After closing at new highs on all the indexes on Friday the market paused ahead of the Greek proposal and Yellen's testimony on Tuesday. While neither is expected to actually impact the market there is always the possibility for a sell the news event.
February options expired on Friday and SRPT and NPSP both closed in the money and would have been called away. Our March covered calls, BHI and CSIQ are both in the money today but that could change over the next four weeks. I tried to find some new calls today but every company with any premium was scheduled to report earnings over the next couple of weeks.
With the market at new highs the put premiums are also flat. Nobody is expecting a decline. That is normally the worst time because declines occur when they are least expected. I had to continue picking put spreads that wer ein the money in order to find any decent premium. If the market continues higher we could make some decent money but a stall here would be problematic.
Intel shares collapsed today and I thought about closing the short side of the spread. I could find no news and it appeared to be a sector decline after the Semiconductor Index closed at a new high on Friday. I raised the stop on Intel rather than closing it.
The Baker Hughes covered call should be in the money but we may not make it to expiration. The shareholder votes on the Halliburton acquisition are scheduled for the end of March. If oil prices decline further I might recommend closing the short call and just play the acquisition, which is worth $67 at today's prices. Since we are down $3 on the stock price at $62.92 today we could pick up $4 if the price of Halliburton shares remained the same or rose. Of course if oil prices decline the shares of HAL could decline also. I am hoping that the shares will rise into the acquisition, which would be in early April if they get regulatory approval.
I also considered closing the XOP put. Oil prices were down today but there are rumors of an possible emergency OPEC meeting being called in the weeks ahead. The president of OPEC said it prices don't stabilize she would have to call the meeting in a few weeks. This could keep a floor under oil as long as she maintains that stance. The bad news is that storage is filling up and there will be nowhere to store any new oil by May. I raised the stop on the XOP play but left it in the portfolio.
Because of the quantity of closed plays I am not going to report on each one today. I mentioned them in the newsletter last week with instructions for expiration week. The results are clearly listed in the portfolio graphics.
Don't initiate new plays unless the market is positive at the open. Selling premium is a bullish strategy.
Send Jim an email
The fourth column in the portfolio graphic is 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
MU - Micron (Close Long Call)
The semiconductor rally from the prior week appears to be fading. I am recommending we close the long call on Micron before it fades away.
Closed short Mar $26 call, entry $3.64, exit $3.85, -.21 loss.
Close long Mar $30 call, entry .95, currently $1.94, +.99 gain.
RKT - Rock-Tenn (Put Spread)
Rock-Ten recently announced a merger with MeadWestvaco. They both manufacture containerboard and paperboard products in the USA. The combined company will have sales of nearly $16 billion and be the world's second largest packaging company. Shares in both companies rallied on the announcement and RKT has been on a roll. After two days of volatility it may be ready to breakout to a new high.
Earnings April 27th.
Sell short Mar $75 put, currently $4.10, stop $68.75
Buy long Mar $70 put, currently $1.15, no stop.
Net credit $2.95.
CSCO - Cisco Systems (Put Spread)
Cisco's CEO John Chambers sounded like he was on speed when he spoke on the earnings conference call. He was so excited about the business he could not stop talking. Shares gapped up to $29 after the earnings and held right at that level for the last two weeks. Today Cisco crept up to a new high and is right on the verge of a breakout.
Earnings May 13th.
sell short March $32 put, currently $2.36, stop loss $28.85
Buy long March $29.00 put, currently .28, no stop.
Net credit $2.08.
VA - Virgin America (Put Spread)
VA sold off in early February ahead of earnings but then spiked higher on the earnings and revenue beat. The worst expectations did not come true and shares are rising again.
Earnings May 20th.
Sell short March $40 put, currently $3.50, stop loss $34.85.
Buy long march $35 put, currently $1.00, no stop.
Net credit $2.50
CDW - CDW Corporation (Put spread)
CSW beat the street on earnings and rallied to a new high. Shares traded sideways over the last week but they have not given up any ground. Their positive guidance suggests they will move higher.
Earnings May 7th.
Sell short March $40 put, currently $2.30, stop loss $37.25
Buy long March $45 put, currently .30, no stop.
Net credit $2.
New Covered Call Recommendations
New Aggressive Recommendations
FIVE - Five Below (Bear Call Spread)
Five moved sideways for most of the time we owned the call spread for February. The breakdown did not come until just before expiration. I am recommending we do it again for March and hopefully have better luck.
Earnings March 25th.
Sell short March $30 call, currently $2.25, stop loss $32.85
Buy long March $35 call, currently .30. no stop.
Net credit $1.95.
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
OVX - Oil Volatlity Index (Bearish call spread)
OVX - Oil Volatlity Index (Bearish call spread - part 2)
SRPT - Sarepta Therapeutics (Covered Call)
NPSP - NPS Pharma (Covered Call)
FIVE - Five Below (Call Spread)
GOGO - Gogo Inc (Call Spread)
SODA - Sodastream (Call Spread)
FUEL - Rocket Fuel (Call Spread)
XOP - Exploration ETF (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)
DHI - DR Horton (Put Spread)
MU - Micron (Call Spread)
TDC - Teradata Corp (Put Spread)
INFA - Informatica (Put Spread)
INTC - Intel (Put spread)
CREE - Cree Inc (Put spread)
ACAT - Arctic Cat (Put spread)
MSFT - Microsoft (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.