The FOMC left the "extended period" phrase in their statement and will continue their purchase of $600 billion securities in the QE2 program.
This news was expected but the Fed's economic outlook was less emphatic than traders had hoped. The Fed said while the recovery continues, it is "at a rate that has been insufficient to bring about a significant improvement in labor market conditions." That was such a small improvement from the prior statement it would take a magnifying glass to find the improvement.
The Fed cited high unemployment, slow income growth, lower housing wealth and tight credit as constraints on the economy. Employers "remain reluctant to add to payrolls."
The Fed kept rates the same and for the 13th time included the "extended period" language signifying it would be many more months before the rates changed.
After the opening bounce from the optimism from the SOTU speech the markets flattened ahead of the FOMC announcement. There was minimal volatility after the announcement but there was a distinct letdown in sentiment because of the Fed's less than exciting economic outlook. The markets closed off their highs.
Normally the bog move after a Fed announcement comes on the day after the announcement so Thursday could be a pivotal day for the markets.
I am not adding any new plays at this level until we have a better idea what the future holds.
An astute reader pointed out that the stop loss on the FSLR play was incorrect. We started the play at $142.75 as the stop and I meant to change it to $144.95 after the big gain on Monday. There was a typo in the portfolio graphic showing $104.95, which was obviously wrong. The correct stop is $144.95.
Current Position Changes
New Long Term Recommendations
None - Waiting for a "real" market dip
Current Aggressive Recommendations
FFIV - F5 Networks (Put Spread)
I am looking for a snap back bounce in F5 but it may take a couple days to appear. Investors are afraid of buying the dip before the dip is over. I am going to recommend shorting an April put and buying a short term February put. This way we get the most bang for the buck on the long put side.
I am putting a sell stop trigger on the play so we only enter the trade if the stock is moving up.
Enter trade ONLY if S&P is positive and FFIV trades at $115.
Option prices will decline before entry if FFIV is moving higher.
Sell Short FFIV Apr $130 Put (FFIV11P13000) currently $22.80, no stop, no target
Buy Long FFIV Feb $110 Put (FFIV11N11000) currently $5.30, no stop, no target
Chart of FFIV
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)