Jan $15 Call, currently $14.17-0.50, no stop. Gain if called $1.33.

Chart


VNET - 21Vianet Group

This is an ISP in China that handles the backbone connections for people with servers. They have 10 self built custom datacenters and 71 partnered centers. They currently have 11,900 cabinets all across China. A server cabinet can hold 44 1U servers.

On December 18th IBM and 21Vianet announced they had partnered to bring IBM's private cloud to China. This is a major event for 21Vianet and will cement their position as a premier cloud provider.

I am reaching out with an OTM strike on VNET as well. They don't have earnings until Feb 26th so we can use a February option. I am using the $25 strike that will give us a $2.56 profit if called.

Buy-write Feb $25 Call, currently $23.09-0.65, no stop. +2.56 gain if called.

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)

CZR - Caesar Ent (Covered Call #1)

CZR - Caesar Ent (Covered Call #2)

CZR - Caesar Ent (Covered Call #3)

LNG - Cheniere Energy (Covered Call)

INTU - Intuit (Covered Call)

SRPT - Sarepta Therapeutics (Short Put)

DDD - 3D Systems (Aggressive Short Put)

TSLA - Tesla Motors (Long Term Short Put)

NLNK - Newlink Genetics (Short Put)

ILMN - Illumina (Aggressive Short Put)

DE - John Deere & Co (Short Put)

BA - Boeing (Aggressive Short Put)

HLF - Herbalife (Aggressive Short Put)

NLNK - Newlink Genetics (Covered Call)

INCY - Incyte (Covered Call)


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.