I believe the market will hold at these levels at least through option expiration assuming Intel does not stink up the place.
I was worried that moving into April would incur some window undressing and I did not add any positions last week in anticipation of that possibility. We did see one day of decent declines but the dip buyers appeared and pushed the markets to new highs at Friday's close.
If you read my market wrap this weekend I am expecting a neutral week with a bullish bias into option expiration. The following week could start to get choppy as all the major headliners finish reporting. I do expect a decline to appear before the FOMC meeting on April 27/28th.
I picked several plays this weekend that I believe will hold their gains until after April expiration. My game plan here is to hold them through expiration and then tighten up the stops to take us out on the first signs of weakness. With volatility currently at multiyear lows ($VIX) the May premiums should evaporate quickly once May becomes the current month.
I picked some high dollar stocks/premiums in hopes of grabbing a buck or two before the end of April weakness appears. Some of these have earnings as early as the 20th so we need to exit the positions ahead of those events.
I am offering several possible plays this week. Please don't play them all. Just pick 2-3 that you like and let's keep the risk manageable. If you load up with all of them we are likely to get a couple stinkers in the batch.
The energy related plays, WLT, CLF, WLT, FLS, could be susceptible to declines in crude prices. Crude futures expire on the 20th so we could see some volatility in the price before that date. Energy traders have been buying every dip but eventually that will end.
I am putting the qualification on these positions that the stock and the S&P must be positive in order to enter the trade. If the market opens down on Monday wait for the S&P to rebound into positive territory before pulling the trigger. If the S&P is not positive then remain flat.
No Open Positions
FSLR - First Solar - $124.37
First Solar, Inc. (First Solar) is engaged in the manufacture and sale of solar modules with an advanced thin film semiconductor technology, and it designs, constructs and sells photovoltaic (PV) solar power systems. It operates the business in two segments: components segment and systems segment. Components segment designs, manufactures and sells solar modules to solar project developers and system integrators. Systems segment provides PV solar power system for commercial systems, which includes project development, engineering, procurement and construction (EPC), operating and maintenance (O&M) services and, when required, project finance.
We have played FSLR several times because its volatility creates large premiums. The solar sector is fighting back from some negative news on tax rebates in Europe earlier this year.
Earnings April 30th
ENTER TRADE ONLY IF FSLR and S&P are positive.
SELL MAY $115 PUT (FSLR-10Q11500) currently 4.60, stop FSLR @ $119.00
Chart of FSLR
WYNN - Wynn Resorts - $87.19
Wynn Resorts, Limited (Wynn Resorts) is a developer, owner and operator of destination casino resorts. It owns and operates two destination casino resorts Wynn Las Vegas, on the Strip in Las Vegas, Nevada, Encore at Wynn Las Vegas located adjacent to Wynn Las Vegas, and Wynn Macau, located in the Macau Special Administrative Region of the Peopleâ€™s Republic of China (Macau). The Company is also constructing Encore at Wynn Macau, an expansion of its Wynn Macau resort.
WYNN has been getting good press and solid upgrades and the decision to pass on acquiring the Revel Casino in Philly was good for a big pop last week.
Earnings are May 4th
ENTER TRADE ONLY IF WYNN and S&P are positive.
SELL MAY $80 PUT (WYNN-10Q8000) currently 2.61, stop WYNN @ $83.00
Chart of WYNN
CREE - Cree Inc - $79.09
Cree, Inc. develops and manufactures semiconductor materials and devices based on silicon carbide (SiC), gallium nitride (GaN) and related compounds. The Company focuses its expertise in SiC and GaN on light emitting diodes (LEDs), which consist of LED chips, LED components and LED lighting products. It also develops power and radio frequency (RF) products, including power switching and RF devices. The majority of Cree, Inc. products are manufactured at its main production facility in North Carolina.
CREE refuses to dim and gained almost $9 last week alone. There are no dark spots in the LED business if Cree is any indication.
Earnings are April 20th !!!!!!!!!
ENTER TRADE ONLY IF CREE and S&P are positive
SELL MAY $75 PUT (CREE-10Q7500) currently 3.00, stop CREE @ $76.50
Chart of CREE
ITRI - Itron Inc - $74.58
Itron, Inc. (Itron) provides a portfolio of products and services to utilities for the energy and water markets worldwide. The Company, along with its subsidiaries, is a provider of metering, data collection, and utility software solutions. It operates in two segments: Itron North America and Itron International. Itron North America generates its revenue in the United States and Canada and offers meters and data collection and communication systems for electric, gas, and water utilities. Collection and communication systems include advanced metering infrastructures/automated meter reading (AMI/AMR) systems and a range of utility software and services. Itron International generates its revenue in Europe and South Africa, South America, and Asia/Pacific. Itron International offers a range of electricity, gas, water, and heat meters, AMR and AMI systems, software, and services.
Itron is a company benefiting from the upgrade to smart grid applications. There is decent support at $72 and the $70 strike has a decent premium.
Earnings are April 28th
ENTER TRADE ONLY IF ITRI and S&P are positive
SELL MAY $70 PUT (ITRI-10Q7000) currently 1.45, stop ITRI @ $72.00
Chart of ITRI
CLF - Cliff's Natural Resources - $74.80
Cliffs Natural Resources Inc. (Cliffs), formerly Cleveland-Cliffs Inc, is an international mining and natural resources company. The Company is a producer of iron ore pellets in North America, a supplier of direct-shipping lump and fines iron ore out of Australia, and a producer of metallurgical coal. The Companyâ€™s operations are organized according to product category and geographic location: North American Iron Ore, North American Coal, Asia Pacific Iron Ore, Asia Pacific Coal and Latin American Iron Ore. In North America, it operates six iron ore mines in Michigan, Minnesota and Eastern Canada, and two coking coal mining complexes located in West Virginia and Alabama. Its Asia Pacific operations are comprised of two iron ore mining complexes in Western Australia, serving the Asian iron ore markets with direct-shipping fines and lump ore, and a 45 % economic interest in a coking and thermal coal mine located in Queensland, Australia.
Another stock that refuses to drop. Cliff's is benefiting from the recent hike in prices for iron and coal. Decent support at $72.
Earnings are April 26th
ENTER TRADE ONLY IF CLF and S&P are positive
SELL MAY $70 PUT (CLF-10Q7000) currently 3.30, stop CLF @ $71.75
Chart of CLF
WLT - Walter Energy Inc - $96.95
Walter Energy, Inc., formerly Walter Industries, Inc., is a producer and exporter of metallurgical coal for the global steel industry and also produces steam coal, coal bed methane gas (natural gas), metallurgical coke and other related products. The Company operates its business through three principal business segments: Underground Mining, Surface Mining and Walter Coke. The Companyâ€™s primary business, the mining and exporting of hard coking coal for the steel industry, is included in its Underground Mining segment, consisted of Jim Walter Resources, Inc. (JWR) and Blue Creek Coal Sales, Inc. In its Surface Mining segment, it also mines steam coal for sale to industrial and electric utility markets through its Taft Coal Sales, Tuscaloosa Resources and Walter Minerals subsidiaries. Through its Walter Coke segment, it manufactures furnace and foundry coke, collectively referred to as metallurgical coke.
Nice steady trend with enough volatility to keep premiums high. Decent support at $94.
Earnings are May 5th Estimate
ENTER TRADE ONLY IF WLT and S&P are positive
SELL MAY $90 PUT (WLT-10Q9000) currently 3.30, stop WLT @ $93.50
Chart of WLT
FLS - Flowserve Corp - $115.07
Flowserve Corporation (Flowserve) is a manufacturer and aftermarket service provider of flow control systems. The Company develops and manufactures precision-engineered flow control equipment integral to the movement, control and protection of the flow of materials in its customersâ€™ critical processes. Its product portfolio of pumps, valves, seals, automation and aftermarket services supports global infrastructure industries, including oil and gas, chemical, power generation and water management, as well as general industrial markets.
Solid trend, decent support at $113. Repeat performer.
Earnings are April 26th
ENTER TRADE ONLY IF FLS and S&P are positive
SELL MAY $110 PUT (FLS-10Q11000) currently 2.55, stop FLS @ $112.50
Chart of FLS
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 just send us an email and we will use your price.