The week before Thanksgiving normally sees mixed markets but Thanksgiving week is normally bullish.
It must be all that Tryptophan in the turkey that mellows out investors and makes them want to buy stocks. Whatever the reason we need to make it through this week so we can enjoy the next week.
The market were mixed today with the recently strong Nasdaq weak and the weak Dow and S&P strong. Is that confusing? The Nasdaq had been leading us higher late last week while the Dow and S&P were struggling. Today it was the opposite. The S&P managed to creep up to a new high and the Dow missed it by 5 points.
The black sheep of the family was the Russell 2000, which closed at a 2 week low. The Russell normally fades in late November and picks up again in December for the Santa Claus rally then explodes higher in January.
The economics for the rest of the week should be neutral with the FOMC minutes on Wednesday the potential bump in the road. Futures are flat tonight and much better than the -12 on Sunday night. The dip buyers are alive and well and the individual stocks seem to have an upward bias contrary to the mixed indexes.
I am looking forward to positive markets starting next week and expect some profit taking this week.
Send Jim an email
Long Term Positions
Current Position Changes
MU - Micron (Stopped)
Micron dropped sharply the last two days and dipped to our stop loss of $31.95 at today's open. We still exited with a decent gain.
Closed short Nov $32 put, entry $2.47, exit $.55, +1.92 gain
Closed Long Nov $28 put, entry .69, exit .02, -.67 loss
Net gain $1.25
BBH - Biotech ETF (Stopped)
The BBH declined on Friday to hit our stop loss at $112.65 but we still managed to exit with a small gain.
Closed short Dec $107 put, entry $2.50, exit 1.80, +.70 gain.
UPS - United Parcel (Close Short Put)
UPS has lost its forward momentum after warning on earnings last week. Oil prices may have stopped going down and the two factors are weighing on the stock. I am recommending we close the short put and continue to hold the long put.
Close Dec $110 put, entry $5.41, currently 4.20, +1.21 gain.
Continue to hold: Long Dec $100 put, entry .68, currently .36.
PRAN - Prana Biotech (expiring)
Prana has continued to decline for the last month and without an acquisition announcement in the next four days the position is going to expire. We have (3) Nov $3 calls left over from a covered call position several months ago. The outlook is grim.
Expiring Nov $3.00 calls, entry $.48, expiring, -.48 loss.
FB - Facebook (Close)
Facebook lost forward momentum after the negative earnings surprise and I am afraid it is going to start a new leg down. We have a long term short put that is currently profitable and I am recommending we close it and avoid any further risk.
Close Jan $100 put, entry $33.20, currently $25.15, +8.05 gain.
New Short Put Recommendations
CSC - Computer Sciences (Put Spread)
Computer Sciences is breaking out of a three month congestion range and should return to its prior high of $65 market permitting. I am recommending the $60-$65 put spread for December. This spread is in the money with a maximum risk of about $1.50 depending on our fill.
Sell short Dec $65 put, currently $3.00, no stop.
Buy long Dec $60 put, currently .65 cents, no stop.
Net credit $2.35.
UNG - Natural Gas ETF (Put Spread)
Gas prices are likely to rise in the coming months because of the changing weather patterns and the extreme demand for natural gas for heating and electricity generation. Gas traded in a range from 21-22 on the UNG for the last four months with a dip from that range to the October lows when oil prices imploded.
The low prices for oil should begin to slow drilling rates and a lot of our gas comes out of oil wells. If active rigs begin to decline as we enter gas demand season the prices should rise.
sell short Dec $23 put, currently $1.72, no stop.
Buy long Dec $20 put, currently .48, no stop.
Net credit $1.24.
New Covered Call Recommendations
New Aggressive Recommendations
CLDX - Celldex Therapeutics (Call Spread)
Celldex announced he preliminary results of a small trial of 33 patients on a brain cancer drug. The drug halted progression of the disease in 9 out of 33 patients after six months. This is an early stage trial and while positive for the company the 29% spike in the stock price is likely to fade.
I am recommending a very short term call spread using the November options. If the stock does not decline below the short strike by Friday's close be prepared to buy it back.
Sell short Nov $17 call, currently $1.30, no stop.
Buy Nov $19 call, currently .50, no stop.
Net credit .80
GPRO - GoPro (Short Put)
GoPro appears to be pulling out of its slump and the Q4 shopping season is expected to be very strong for this camera company. Their new products are shipping to the market and preliminary sales look good.
This is a volatile stock. We have made a lot of money on it in the past and we lost money in our last play. This is a risky position.
Sell short Dec $72.50 put, currently $3.90, stop $75.35.
ACHC - Acadia Healthcare (Put spread)
Acadia spiked on earnings and then traded sideways for the last three weeks. The pattern of higher lows is bullish and Monday's gain closed over upper resistance. I believe Acadia is about to start a new leg higher.
Acadia is in the healthcare facilities business for psychiatric patients. They have 4,200 beds in 51 facilities in 23 states.
This is an aggressive position because the short put is in the money.
Aggressive traders might want to buy the $55 put for 75 cents instead of the $60 put for $1.70.
Sell short Dec $65 put, currently $3.40, no stop.
Buy long Dec $60 put, currently $1.70, no stop.
Net credit $1.70.
New Long Term Recommendations
BHI - Baker Hughes (Covered Call)
Halliburton has agreed to buy Baker Hughes for $78 per share. The stock closed at $65 today. This is an arbitrage play. It is not expected to close until the second half of 2015. I am recommending we launch a covered call on BHI for January. When that call expires we can repeat the process for April, July, etc, until the deal is consummated. Typically in situations like this the stock creeps higher as the various hurdles are overcome. However, in this case there could be $10 billion of asset sales that will have to be defined and even then there is no guarantee regulators will approve the deal. However, Halliburton agreed to a whopping $3 billion breakup fee so with that penalty hanging over their head they are likely sell anything that is not essential to get the deal approved.
I would expect to sell calls on BHI at least 3 times and possibly as many as 5 before the deal closes. The risk here is very minimal but there is always some risk.
Buy-write BHI Jan $67.50 call, currently $65.23-$2.05, no stop.
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)
MSFT - Microsoft (Put Spread)
SNDK - SanDisk (Short Put)
BBH - Biotech ETF (Short Put)
UAL - United Continental (Short Put)
UPS - United Parcel (Short Put)
FEYE - FireEye (Put spread)
HD - Home Depot (Put spread)
DAL - Delta Airlines (Put spread)
HOG - Harley Davidson (Put spread)
HPQ - Hewlett Packard (Put 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.