Monday may have been positive in the markets but what will the rest of the week bring? The indexes are still struggling at resistance after fading from their new highs the prior week. Volume is still very low.
I am a little concerned about the outlook. The Dow has posted a series of lower highs since the record high at 18,312 on May 19th. That is two weeks without any follow through and June is not known as a strong month for the markets. It has actually been the weakest month for the Dow over the last 10 years.
The S&P futures were up +3.50 earlier but are now slightly negative. The Asian markets are negative again overnight and we could see some carry over into the U.S. markets. With volume still very weak the potential for a decline is stronger than the potential for a rally. Volume is a weapon of the bulls.
The Dow tested near term resistance at 18,100 intraday but then closed at 18,040 and -65 points off the highs.
I would prefer not to load up the portfolio today and try and see if the market picks a direction this week. If we could get a decent dip it would setup some good short put positions going into July. Watch the 100-day average on the Dow and S&P for critical support levels.
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
AAL - American Airlines (Stopped)
After a couple weeks of declines on worries over increased competition Southwest capitulated and said it would limit its capacity growth. Previously they said they were planning on growing capacity +8%. The CEO said Monday the company was going to reduce that expansion and the entire sector rallied. AAL spiked +4.3% on the news to stop us out on the short side of the position.
Closed June $45 chort call, entry .80, exit $1.23, -.43 loss
Retain June $48 long call, entry .28, currently .33
CYH - Community Health System (Short Put)
Community Health Systems provides general and specialized healthcare services to patients in the USA. They operate a range of hospitals covering the entire range of health services from acute care to general inpatient and outpatient. They own or lease 199 hospitals in 29 states with 30,000 beds.
With the all the M&A activity in the healthcare and biotech sectors this should put a floor under CYH for the next several weeks. If shares can break over the resistance at $56 they could test new highs.
Earnings July 30th.
Sell July $50 put, currently $1.30, stop loss $53.45
HLF - Herbalife (Short Put)
Herbalife closed at a new seven-month high at $52.22 after they unveiled their new anti-Ackman website. They are taking the fight to him and it is really ugly. www.therealbillackman.com is a full bore attack site detailing Ackman's many mistakes in investing over the years. Herbalife is drawing attention to itself by saying we are no longer afraid of you and claiming Ackman should be under investigation for his many sins.
I believe this should cause some of the shorts that followed Ackman into the trade to cover their positions and go look for a better play elsewhere.
Herbalife shares rallied several weeks ago after they posted the results of their audited financials and there were no smoking guns or obvious problems. ANY further gains should cause short covering just on a technical basis.
Earnings July 27th.
Sell short July $45 put, currently $1.50, stop loss $47.65
OLED - Universal Display (Short Put)
We already have a June position on OLED and I don't want to add another one for July. If something happened we could be stopped out on both positions on the same day. However, the risk/reward on this pretty good so I am listing it as an alternate in case you are not already in the June position.
This is not going to be an official recommendation. This is an optional position.
OLED July $50 short put, currently $1.00.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
NOW - ServiceNow (Bear call Spread)
PRLB - Proto Labs (Bear call Spread)
GPRO - GoPro (Short Put)
OLED - Universal Display (Short Put)
SRPT - Sarepta Therapeutics (Covered Call)
RDUS - Radius Health (Covered Call)
CLDX - Celldex Therapeutics (Covered Call)
AAL - American Airlines (Bear 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.