I am reaching out to January for added premium after a lackluster market over the last week reduced the remaining December premiums to almost nothing.
A sideways market is great for reducing premiums if you are already in a position. Unfortunately, it impacts all stocks so December premiums evaporated to almost zero. With only 18 days remaining in the December options their value is not likely to return unless the market goes directional in a hurry.
Since December is normally a bullish month except for a week in the middle where investors restructure their portfolios for the end of 2015 and the start of 2016, I concentrated on adding some more short puts. There were some good candidates and the adding the extra couple of weeks boosted the premiums.
The market sold off on Monday on end of month market-to-market gyrations. Typically, the first five trading days of December are bullish. There is a dip in the middle of the month for restructuring and then the markets rise for two weeks before the holidays. Once into Christmas week, which is on a Friday this year, the markets typically retain a bullish bias but the velocity slows to a crawl. After Christmas, the markets tend to fade into New Years Eve.
I would like to see the January put positions evaporate significantly before New Year's so we can close for a profit before any January decline.
While we cannot count on seasonal cycles to repeat, we can prepare for them just in case they do.
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
No changes to current positions
WTW - Weight Watchers (Short Put)
WTW soared a couple weeks ago when the company announced Oprah Winfrey had taken a 10% stake in the company and would put her weight behind the product. Everyone knows the Oprah effect is legendary. Whatever she backs always explodes as millions of fans follow her lead. Shares are not showing any post headline decline and it appears the rally may stick.
Earnings Feb 25th.
I am recommending the January put but the December $23 put is 95 cents with 18 days remaining. I thought the risk was lower with the January $21 strike.
Sell short Jan $21 put, currently $1.20, stop loss $22.85
MNK - Mallinckrodt (Short Put)
MNK was knocked for a $25 loss in early November when short seller Citron Research shifted its focus from Valeant (VRX) to MNK. The drop was short lived after MNK fired back at Citron and quickly took itself out of play as a new biotech disaster. The company develops and markets both branded and generic pharmaceuticals.
MNK reported earnings on the 23rd of $1.84 compared to estimates for $1.74. Revenue of $882.4 million also beat estimates. Over the last four quarters, the company has beaten on earnings by an average of 17.5%. Shares rallied sharply on the news and the stock has recovered almost all the losses from the Citron attack.
Earnings are Feb 3rd.
Sell short Jan $55 put, currently $1.90, stop loss $63.25
URI - United Rentals (Short Put)
United offers 3,300 classes of equipment for rental to construction firms, oil exploration companies, state and local governments. The shares took a hit in July when the company posted earnings that missed estimates because of a sharper than expected decline in oil field rentals. Since then the company has had positive things to say about the business and shares are approaching resistance at $80 and a four-month high.
Earnings are Jan 20th.
Sell short Jan $70 put, currently $1.10, stop loss $72.65
New Covered Call Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
LRCX - Lam Research (Short Put)
CEMP - Cempra (Covered Call)
FIT - FitBit (Short Put)
ELLI - Ellie Mae (Short Put)
BLUE - Bluebird Bio (Short Put)
RTRX - Retrophin (Put 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.