Sometimes entry points are a combination of technical charts, fundamentals, intuition and just plain luck.
Apparently luck was with us last week. Recommending put spreads on the XBI and AET just before the crisis in the healthcare/pharma sector appeared was a stroke of luck. We were stopped out of the short sides almost immediately but the long puts have rocketed higher and put us in a very profitable position.
We could let them run but I am recommending we take our profits now and not turn down a lot of free money.
Catching a break on a broken position is the primary reason we do not stop out the long side at the same time the short side is stopped. This windfall gain does not happen often but when it does it more than makes up for the few cents we lose from time to time.
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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.
XBI - S&P Biotech ETF (Close)
The breakdown in the biotech sector gained speed on Thursday and continued to accelerate today. We were stopped out on the short side of the put spread on Friday and today's 5% decline in biotechs spiked the premiums significantly. I am recommending we close this position.
Close Oct $60 Long put, entry .42, currently 2.80, +2.38 gain
Stopped Oct $67 Short put, entry $1.31, exit $2.20, -.88 loss
Net gain $1.50
AET - Aetna (Close)
Aetna cratered on Thursday when the first hint of damage in the health care sector appeared. The biotech implosion contaminated the health care stocks in guilt by association. The high cost of drugs and the number of companies raising drug prices caused investors to flee anything health related. Aetna's decline accelerated with a nearly -$7 drop today.
Close Oct Long $105 put, entry .63, currently $3.95, +3.32 gain.
Previously closed Oct Short $110 put, entry 1.40, exit 1.89, -.49 loss.
Net gain $2.83
QIHU - Qihoo Technology (Close)
We were looking good on QIHU until today. The shares had rallied to nearly $50 and our long call was positive. However, after a -$2.50 decline today it is back to even and our gain evaporated. I am recommending we close the long call on Tuesday.
Close Oct Long $55 call, entry .24, currently .20, - 4 cent loss.
Previously closed Oct Short $50 call, entry 1.00, exit 1.12, -.12 loss.
Net loss 16 cents.
Existing Play Recommendations
Links to original play recommendation
CAT - Caterpillar (Bear Call Spread)
RRC - Range Resources (Bear Call Spread)
QIHU - Qihoo Technology (Bear Call Spread)
WYNN - Wynn Resorts (Bear Call Spread)
RRC - Range Resources (Reentry Bear Call Spread)
CAT - Caterpillar (Reentry Bear Call Spread)
AET - Aetna (Bull Put Spread)
XBI - Biotech ETF (Bull Put 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.