There are times when investors buy dips and times when they remain on the sidelines.

The market selloff has gotten progressively worse with the Dow losing -326 today and closing well under prior support at 15,700. The S&P crashed through 1,770 and the 100-day average like a hot knife through butter. The declines put the indexes at about a -6% loss for the year and moving ever closer to the 10% correction everyone has been talking about.

They say you should buy stocks or in our case sell premium when there is blood in the streets. However, if the reason for that blood has not gone away but is simply reloading we don't want to step into the line of fire.

They claim fools rush in where angels fear to tread. I don't want to be foolish about buying this dip too early. We broke below the 5% threshold that has held on all the prior dips in 2013. This suggests this is a different decline and we need to see where it is going to stop. There are plenty of stocks for sale but it would be foolish to step in front of this speeding train. Once we hit the -10% decline level it will be a lot safer to buy the dip.

Please be patient.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


BA - Boeing (Stopped)

Boeing collapsed from $137 prior to their earnings to $123 today despite a record quarter. We were stopped out at $134.85 for a minor loss.

Closed BA Feb $125 Put, entry $4.70, exit $5.50, -.80 loss.

Chart


New Short Put Recommendations


None


New Covered Call Recommendations


None


New Aggressive Recommendations


None


New Long Term Recommendations


None


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)

GILD - Gilead Sciences (Short Put, Cov Call)

PRAN - Prana Biotech (Covered Call)

GALT - Galectin Therapeutics (Covered Call)

QIHU - Qihoo 360 Technology (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.