As investors, we should not look questionably at gift horses regardless of how unexpected the gift.
The market continued its winning ways with a strong +165 point gain on the Dow and +73 point gain on the Nasdaq. The Nasdaq 100 added +55 points and closed at a new high. After four weeks of gains, we should be thankful of any additional gifts the market sees fit to give us.
The S&P is now up +10% since the September 29th lows when Carl Icahn released a video warning of an imminent market collapse. Obviously, Icahn is just as fallible as the rest of us when it comes to market timing. We can spend untold hours studying charts and reading news but the market will do whatever it wants whenever it wants to do it.
The S&P has reached major resistance at 2,105 with 2,130 lurking just over that level and a range it has to cross to make a new high. While that is entirely possible, it is more likely that we have a pause for profit taking first.
Given the broad breadth of the current rally, I would buy any dip that appears. However, after a 10% rally I probably would be cautious about buying the first bit of weakness that appears. Look for a bottom to form and then make your trade.
I do expect the markets to end the year higher but always expect the unexpected.
We have a good month going in the November strikes and I was able to find several more plays with less than three weeks remaining on those November options. The market rally has given us a lot of directional stocks and selling premium always works better in a bull market.
Futures are down slightly tonight. Please remember NOT to enter put plays if the market gaps lower in the morning. Wait for a positive market.
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
DY - Dycom Industries (Stopped)
We are cursed on Dycom. We have tried to play a short put on this stock twice in November and both times a volatility event appeared to stop us out. The stock looks like it is about to break out to a new high and I thought about reentering the position with a December put but Dycom has earnings on Nov 23rd. We are out of luck.
Closed Nov $70 short put, entry .95, exit 1.60, -.65 loss
Previously stopped Nov $70 short put, entry $1.32, exit $1.80, -.48 loss
RH - Restoration Hardware (Close)
The short put on RH has evaporated to 5 cents and there is no reason to leave it open and exposed to risk. You never know when an unexpected headline will appear and knock us back into a loss position.
Close Nov $85 short put, entry $1.28, currently .05, +$1.23 gain.
ABMD - Abiomed (Naked Put)
The company reported earnings of 17 cents that beat estimates for 16 cents. Revenue rose +47% to $76.4 million and beat estimates for $74.59 million. The company raised full year guidance from $300-$310 million to $305-$315 million. Shares tanked -25% on the news. Analysts said it was profit taking because investors wanted even higher guidance. Shares were up +300% since October 2014.
After the post earnings drop to $68 on Thursday, shares immediately began to rebound and closed at $76.50 today. I think the selloff it overdone and we will not see $70 again.
Earnigns Jan 28th.
Sell short Nov $70 put, currently $1.75, stop loss $71.85
URI - United Rentals (Naked Put)
United Rentals reported earnings of $2.57 compared to estimates for $2.35. Revenue of $1.55 billion was just short of estimates for $1.56 billion. Shares rallied +11% on the news to a three-month high. After an initial bout of profit taking shares continued to rise to close at a new three-month high today.
Management reaffirmed full year guidance for $5.8-$5.9 billion in revenue and $750 million in free cash flow. The company is overcoming the decline in the energy sector and business is growing in a weak environment.
Earnings Jan 20th.
Sell short Nov $72 put, currently $1.05, stop loss $73.15.
New Covered Call Recommendations
ATI - Allegheny Technologies (Covered Call)
Shares dropped from $17 to $13 after earnings but it appears a bottom has formed. Last Tuesday, the week after earnings, the CEO bought 17,500 shares at an average price of $14.70. This appeared to end the selling and the stock closed at a two week high today.
Earnings Jan 19th.
Buy-write Nov $15 call, currently $15.17-.80, stop loss $13.85
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
RH - Restoration Hardware (Naked Put)
DRI - Darden Restaurants (Bear call Spread)
DY - Dycom Industries (Naked Put)
QUNR - Qunar Cayman (Covered Call)
DAL - Delta Airlines (Covered Call)
QIHU - Qihoo Technology (Naked Put)
NFLX - Netflix (Naked Put)
UA - Under Armour (Naked Put)
AAL - American Airlines (Covered Call)
QIHU - Qihoo Technologies (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.