The sharp market decline has given us plenty of premium to sell.
Unfortunately it is either in stocks that are plunging to new lows or have earnings over the next two weeks. Either way we don't want to play under those conditions.
Finding a positive chart in this market in next to impossible. I looked at over 400 charts today and the ones that were decent either had no premium or it was the run up into earnings in the next couple weeks. More than 30% of the S&P report earnings this week and that means a like percentage of stocks not in the S&P are also reporting.
I found myself looking at a lot of biotech stocks because they seemed to be about the only sector that did not completely implode. The larger stocks have taken hits but the smaller up and coming stocks seemed to be doing ok.
They are always volatile because they live and die press releases on new drugs studies and their success and failures.
Apple posted disappointing earnings after the close and dropped -$45 in afterhours trading. This pretty much guarantees a severely negative opening for the Nasdaq on Tuesday but surprisingly the S&P futures have recovered from their initial dip to neutral as of 8:PM ET.
The markets declined to strong support intraday today and one more short dip will put them at even stronger support. That suggests any opening drop cold be bought on Tuesday.
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Long Term Positions
Current Position Changes
HLF - Herbalife (Stopped)
We were knocked out of the Herbalife position when Senator Ed Markey sent two letters to regulators asking for an investigation of marketing practices. Additionally the NY Post had an article claiming Herbalife was also the target of an investigation in China.
Shares rose today after one of the company's biggest shareholders hired one of the most bullish analysts on Wall Street. Tim Ramsey left his job at Davidson to join Post Holdings as Director of Strategic Ventures. Post is the fourth largest shareholder in Herbalife. Previously Post's CEO William Stiritz said he would be willing to take part in a leveraged buyout of Herbalife and denied all of Bill Ackman's claims that Herbalife was a fraud.
We were stopped out when HLF hit $64.75.
Closed May $60 Put, entry $8.00, exit $9.50, - $1.50 loss.
New Short Put Recommendations
New Covered Call Recommendations
PRAN - Prana Biotech
Prana is a very small biotech company with three critical drugs in the testing phase. The drugs target Alzheimer's, Huntington's and Parkinson's diseases. In the various trials nearly 100% of the patients tested remained in the trials to the end. Normally there are significant dropouts if no results are seen by the patient. The results of the latest phase 2 study on the lead drug PBT2 have not yet been released but all prior studies both with animals and humans have been very promising.
Shares of Prana have completely ignored the market weakness over the last two weeks and rose +8% on Monday in a bad market.
The earnings date is unknown but this is about the drugs not the quarterly loss.
The Feb $10 calls are $1.60 and the stock is $9.69. This gives us nearly a $2 gain on a $10 stock if called.
Buy-write PRNA-Feb $10 Call, currently $9.69-$1.60, no stop.
GALT - Galectin Therapeutics
Galectin is a competitor to Intercept Therapeutics (ICPT), the company that went from $80 to $450 in a week. They are competing on the same kind of drug to combat fatty liver disease. Galectin recently released data on their drug showing positive results in various animals. They are a step behind ICPT but they are getting positive press thanks to Intercept. They have a second drug in the pipeline to treat melanoma.
They spiked to $18 on the ICPT news but have faded to find support at $11.50. The February 12.50 calls are $1.15 to give us about $1.50 gain if called or roughly 10% without margin.
Earnings are not until March.
Buy-write GALT-Feb $12.50 Call, currently $12.14-$1.15, stop $10.95.
New Aggressive Recommendations
QIHU - Qihoo 360 Technology
Qihoo has resisted the big sell off that hit all the rest of the Chinese stocks. It is only a few dollars off its high and posted a +$5 gain today when everything else was down. Earnings are not until Feb 23rd so we can benefit from any run up into the earnings cycle.
With the Nasdaq expected to open lower on Tuesday I am recommending we sell the Feb $90 call, currently $6.20. That high premium gives us protection against a decline. If the stock opens lower we could get a couple bucks in future appreciation. The Feb calls only have 24 days until expiration and $80 is support.
buy-write QIHU-Feb $90 Call, currently $89.93-$6.20, Stop $77.85
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CZR - Caesar Ent (Covered Call #1)
CZR - Caesar Ent (Covered Call #2)
CZR - Caesar Ent (Covered Call #3)
TSLA - Tesla Motors (Long Term Short Put)
BA - Boeing (Aggressive Short Put)
INCY - Incyte (Covered Call)
TAN - Solar ETF (Long Term Short Put)
BBRY - BlackBerry (Covered Call)
HLF - Herbalife (Short Put)
GILD - Gilead Sciences (Short Put, Cov Call)
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.