The Nasdaq and Russell 2000 failed to impress with their minor gains today.
Considering how oversold the market was on Friday we had real potential for a major short squeeze rebound today. It did not happen. Yes, the Dow closed up +146 points but the indexes that counted were the Nasdaq and Russell.
Both set new lows in the afternoon and gave back all their morning gains. A buy program at 3:30 succeeded in lifting them both back into positive territory but not by much. The Russell gained +3 points and the Nasdaq +22, still down -28 from the highs.
Setting new intraday lows at 3,986 and 1,105 is not very bullish. The opening short squeeze did not last and were it not for the buy program at the close we would have a very bearish outlook for tomorrow.
Futures tonight have been slightly positive but keep falling back to flat or slightly negative. There is no follow through buying tonight.
Last week I refrained from adding any new plays because I expected the market to drift lower. We closed at the lows of the week on Friday. Today I have mixed feelings but the charts are suggesting a lower low.
The Nasdaq closed right on converging support on Friday and the rebound today was lackluster. The chart suggests we are going to see lower lows.
I looked at several hundred individual stock charts and there were only a handful that were positive and none I would put my money on. If I won't take the risk I can't recommend that risk to readers and my risk profile is pretty aggressive.
I am recommending we take a wait and see attitude and see what the market gives us. We are moving into the heaviest part of the earnings cycle next week and that limits the potential candidates because we don't want to be selling puts on a stock that could drop 10% on an earnings disappointment.
Be patient. The market will eventually find a bottom even if it is only temporary. Selling puts is a strategy for bullish markets.
I updated almost all the plays today and closed several.
Send Jim an email
Long Term Positions
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Current Position Changes
Stop loss updates
Check the portfolio graphics for stop loss changes in bright yellow.
NUS - NuSkin (Stopped)
Nuskin broke below support this morning after a Financial Times report claimed the FBI and the Dept of Justice had begun a criminal investigation into Herbalife. The company issued a statement saying it had no knowledge of any probe by those two agencies but the stock plunged -14% on the news. Nuskin fell on guilt by association since both are multilevel marketers.
Stopped May $80 put, entry $5.00, exit $5.00, breakeven.
IOC - Interoil Corp (Stopped)
Interoil broke support on Friday to fall below our stop loss at $63.50 and knock us out of the play. There was no news but the stock reacted to the strongly declining market.
Stopped May $60 Put, entry $2.91, exit $2.31, +.60 gain
LNG - Cheniere Energy (Add Stop Loss)
I am becoming really gun shy in this market when good stocks decline for no reason. Investors are being forced to sell the winners to cover the margin losses in the losers. Fundamentals no longer seem to matter. I am adding a stop loss for LNG as a precaution.
May $60 Put, add stop loss at $52.85.
GILD - Gilead Sciences (Stopped)
GILD broke support on Thursday and declined -$6 intraday as the biotechs collapsed again. We were stopped out for a major loss at $66.85. GILD is expected to earn $10 this year and any reasonable PE means the stock should be in the $120-$130 range by year end. In this market drop fundamentals don't matter.
Closed GILD Shares, entry $79.75, exit $66.85, -12.90 loss
Closed Short May $80 Call, entry $2.67, exit .43, +2.24 gain.
Net loss 12.90 -2.24, -3.84 = -6.82 loss.
EXAS - Exact Sciences (Close)
The April $15 call is worthless and should be closed. I was planning on writing another longer call on EXAS but the stock fell -4% today and the trend has turned negative. I am recommending we close the entire position.
Close EXAS shares, entry $14.14, currently $11.94, -$2.20 loss
Close April $15 call, entry $1.80, currently .05, +1.75 gain.
Net loss -.45
AAL - American Airlines (Close)
AAL has broken through two levels of support and closed at a two month low on Monday. While I believe the airlines are going to rebound the chart is not showing it. Any further decline in the market could see increased selling in AAL because winners have to be sold to offset losers.
Close AAL shares, entry $36.63, currently $33.37, -3.26 loss
Close May $38 Call, entry $1.60, currently .45, +1.15 gain
Previously closed Mar $37 call, entry .95, expired, +.95 gain.
Net loss = -$3.36, +1.15, +.95 = -1.26.
NUS - NuSkin (Update)
We have a long term January short put on Nuskin. The stock does not have the same problems as Herbalife even though it is in the same kind of business. The stock fell sharply in January when China said it was going to investigate its business practices. The investigation concluded with a minor fine and Nuskin was given a clean bill of health.
I still believe the company will recover most of the January loss. There is strong support in the $71 range and earnings are just ahead. They should beat on earnings and that could rekindle buyer interest.
We are only down -$4 on the January put with time decay working in our favor. I am going to keep the play open until after earnings and then reevaluate.
Short Jan $120 Put, entry $38.60, currently $42.60, -$4.00 loss
KNDI - Kandi Technologies (Close Call)
Kandi broke the support at the 50-day average at $15.50 when it fell sharply the prior Friday. This is already a long term play using the June $20 call and there is nothing to be gained by continuing to hold that call or by rewriting a new one. We need for the stock to rebound to reinflate the call premiums.
There is decent support at $11, about $1 lower than it is today. If that support breaks I will take the loss and close the play. If that support holds and a rebound appears we can then start writing calls again and try to work our way out of trouble.
I am going to recommend we close the short call, currently 50 cents to lock in a +4.40 gain on that side of the play. I don't want somebody to announce they are buying Kandi and reinflate that call. By closing it now for a gain we can be prepared to write a new call when the situation warrants.
Close June $20 call, entry $4.90, currently .50, +4.40 gain.
FB - FaceBook (Update)
Facebook shares have been tanking with the rest of the market but appear to have found support in the $58 range. They will report earnings on April 23rd and I expect them to beat expectations. Unfortunately a lot of people expect them to beat given the acceleration of their mobile ad products. If they do beat strongly from this depressed level we could see a big spike.
However, if they disappoint it could be ugly. If you are concerned about the potential for a decline I would suggest you exit this play before earnings. I am confident the stock will make new highs before year-end and that is why I launched this play.
CLVS - Clovis Oncology (Update)
Clovis imploded with the rest of the biotech sector and gave back more than 30 points in only a couple of weeks. Clovis has a positive future but investors are ignoring that today. The stock has major support at $50 and a level where better judgment should prevail.
We are seriously underwater on this play but as we know these stocks can rebound sharply when the sector turns. Nearly every day now there are a couple analysts pounding the table on these stocks at these prices.
I am going to keep the CLVS play open until we see what happens at $50. If we reach that level I will close the call and then be prepared to either write new calls on a rebound or bail out if the $50 level does not hold.
New Short Put Recommendations
Selling puts is a strategy for bullish markets.
New Covered Call Recommendations
Selling calls is a strategy for bullish markets.
New Aggressive Recommendations
Selling puts is a strategy for bullish markets.
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CLVS - Clovis Oncology (Aggressive Covered Call)
EXAS - Exact Science (Covered Call)
GILD - Gilead Sciences (Covered Call)
AAL - American Airlines (Covered Call)
FB - Facebook (Long Term Short Put)
MOBI - Sky-Mobi Ltd (Covered Call)
KNDI - Kandi Technology (Covered Call)
LNG - Cheniere Energy (Short Put)
NUS - NuSkin (Aggressive Short Put)
PRAN - Prana Biotech (Short Put)
PRAN - Prana Biotech (Short Put - Update)
PRAN - Prana Biotech (Short Put - Update)
IOC - Interoil Corp (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.
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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.