I found a lot f new plays this weekend thanks to the end of quarter window dressing. Most stocks have returned to a positive trend. Will it hold?
I wish the charts I am seeing this weekend were a week older. That would get us past the unknown of how severely fund managers are going to cut their end of quarter positions. Monday is basically the first day of the new quarter. Money managers would not have wanted to dump positions on Friday and depress the market. They would rather have the positive weekend headlines about the market at new highs. Next week could be different.
Earnings don't really start for another week and there is very little on the economic calendar. The most watched events will be the eight speeches by Fed presidents and Ben Bernanke. The current war of words between the doves and hawks on the FOMC is giving market analysts indigestion. Each speech seems to lean even more in the opposite direction than the prior speech. Next week will not be any different.
We saw a very successful week of window dressing for quarter end. Funds will be bragging about their statements for months to come. Normally when window dressing is strong we see a week of portfolio shuffling beginning on the third day of the quarter.
However, the bulls have been buying every dip since the early March decline. The rally appears to be back and bad news does not matter. Even high oil prices have not hindered stocks. Eventually this will end so we need to be careful about being too aggressive. We want to get into a profitable position as quickly as possible and they set our stops to make sure we exit with a profit if conditions change.
Current Position Changes
FLS - Flowserve $132.04 (Short Put)
We were stopped out on Flowserve last week by a penny and the stock rebounded for $9 immediately thereafter. This volatility has inflated premiums and will allow us to take another position even farther out of the money.
Earnings: May 5th
Do not enter this position unless FLS and the S&P are positive.
Sell Short FLS May $125 Put, currently $2.65, stop $127.65
Chart of FLS
ATI - Allegheny Technologies $67.32 (Short Put)
ATI is one of the largest specialty metals producers in the world. They produce titanium, stainless, zirconium and a dozen other metals I have never heard of. They supply to aerospace, defense, nuclear and oil and gas sectors.
ATI rebounded out of the March dip and resumed its prior trend. If the global recovery is progressing then ATI should continue to do well. They say the world grows on copper but it needs these other metals as well.
Do not enter this position unless ATI and the S&P are positive.
Sell Short ATI May $62.50 Put, currently $1.90, stop loss $64.75
Chart of ATI
EQIX - Equinix Inc $92.36 (Short Put)
Equinix operates more than six million square feet of datacenters in 35 strategic markets around the world. They recently announced a new collaboration with Dell and Rackspace (RAX) to expand their offerings. The market greeted the announcement warmly with a sharp uptick in the stock price.
Do not enter this position unless EQIX and the S&P are positive.
Sell Short EQIX May $85 Put, currently $1.70, stop loss $88.95
CTXS - Citrix Systems $75.24 (Short Put)
Citrix was the recipient of five broker upgrades in March with the majority to a buy rating. The resulting bounce in the stock price put them at a new high on Friday. The premiums inflated on the bounce allowing us to sell well out of the money.
Do not enter this position unless CTXS and the S&P are positive.
Sell Short CTXS May $67.50 Put, currently $1.40, stop loss $71.75
Chart of CTXS
New Long Term Recommendations
New Aggressive Recommendations
FSLR - First Solar $160.40 (Short Put)
First Solar has been rocky for the last month with various problems afflicting the entire solar sector. Last week when president Obama spoke on energy and solar power three times it pushed the stock to a five week high. With the high premiums we always get on FSLR it is fun to play but it can be volatile.
Do not enter this position unless FSLR and the S&P are positive.
I am going to recommend the $145 strike but more aggressive traders might want to consider an ITM strike like $165. If FSLR has returned to its prior trend it should be over that level within a couple weeks if the market cooperates.
Sell short FSLR May $145 Put, currently $4.60, stop loss $153.50
Chart of FSLR
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)