After the Dow gave up a +194 point gain intraday and the biotech sector was rocked by news of possible price controls on drugs, the S&P futures are down hard tonight.
The S&P futures are down -4.50 suggesting we could start negative on Tuesday. The next seven days are historically negative for the markets. The S&P has only posted a gain in five of the last 17 years in the week following a September option expiration.
For some reason the last week of Q3 has developed a serious negative bias in the past. Add in the return of uncertainty thanks to the Fed not hiking rates and the next six weeks could also be choppy.
With earnings estimates crashing and more than 95 S&P companies already warning on Q3 earnings, the market has a strong headwind. However, as we saw on Monday morning the dip buyers were alive and well. Whether they will continue to tuff it out with triple digit intraday reversals turning profits into losses is unknown.
The volatility last week knocked us out of the short side on nearly every position. I am recommending we reenter all buy one. The QIHU long call is already profitable and with any luck, the rebound will continue. The rest of the stocks are continuing lower once again.
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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
The entries with the blue backgrounds in the portfolio graphics above expired on Friday.
EOG - EOG Resources (Stopped/Reenter)
The two-day short squeeze ahead of the Fed meeting stopped us out on the short side of the EOG call spread. I am recommending we reenter the short position.
Sell short Oct $82.50 call, currently .60, stop loss $80.25
Retain long Oct $87.50 call, entry .57, currently .10.
Closed Oct $82.50 short call, entry $1.59, exit $1.30, +.29 gain.
TIF - Tiffany (Stopped/Reenter)
The two-day short squeeze ahead of the Fed meeting stopped us out on the short side of the TIF call spread. I am recommending we reenter the short position using the $82.50 call.
Sell short Oct $82.50 call, currently $.74, stop loss $81.25
Retain Oct $90 long call, entry .42, currently .02
Closed Oct $85 short call, entry $1.27, exit .87, +.40 gain.
OXY - Occidental Petroleum (Stopped/Reenter)
The two-day short squeeze ahead of the Fed meeting stopped us out on the short side of the OXY call spread. I am recommending we reenter the short position using the $70.00 call.
Sell short Oct $70.00 call, currently $.73, stop loss $68.85
Retain Oct $75 long call, entry .27, currently .08
Closed Oct $70 short call, entry $1.22, exit 1.65, -.43 loss.
QCOM - Qualcomm (Stopped/Reenter)
The post Fed volatility spike on Thursday knocked us out of the short side of this spread by 6 cents. I am recommending we reenter the short position using the $70.00 call.
Sell short Oct $56.00 call, currently $.59, stop loss $55.35
Retain Oct $62.50 long call, entry .14, currently .02
Closed Oct $57.50 short call, entry $.64, exit .74, -.10 loss.
QIHU - Qihoo Technology (Stopped)
Shares of QIHU began to rebound on Wednesday and are gaining strongly. We were stopped out of the short call but our long call is doing well.
Closed Oct $47.50 short call, entry 2.10, exit 2.30, -.20 loss
Retain Oct $55.00 long call, entry .19, currently .30, no stop.
LVS - Las Vegas Sands (Call Spread)
LVS is suffering from the same illness as Wynn Resorts. Casino revenue in Macau is declining about 35% per month. There is no easy fix and earnings are going to suffer. Fear of that earnings release on Oct 21st is pushing shares lower.
Earnings Oct 21st.
Sell short Oct $47 call, currently .67. Stop loss $46.25
Buy long Oct $50 call, currently .19, no stop.
Net credit 38 cents.
New Covered Call Recommendations
ARWR - Arrowhead Research
Shares of Arrowhead rallied last week on positive drug trials and failed to decline in today's biotech wreck. With any kind of positive market shares should continue higher.
Earnings Nov 3rd.
Buy write ARWR Oct $7 call, currently $7.41-$1.20, stop loss $6.15
Gain if called 79 cents.
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)
XOP - Oil Exploration ETF (Bear call Spread)
EOG - EOG Resources (Bear call Spread)
TIF - Tiffany (Bear call Spread)
UAL - United Continental (Put Spread)
OXY - Occidental Petroleum (Bear call Spread)
QIHU - Qihoo Technology (Bear call Spread)
QCOM - Qualcomm (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.