The drop in Consumer Sentiment knocked 261 points off the Dow and killed two of our positions.
We were doing ok with premiums shrinking just fine until Friday's downdraft in the market. The 8th largest drop ever in consumer sentiment caused a market wide decline in stocks and no sector was spared.
The Carbo Ceramics (CRR) and Chipolte Mexican Grill (CMG) positions were stopped out.
Carbo was stopped at 77.50 when it broke support and the option traded for $3.70 giving us an 80-cent loss.
Chipolte was stopped at 137.00 and the option traded for $4.40 giving us a 30-cent gain.
VMWare reports earnings on Tuesday after the market close. We need to close the VMW position at the open on Tuesday.
First Solar is holding above support at $128 with our stop at $127.25. Earnings are not until July 30th.
SalesForce.com had a nice rally midweek and is still well above support and our stop. Earnings are not until August.
I wanted to add Goldman Sachs as a new position this weekend now that the SEC problem has been resolved but they have earnings on Tuesday.
I settled on three new positions but we will need to qualify them with market and stock both positive before making an entry. I don't want to just blindly jump in and have the market continue its Friday implosion.
TSL - Trina Solar - $22.24
Trina Solar garnered a couple buy recommendations last week and the stock broke over its 200-day average with a decent gain on Friday. Any stock up on Friday should do well in a positive market.
Earnings August 16th
ENTER TRADE ONLY IF TSL is positive and S&P over 1070.
SELL August $20 PUT (TSL-10T2000) currently $.80 stop TSL @ $20.95
Chart of TSL
CF - CF Industries - $77.00
CF also had a decent move higher last week and only gave back a buck on Friday. This suggests investors are content to hold it even in a down market. I am recommending a strike that is $7 out of the money.
Earnings are July 26th so we will need to decide by next Friday if we are going to exit ahead of earnings.
ENTER TRADE ONLY IF CF is positive and S&P over 1070.
SELL AUGUST $70 PUT (CF-10T7000) currently $1.69, stop CF @ $74.25
Chart of CF
WYNN - Wynn Resorts - $79.52
WYNN had some nice gains since early July and lost $3.45 on Friday to reinflate the put premiums. I am suggesting a strike that is $9 out of the money so any sideways movement or gains will shrink the premium again.
Earnings July 30th so we will be out within two weeks.
ENTER TRADE ONLY IF WYNN is positive and S&P over 1070.
SELL AUGUST $70 PUT (WYNN-10T7000) currently $1.98, stop WYNN @ $75.50
Chart of WYNN
July Recommendation History
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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.