Late Sunday night the S&P futures were up +9 points and Monday was looking like a perfect start to a quadruple expiration week. The Dow opened up +109 but quickly rolled over to -179 before early buyers even received their trade confirmations. There was a monster sell program(s) that quickly erased the morning gains.
Monday night the futures are up +6 but I am definitely not counting on an opening rally for Tuesday. The buy the dippers have been getting killed for the last week and after 2-3 days of losing money on dip buying they are more than likely going to sit out a while until the sellers run out of stock.
About the only positive out of our negative market is that some of our left over long puts are now in the money. When the market rolled over we were stopped out of the short side on several put spreads. The long side was kept open and that may turn out to be a winner if the current trend continues. For instance the long put on XONE is now up to a $3.50 profit from a .90 cent entry.
These are expiring December puts so be sure to close them before Friday. If the market continues lower I would ride them down but should the market turn positive I would exit those with premium left.
The market correction has been painful over the last two weeks. Quite a few of our positions turned negative almost immediately once the bullish trend disappeared. We know selling premium is a bullish strategy and the bulls have left the building.
While I was doing the play updates the futures declined from +6 to +3 and oil is falling again. I looked at several hundred charts but could not find anything I felt was strong enough to play in either direction. I am only going to add one play today in addition to the VIX call spread I recommended last night. We have plenty of time to add more if the market reverses to the upside.
Send Jim an email
Long Term Positions
Current Position Changes
HOG - Harley Davidson (Stopped)
HOG rolled over last Tuesday to stop us out at $68.35 for a small gain. The long $62.50 put is not likely to finish in the money with HOG's close today at $66.33 but I would hold it anyway. If the market correction turns into a flush anything is possible.
Closes short Dec $67.50 put, entry $2.07, exit .99, +1.08 gain.
Retain long Dec $62l50 Put, entry .59, currently .11, -.48 loss.
Net gain +.60.
APOL - Apollo Group (Close)
Apollo has stalled at $32.50 and closed right on support of $32 on Monday. I want to close the short Dec $34 put while it is still a breakeven. We could get lucky and have the market recover on Tuesday but better safe than sorry.
Close short Dec $34 Put, entry $2.10, currently $2.09, +0.01 gain
Retain long Dec $31 put, entry .72, currently .20, -.52 loss.
INTC - Intel (Stopped)
Intel rolled over with the semiconductor sector early last week to stop us out at $36.85 on Tuesday. The long put is now profitable with Intel heading south in a hurry. Retain the long put until the market reverses.
Closed Dec $39 put, entry $1.85, exit $2.41, -.56 loss.
Retain long Dec $36 put, entry .25, currently .46, +.21 gain.
CDK - CDK Global (Close)
CDK has been weakening with the market. It is not a major decline but just enough to put us in danger of a loss if the market continues lower. This is a December option so we don't have time to wait for a reversal.
Close Dec $40 put, entry $1.30, currently $1.35, -.05 loss.
LNG - Cheniere Energy (Stopped)
Cheniere Energy collapsed with the rest of the energy sector as oil prices declined. Cheniere has nothing to do with oil. This was sympathy selling and we were stopped out on Tuesday when oil imploded.
Closed Dec $62.50 put, entry $1.32, exit $1.99, -.67 loss
ACHC - Acadia Healthcare (Stopped)
ACHC dropped with the market on Tuesday to stop us out at $62.35. The long put is almost in the money so retain that side of the position.
Closed Dec $65 put, entry $3.20, exit $3.90, -.70 loss.
Retain long Dec $60 put, entry $1.45, currently .95, -.50 loss.
CSC - Computer Sciences (Stopped)
After a great climax spike at the end of the October uptrend CSC has declined rapidly as investors try to capture what profit they have left. We did escape this position with a gain.
If the stock drops another $2 by Friday our long put will be in the money.
Closed Dec $65 put, entry $3.88, exit $1.85, +2.03 gain.
Retain Dec $60 put, entry $1.88, currently .35, -1.53 gain.
$OVX - Oil Volatility Index (Bear Call Spread)
Everybody is aware of the huge -50% drop in crude prices over the last several months. Everyone also knows this can't continue. Crude prices are not going to zero and probably not below $50 but that is up for discussion.
The sharp drop in crude from $107 to $50 has sent the $OVX up from $17 to $57. This cannot continue. This is a three year high for the $OVX. Like the VIX it is based on the near dated options on the underlying crude contracts. Once crude stops going down the $OVX is going to decline sharply.
The $OVX is an European style option and can only be exercised at expiration. That means we can sell deep in the money calls and not be called out prematurely.
Sell Feb $40 call, currently $5.90, no stop.
Buy Feb $60 call, currently $2.55, no stop.
Net credit $3.35.
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)
HD - Home Depot (Put spread)
HOG - Harley Davidson (Put spread)
CSC - Computer Sciences (Put spread)
UNG - Natural Gas ETF (Put spread)
ACHC - Acadia Healthcare (Put spread)
BHI - Baker Hughes (Covered Call)
XONE - Exone Co (Put spread)
WWWW - Web.com (Put spread)
KORS - Michael Kors (Put spread)
VJET - Voxeljet (Bearish call spread)
MSFT - Microsoft (Put spread)
LNG - Cheniere Energy (Short Put)
APOL - Apollo Group (Put spread)
INTC - Intel Inc (Put spread)
CDK - CDK Global (Short Put)
VIX - Volatlity Index (Bearish 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.