It seems like we are always waiting on the Fed but this time the outcome could be positive.
The Fed has turned a little more dovish over the last several weeks with Bullard going so far as suggesting they should delay the end of QE3 and possibly have to consider a QE4. While those suggestions were quickly knocked down by other speakers and analysts the thought is still out there.
The Fed is worried about weakness in Europe and China dragging the U.S. back into slower growth. In this environment the Fed is not going to do anything to roil the markets. They would be perfectly happy for the U.S. to continue on its +3.1% GDP pace until Europe begins to recover.
The market has priced in a positive Fed when it did not decline more than a few points on Monday's lows. I believe investors are expecting the normal Q4 rally and they just want to get past the FOMC statement without a market disruption.
This is probably the hardest week of the quarter because half the companies have already reported earnings and options premiums are flat. The other half are reporting this week and next and while the option premiums are really high, so is the risk and we can't play them.
Once we get past the Fed and the market picks a direction again we should have more to choose from.
The S&P futures have been up and down tonight and are currently flat. If the S&P opens negative on Tuesday please do not enter the recommended plays. There is always another day and we need a bullish environment to initiate bullish plays.
Send Jim an email
Long Term Positions
Current Position Changes
Here are the earnings dates for our current positions. We need to be out of the positions before the earnings. That is not applicable for the long term positions or stock held for future call writing. Covered call positions will be evaluated the week before the expiration.
FB - Oct-29th
MU - Jan 6th
AMBA - Dec 5th
CLVS - Oct-30th
KPTI - Nov 5th
PRAN - UNK
BBRY - BlackBerry (Close)
Last week there was a news article on Bezinga.com saying Lenovo would make an offer for BlackBerry worth $15 by the end of the week. Shares rallied on the news. This has been a recurring event. However, BlackBerry is a Canadian company and the Canadian government has previously told Blackberry a Lenovo offer would not win the necessary approvals due to security concerns.
We entered this call spread on the assumption that BBRY shares would decline once the rumor fell flat. The rumor refused to die and the shares did not decline. I am recommending we close this position before it turns against us.
Close short Nov $9 call, entry $1.45, currently $1.57, -.12 loss
Close long Nov $11 call, entry .45, currently .39, -.06 loss
Net loss $.19
New Short Put Recommendations
SNDK - Sandisk
Sandisk reported earnings on Oct 16th that beat the street but lowered guidance for Q4 due to a supply constrained environment and acquisition costs related to the Fusion-IO acquisition. They guided for $1.80 in Q4 and estimates were $1.88. Shares fell -5.1% after the earnings.
However, several brokers came out and affirmed their buy ratings on the stock and said the shortage in supply would eventually allow Sandisk to increase margins. Sandisk chips are in the iPhone 6. Revenue increased +7.5% to $1.746 billion.
Shares rebounded from the post earnings drop and closed at a two week high today. $90 appears to be resistance with the chip sector rising as a group. I am recommending a December $85 put with a tight stop.
Sell short Dec $85 put, currently $2.16, stop $86.25.
BBH - Biotech ETF
The biotech sector has achieved liftoff. The flurry of drug announcements plus the race for an Ebola cure and vaccine appears to have launched many of these companies to new highs. Unfortunately most of the companies report earnings this week and next so we have to play an ETF to participate.
I tried to construct a put spread but the various premium configurations would not work. The premiums on the lower strikes are still high but not high enough to make it worthwhile to sell lower.
Sell short Dec $107 put, currently $2.05, stop loss $108.85
UAL - United Continental
The airlines have gone vertical with the cheap oil prices and they are powering the Dow Transports higher. The airlines are enjoying full planes and cheap fuel and the holiday travel season is fast approaching. The Ebola scare has had no impact on traffic and Q4 profits should be strong. Stocks are rising on all these factors.
Sell short Dec $47 put, currently $1.72, stop $48.35
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CLVS - Clovis Oncology (Aggressive Covered Call)
CLVS - Clovis Oncology (Update Existing Position)
CLVS - Clovis Oncology (Covered Jan Call)
FB - Facebook (Long Term Short Put)
PRAN - Prana Biotech (Short Put - Update)
MU - Micron (Put Spread)
AMBA - Ambarella (Put Spread)
KPTI - Karyopharm Therapeutics (Short Put)
MSFT - Microsoft (Put Spread)
BBRY - Blackberry (Call Spread)
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.