Despite gaining nearly 400 points last week the Dow has been unable to post two consecutive days of gains since February. What does that say about market strength? Monday saw decent gains evaporate at the close and all the indexes to end in negative territory.
The Dow came to a dead stop at 18.200 on Friday and could not make through that level again on Monday. Volume for the post expiration Monday was very low at 5.8 billion shares. The internals were not that bad at 4:3 advancers over decliners. However, the major selling did not come until the close.
The S&P has lost an average of -1.6% in the last week of March in 17 of the last 25 years. There is no guarantee that history will repeat itself but we should be cautious in our bullish positions.
A market failure here could be a double top on the Nasdaq 100 and a decline back below 4,300 would be the confirmation. The biotechs were the losers on Monday but they were due for a decline. The futures are flat at 11:PM after trading both positive and negative.
There are some key economic reports on Tuesday with the Consumer Price index and the Richmond Fed Manufacturing Survey as well as New Home Sales. With the recent trend of weaker reports this could produce a further drag on the market.
The volatility in mid March knocked us out of a lot of positions and I am not looking forward to that again. I would like to see the historical trend for weakness be ignored and have a bullish couple of weeks before Q1 earnings begin. I am not expecting decent earnings so that is another potential pothole for the coming month. However, Fedspeak from Stanley Fischer was very dovish today so at least the Fed is not leaning on the market as well.
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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
HPQ - Hewlett Packard (Stopped)
The short April call on HPQ was stopped on the 18th at $33.05 when the market exploded higher after the FOMC meeting. The long call is still open.
Closed April $30 call, entry $3.29, exit $3.20, +.09 gain
Retain long April $33 call, entry $1.19, currently .94.
IM - Ingram Micro (Stopped)
Shares of IM also exploded higher after the FOMC statement and stopped us out at $23.85. The long call is still open.
Closed April $22 call, entry $2.45, exit $2.20, +.25 gain
Retain long April $25 call, entry .85, currently .35.
FIVE - Five Below (Close)
We were previously stopped on the short FIVE call and retained a long April $30 call. That call is now deep in the money and FIVE has earnings on Wednesday. I am recommending we close the call and pocket the profit.
Close Long April $30 call, entry $1.20, currently $3.70, +2.50 gain.
Previously closed short April $25 call, entry $4.70, exit $5.50, -.80
Net gain $1.70.
SINA - TFM - Cancel, Not Entered
We had an open recommendation for a call spread on SINA with an entry trigger at $32.20. Shares flat lined at $33 all week and never hit the trigger point. Cancel the recommendation.
We had an open recommendation for a put spread on TFM and shares declined slightly for the week and never hit the entry trigger at $42.35. Cancel the recommendation.
CSIQ - Canadian Solar (Called)
We had a March $24 covered call on CSIQ and shares are trading at $35. The March position would have been called. The April position is still open and deep in the money.
Closed CSIQ shares, entry $23.47, called $24, +.53 gain.
Closed March $24 call, entry $2.30, called, +$2.30 gain
Net gain $2.83.
All remaining March positions were closed as recommended
See the portfolio graphics above for the closing numbers on all the leftover March positions shaded in beige.
SFM - Sprouts Farmers Market (Bear Call Spread)
Sprouts has been declining since mid February and that decline accelerated on Monday. There was no news however Wolfe Research wrote about Whole Foods and Sprouts in an article negative to Whole Foods. Sprouts was mentioned as having further discounted its produce in order to get under the prices for the same items at Whole Foods and Walmart. Most people don't know Walmart has boosted its organic offerings to more than 350 products and they sell them cheap. This is pressuring the organic retail chains.
Earnings May 7th.
Sell short April $30 call, currently $3.00, stop loss $34.35
Buy long April $35 call, currently .25, no stop.
Net credit $2.75
VA - Virgin Airlines (Bear Call Spread)
Virgin is not finding any love in the U.S. equity markets. Shares spiked on the IPO but have been declining since early January. Last week Credit Suisse initiated coverage with an underperform or the equivalent of avoid. Virgin is trying to break into a very competitive U.S. market and will likely struggle to succeed until it becomes more established. There is nothing wrong with Virgin. They are just the new kid on the block and they will have to fight it out for market share.
Earnings May 20th.
Sell short April $30 call, currently $2.60, stop loss $33.25
Buy long April $35 call, currently .55, no stop.
Net credit $2.05
WWWW - Web.com (Put spread)
Web.com closed at a three-month high on Monday at $18.62. Shares have rebounded from the February dip and appear to be poised for a breakout to $20 or higher. Their ads are showing up everywhere and their guidance was good.
Earnings May 14th.
Sell short April $20 put, currently $1.50, stop loss $17.85
Buy long April $17.50 put, currently .40, no stop.
Net credit $1.10.
AMBA - Ambarella (Short Put)
Ambarella produces the video chips for GoPro cameras and other HD video capture applications. The system on a chip captures and compresses audio and video for integrated HD processing. They also provide chips for security cameras, camcorders, video traffic broadcasting and infrastructure monitoring applications. Business is booming.
Earnings June 2nd.
Sell short May $65 put, currently $2.80, stop loss $66.65.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
FCX - Freeport McMoran (Put Spread)
CSIQ - Canadian Solar (Covered Call)
DHI - DR Horton (Put Spread)
INFA - Informatica (Put Spread)
INTC - Intel (Put spread)
CREE - Cree Inc (Put spread)
ACAT - Arctic Cat (Put spread)
MSFT - Microsoft (Put spread)
RKT - Rock-Tenn (Put spread)
CSCO - Cisco Systems (Put spread)
VA - Virgin America (Put spread)
CDW - CDW Corp (Put spread)
FIVE - Five Below (Bear call spread)
SPWR - SunPower (Short put)
CSIQ - Canadian Solar (Covered Call)
HPQ - Hewlett Packard (Bear call spread)
TASR - Taser Intl (Bear call spread)
IM - Ingram Micro (Bear call spread)
FIVE - Five Below (Bear call spread)
SINA - Sina Corp (Bear call spread)
TFM - Fresh Market (Put spread)
CRTO - Criteo SA (Put spread)
RGR - Sturm Ruger (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.