By raising the stops on Thursday night we escaped without taking any losses.
Every pay we had was stopped out but we escaped with $3.80 in profit rather than entering the weekend with plays that were underwater or severely depressed. The Google earnings and the Goldman Sachs announcement combined to push the Dow to a -170 point loss intraday. That eventually shrank to only -125 but market sentiment could have taken a serious beating.
Anyone reading my market commentaries should know that I expect the market to weaken by next Friday as we pass the peak of earnings and traders begin worrying about the two day Fed meeting and a possible statement change.
For this reason I am not sad to be flat this weekend. However I think we have an opportunity in Goldman Sachs. As you know the SEC filed a civil suit against Goldman for allegedly failing to disclose the counterparty to a billion dollar CDO was going to short the CDO not join in as a long. I could go into the gory details but I covered it pretty thoroughly in my weekend market wrap.
Goldman may not have been squeaky clean in the transaction and Fabrice Tourre the 31 yr old point person for Goldman misled ACA about Paulson's interest. However, most analysts agree Goldman's liability for this suit is around $750 million. Goldman lost $12 billion in market cap on Friday. The selling was obviously extremely overdone.
I am recommending we sell the $150 put on Goldman. They closed at $161 and they have significant support around $155. There may be some additional selling pressure at the open but several analysts including Richard Bove have again recommended buying the stock on the dip.
That is the only recommendation I am going to make today. We need to see how the market is going to react to the peak in earnings this week and the FOMC meeting next week. We are already up +$3.16 for the month and there is no reason to rush into additional positions that could turn against us several days from now.
Current Position Changes
CREE - Cree Inc - Stopped @ 81.35
The Short May $75 Put was closed at the stop on Friday
Entry $3.10, exit $2.60 for a gain of +.50 cents.
FSLR - First Solar - Stopped @ 134.50
The Short May $115 Put was closed at the stop on Friday
Entry $4.60, exit $2.10 for a gain of +2.50.
ITRI - Itron Inc - Stopped @ 75.25
The Short May $70 Put was closed at the stop on Friday
Entry $1.30, exit $1.00 for a gain of +.30 cents.
FLS - Flowserve - Stopped @ 116.75
The Short May $110 Put was closed at the stop on Friday
Entry $2.30, exit $2.15 for a gain of +.15 cents.
WLT - Walter Energy - Stopped @ 96.50
The Short May $90 Put was closed at the stop on Friday
Entry $3.30, exit $2.95 for a gain of +.35 cents.
GS - Goldman Sachs - $160.92
Goldman reports earnings on Tuesday and they should report record results. The news channels are full of articles on Goldman this weekend with some serious polarization between the big bank haters in general and those who realize that a $12 billion drop in market cap for a $750 million problem is way over done. Regardless of whether Goldman wins or loses the case, which won't be known until 2011, they can pay the fine out of petty cash.
I am not recommending this play because I have some emotional love affair over Goldman as one reader claimed in an email this weekend. I simply believe that the sell off is overdone and Goldman is one of the most consistent earnings generators in the sector. I believe traders will rush back into Goldman and we have an opportunity to profit from that event.
Earnings April 20th
ENTER TRADE ONLY IF GS and S&P are positive.
SELL MAY $150 PUT (GS-10Q15000) currently $4.60, stop GS @ $155.00
Chart of GS
April Recommendation History
Click here for March Results
Click here for February Results
Click here for January Results
Click here for December Results
Click here for November Results
Click here for October Results
Click here for September Results
Click here for August Results
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.