With market volatility continuing the best way to avoid suicidal thoughts is not to have a lot of money at risk in the market. Selling premium in hopes of it expiring worthless is not a strategy for triple digit moves in the market.
The S&P futures are down -30 as I write this commentary. The market is poised for another triple digit swoon on Tuesday after the Dow lost -115 today. The short squeeze momentum has faded and it looks like we are eventually going to retest the lows from last week. Historically, that is the pattern for August/September corrections.
Between China and the Federal Reserve the markets finally found a reason to sell off after more than six months of sideways movement. The Fed announcement is not until September 17th.
China announced last night they were no longer going to support the equity markets. Over the last two months China's regulatory team spent more than $200 billion trying to prop up a market that had gained +150% over the prior 12 months. That announcement is a recipe for a continued decline.
The combination of events along with the historically negative August/September period could continue to shake up the U.S. markets. I am limiting the new plays again this week until the volatility calms and a market direction appears. Move away from the PC until reason returns to the market.
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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
URI - United Rentals (Stopped)
URI rebounded sharply from last week's lows thanks to the rebound in oil prices. A large portion of their business comes from renting tools and equipment to oil companies. The oil spike is probably temporary and I will look to reenter the short side when oil rolls over.
Stopped Sept $70 short call, entry $1.75, exit $1.75, zero gain
Retain Sept $75 long call, entry .56, currently .50.
XOP - Oil Exploration ETF (Call Spread)
The XOP rallied +15% from Wednesday's low as the price of oil spiked nearly 30% on various rumors and speculation. Crude oil is down -$1.75 tonight after spiking to $49.33 intraday. WTI traded at $37.75 last Monday. This spike should not last. This is short covering on rumors Russia, Venezuela and OPEC were willing to discuss setting a fair price for oil by restricting production. This will NOT happen.
Sell short Sept $40 call, currently .96, stop loss $39.25
Buy long Sept $44 call, currently .17, no stop
Net credit 79 cents.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
SWKS - Skyworks Solutions (Bear call Spread)
URI - United Rentals (Bear call Spread)
NSC - Norfolk Southern (Bear call Spread)
MNST - Monster Beverage (Bear call Spread)
$VIX - Volatility Index (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.