The volatility in September has lived up to its historical patterns with triple digit moves in opposite directions a daily occurrence. Today's reversal from +172 on the Dow to -239 at the close was probably a preview of things to come.

Writing low volatility premiums in September is becoming more of a challenge as each day passes. The +625 point Dow spike from Friday's low to Wednesday's high was mostly a short squeeze caused by the overly negative sentiment going into Friday's close. When Asia did not melt down over the weekend the shorts raced to cover. Japan's +7.7% rebound on Wednesday and the record job openings in the JOLTS report this morning caused additional short covering at the open.

Unfortunately both the Dow and the S&P rallied exactly to resistance and the sellers appeared immediately with decent volume. The high job openings suggest the Fed may ignore the warnings from the IMF and World Bank and go ahead with a rate hike in September. While a 25 basis point hike would have no actual impact on the economy the sentiment impact to the market is always expected.

S&P futures are down hard again tonight and suggest a negative open on Thursday. There is a lot of darkness before morning so anything is possible. If we continue to alternate triple digit moves, the dip buyers will eventually throw in the towel and we will retest the recent lows. Try not to enter any new positions until the volatility is over. You do not have to trade just because there are plays in the newsletter.

Jim Brown

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Current Portfolio

Current positions

Items shaded in blue were previously closed.

Current Position Changes

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.


New Recommendations

CAT - Caterpillar (Bear Call Spread)

Caterpillar shares are sinking on the crash in commodity prices and the economic slowdown in China. Shares were downgraded on Friday to neutral at Baird. The analyst put a $77 price target on the stock with it trading at $75.

Cat had a lackluster rebound from the flash crash Monday three weeks ago and with China sinking fast the outlook for CAT is falling with China's fortunes. They are a major part of Caterpillar's business.

Earnings Oct 22nd.

Sell short Oct $77.50 call, currently .83, stop loss $75.65
Buy long Oct $82.50, currently .19, no stop.
Net credit 64 cents.

RRC - Range Resources (Bear Call Spread)

Range is primarily a natural gas producer. Gas prices have been flat at $2.70 for the last month and with injections into storage rising because of low demand we are not likely to see a spike in Range shares. The drop in oil prices is dragging the entire sector lower.

Earnings Oct 28th.

Sell short Oct $40 call, currently 1.30, stop loss $38.55
Buy long Oct $45 call, currently .60, no stop.
Net credit 70 cents.

Optional Positions

These were potential plays I did not use today. If you are looking for something else to play you can start here. These are not official recommendations.

Bear Call Spreads

Symbol Strikes Credit

LNG - 60/65 - .94
HAL - 40/44 - .73
QCOM - 57.5/62.5 - .57

Existing Play Recommendations

Links to original play recommendation

HOT - Starwood Hotels (Bear Call Spread)

QRVO - Qorvo Inc (Bear Call Spread)

YUM - YUM Brands (Bear Call Spread)

BABA - Alibaba (Bear Call Spread)

BITA - Bitauto Holdings (Bear Call Spread)

WLL - Whiting Petroleum (Bear Call Spread)

WYNN - Wynn Resorts (Bear Call Spread)

SWKS - Skyworks (Bull Put Spread)

HP - Helmerich & Payne (Bear Call Spread)

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.