The market improved slightly last week and although not out of danger it may be time to stick a toe in the water.
After several weeks of horrible volatility the market seems to have found a bottom at least for the moment. If the S&P is successful on the next test of the 200-day average at 1107 we could see a short-term breakout.
Several groups of stocks have turned decidedly positive and have some momentum at their back. After sitting patiently on the sidelines for a couple weeks while the market took a -14% dip, I believe we can try some new positions.
I have no confidence these July positions will expire worthless but I do believe each will decline in value enough over the next couple weeks that we can extract some profits for our trouble.
These positions are not endorsements of the individual stocks but simply an attempt to capture some short-term premium decay.
Lots of plays, please don't enter them all!
WYNN - Wynn Resorts - $82.85
WYNN bounced off support at the 100-day three times in the last two months. WYNN is benefiting from the gambling explosion in Macau. I believe support will hold at least well enough for us to capture some profit.
ENTER TRADE ONLY IF WYNN and S&P are positive.
SELL JULY $75 PUT (WYNN-10S7500) currently $2.50 stop WYNN @ $78.25
Chart of WYNN
CRM - SalesForce.com Inc - $99.64
SalesForce broke out to a new high on Friday and the recent volatility has pumped up the premium and will allow us to sell $7 out of the money for $3.00.
ENTER TRADE ONLY IF CRM and S&P are positive.
SELL JULY $90 PUT (CRM-10S9000) currently $3.00, stop CRM @ $91.50
Chart of CRM
VMW - WMWare - $69.74
VMWare never really sold off with the market crash. It is holding the high ground and very close to a new high. No weakness here.
ENTER TRADE ONLY IF VMW and S&P are positive.
SELL JULY $65 PUT (VMW-10S6500) currently $1.90, stop VMW @ $66.50
Chart of VMW
BEN - Franklin Resources - $93.51
Franklin Resources (Franklin Templeton Funds) reported net assets under management last week as $572 billion. Analysts believe the current mix of equities and non equity investments will benefit from the current market environment. If the market rallies Franklin is positioned for maximum gain. Franklin rebounded last week after testing support at the August lows at $90.
ENTER TRADE ONLY IF BEN and S&P are positive.
SELL JULY $87 PUT (BEN-10S8700) currently $2.05, stop BEN @ $89.50
Chart of BEN
X - US Steel Corp - $44.78
US Steel bounced off support at $40 dating back to November of 2008. US Steel has been in a long decline but the positive news last week about China, Brazil and Latin America could inject life into the metals sector. We will have a $5 cushion to start.
ENTER TRADE ONLY IF X and S&P are positive.
SELL JULY $40 PUT (X-10S4000) currently $1.39, stop X @ $41.75
Chart of X
IOC - Interoil Corp - $54.58
I swore I was never going to play Interoil again but a $10 cushion to get a $1.65 premium is too tempting. IOC found support just above $45 for the last three weeks and the short covering provided a $10 pop. I doubt it will give all of that back in one day. We should have time for premium bleed.
ENTER TRADE ONLY IF IOC and S&P are positive.
SELL JULY $45 PUT (IOC-10S4500) currently $1.64, stop IOC @ $49.25
Chart of IOC
CLR - Continental Resources - $50.67
Continental is a play on the shale gas sector. With gas prices finally finding traction and energy investors trying to find something to invest in other than companies exposed to the gulf this is the play. CLR is close to a new high and we get a $6 cushion and some decent support between the current price and our strike.
ENTER TRADE ONLY IF CLR and S&P are positive.
SELL JULY $45 PUT (CLR-10S4500) currently $1.25, stop CLR @ $47.50
Chart of CLR
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.