A looming deadline for Greece and weaker economics out of China roiled the markets on Monday but the damage was minimal after the big gains from the prior week.
China said exports fell -3.3% in January and imports declined -19.9%. This suggests China is moving ever closer to additional economic stimulus and that means the yuan would fall even further against the dollar. This along with the declining euro means dollar denominated investments are still going to be in favor. With yields in Europe turning negative the desire to be in the U.S. market is even stronger.
Unfortunately the U.S. market can't make up its mind on a direction. The alternating weeks of major gains and losses is confusing investors and treasury yields actually rose over the last two sessions while equities declined. They are supposed to go in the same direction with yields falling while stocks decline.
The worry over the deadline for Greece to apply for additional bailout funds is fast approaching and the EU finance ministers have scheduled an emergency meeting for Wednesday. This caused the market stress on Monday on fears that Greece could actually leave the eurozone.
There is a weak slate of U.S. economics this week so there is nothing locally for the markets to focus on except for earnings. Surprisingly earnings growth ex-energy has risen to +6% and earnings beats are on the high side of normal. It is the guidance that is causing problems with more than 75% of companies warning on Q1 and/or the rest of 2015.
After a strong week for small cap stocks last week there were a lot of losses in the small cap charts on Monday. It was as if somebody dumped a lot of IWM shares, which forced selling of the underlying small cap shares. The IWM is the Russell 2000 ETF. If funds are suddenly dumping small cap stocks that is not a good sign.
The S&P futures are slightly positive late Monday but over the last couple weeks the market open has been opposite the late indications in the futures. If we are down -5 late in the evening something has been reversing that decline by morning and vice a versa.
Don't initiate new plays unless the market is positive at the open. Selling premium is a bullish strategy.
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I added a column to the portfolio graphic for the earnings date. We will always exit a position before that date unless specifically mentioned otherwise in the play description. For the plays where we will not exit I added the No-X designation in the portfolio.
Current Position Changes
TFM - Fresh Markets (Closed)
Fresh Markets broke down today and declined -3% on no news. This could have been avoidance issues ahead of Whole Foods earnings later this week. The drop below $36.65 stopped us out of the position.
Closed Feb $40 Put, entry $2.20, exit 3.46, -1.26 loss.
GWPH - GW Pharma (Closed)
We closed GWPH ahead of earnings for a nice gain.
Closed Feb $65 put, entry $3.40, exit $.55, +2.85 gain.
FUEL - Rocket Fuel (Closed Short call)
FUEL shot up from $12.50 to $14.25 on no specific news on Thursday. This stopped us out of the short call. We still have a long $15 call if the stock continues higher. Everything was looking really good for our bear call spread until the spike on no news.
Closed Feb $11 Call, entry $2.37, exit $2.80, -.43 cent loss.
$OVX - Oil Volatility Index (Bear Call Spread)
The volatility in oil prices has been ridiculous since we put this position in the portfolio. We are seriously underwater and this expires on Feb 18th. The OVX declined -8% today after oil refused to decline with the markets. We could see further declines if oil maintains a bid. I doubt we will return to profitability before expiration. I plan to roll this position forward by closing the February options and replacing with March or April. Oil volatility will go down eventually. Historically this index has been under 20 until this last spike.
I am recommending no changes today but that is my plan for later this week or early next week. Stay tuned.
DHI - DR Horton (Put Spread)
DHI is testing resistance at $26.50 and has shown a very nice uptrend since earnings impressed analysts back in January. With interest rates low and the spring home buying season just ahead the positive trend should continue. If it breaks through $27 it could trigger additional short covering.
Earnings April 22nd.
Sell short March $28 put, currently $1.96, stop loss $24.85.
Buy long March $25 put, currently .61, no stop.
Net credit $1.35.
MU - Micron Technologies (Call Spread)
Micron shares are about to break to a new 4 month low after guidance from various chip companies failed to impress. The entire sector is sinking. If the support low from last week is broken we could see a significant decline.
Earnings April 2nd.
Sell short March $26 call, currently $2.85, stop loss $29.65
Buy long March $30 call, currently .67, no stop.
Net credit $2.18.
TDC - Teradata Corp (Put Spread)
TDC crashed from $47 to $41 after earnings that were not that bad. The stock failed to decline any further for three days. Despite today's negative market shares rallied +2%. I believe the worst is over and bargain hunters who see through the earnigns beat but small revenue miss will see this as a buying opportunity.
Earnings May 7th.
Sell short March $45 put, currently $2.90, stop $40.85
Buy long March $40 put, currently .65, no stop.
Net credit $2.35.
New Covered Call Recommendations
New Aggressive Recommendations
INFA - Informatica (Put Spread)
Informatica beat the street on earnings in late January and soared on news that activist fund Elliott Management had taken an 8% stake in the company. Analysts expect Elliott to try and force the company to sell itself. Elliott has a successful history of activist investments. At the same time guidance from Informatica was positive with lofty goals for new subscribers and improved earnings. After the post earnings spike shares consolidated for a couple weeks and are now moving slowly higher. It should be noted that shares did NOT decline in the market dip week before last. Relative strength given the big spike higher is impressive.
Earnings April 23rd.
Sell short March $45 put, currently $3.00, stop $40.75
Buy long March $40 put, currently .70, no stop.
Net credit $2.30
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
OVX - Oil Volatlity Index (Bearish call spread)
SRPT - Sarepta Therapeutics (Covered Call)
NPSP - NPS Pharma (Covered Call)
GWPH - GW Pharma (Short Put)
FIVE - Five Below (Call Spread)
GOGO - Gogo Inc (Call Spread)
SODA - Sodastream (Call Spread)
FUEL - Rocket Fuel (Call Spread)
XOP - Exploration ETF (Short Put)
TFM - Fresh Market (Short Put)
SFM - Sprouts Farmers Market (Put Spread)
INFY - InfoSys (Put Spread)
FCX - Freeport McMoran (Put Spread)
ATI - Allegheny Technologies (Put Spread)
CSIQ - Canadian Solar (Covered Call)
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.