There are a lot of opinions about market direction tonight. Analysts seem to be evenly divided over our chances for a rebound or a continued decline.
Personally, I believe we are going to rebound because the bad news is now priced into the market. However, these types of headline events have a tendency to take on a life of their own. We could just as easily continue lower to fulfill the wish for a correction instead of rebounding as calmer heads prevail.
We were blown out of three covered calls by the change in market direction and every chart I looked at tonight was ugly. There were 620 new 52-week lows in the market today compared to an average of about 150 every day last week. In order to make a new low that means a lot of stocks were already close before today's market drop.
One analyst pointed out last week that 45% of the stocks in the S&P-500 were already in a bear market with declines of more than 20%. That is hardly a bullish statistic. The percentage of S&P stocks trading under their 50-day average fell to 27% today and the lowest level since October.
While I am expecting a rebound on Tuesday that is just a calculated guess on my part. It is not enough for me to recommend some bullish plays only to have the market continue lower. With the Dow down -350 points and the Nasdaq down -122 it is probably better to wait for some calm to return to the market before entering new plays. This is a holiday week and volume is normally very low. This will allow the market moves to be exaggerated and dangerous.
I considered a VIX bear call spread but there is too much potential for further volatility and the premiums were not high enough. I did add back in the INSY covered call. The stock failed to decline over the last two days and one of the few that showed any relative strength.
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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
SRPT - Sarepta (Stopped)
The market implosion knocked -10% off SRPT today to stop us out at $28.85. Fortunately we still excaped with a minor gain.
Closed SRPT shares, entry $28.60, exit $28.85, +.25 gain
Closed July $30 call, entry $1.81, exit $1.75, +.06 gain
Net gain +31 cents.
FEYE - FireEye (Stopped)
FireEye began dropping sharply on Wednesday and stopped us out on Thursday at $49.65. Unfortunately, I had the stop just under support and we were hit on the gap down on Friday morning. .
Closed FEYE shares, entry $53.47, exit $49.65, -3.82 loss
Closed July $55 call, entry $1.95, exit .33, +1.62 gain.
Net loss $2.20
INSY - Insys Therapeutics (Stopped)
The Insys rally cratered last week after topping out over $42. The rocket ride up looked like the Space X rocket ride on Sunday when it came down in pieces about as fast as it went up. The speed of the decline was deadly but the options did not deflate as quickly as the stock price.
I am going to reenter this position today after no further material declines over the last two days.
Closed INSY shares, entry $41.54, exit $36.65, -4.89 loss.
Closed July $42.50 call, entry $1.75, exit .80, +.90 gain
Net loss -3.99.
New Covered Call Recommendations
INSY - Insys Therapeutics
Insys split 2:1 back on the 8th and has been moving steadily higher ever since with every day a new high. Earlier this month Insys submitted a new drug application (NDA) to the FDA for Dronabinol, an oral drug to treat AIDS-assiciated anorexia, and nausea and vomiting in cancer patients undergoing chemotherapy. Expectations are high for this drug.
Shares spiked on the drug news and then erased those gains in two days last week. Friday and Monday, both negative days in the market the shares of INSY barely moved. Support at $34 appears to be holding.
If you are a stock investor I would buy this stock on any rebound over $36.
Earnings August 11th.
Buy-write INSY July $36.00 call, currently $34.66-$1.30, stop loss $32.45
Gain if called $2.64
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
HLF - Herbalife (Short Put)
NSC - Norfolk Southern (Bear call Spread)
SRPT - Sarepta (Covered Call)
FEYE - FireEye (Covered Call)
RDUS - Radius Health (Covered Call)
INSY - Insys Therapeutics (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.