Sometimes you just have to stay in the game long enough to outlast the other side. We had a tough time getting entries last week amid all the volatility but hopefully this week will be better.
The markets last ground last week but they appear to have stopped declining right where they should have stopped. The question today is this a bottom or a pause before moving lower? The next couple weeks are going to be critical for market direction. We are going to see if the sell in May crowd is going to play this summer or take their chips off the table and go on vacation.
Futures are up over +5 on Sunday evening, oil is up slightly and the dollar is down slightly. If these conditions hold we should have a positive open but there are plenty of hours left before the opening bell.
We got a successful entry on the Medco and Microstrategy positions on Friday. Thursday the S&P was negative all day but both stocks and the S&P traded in positive territory on Friday.
I am going to add a few more positions in hopes of a market rebound next week but the stops will be tight just in case.
Current Position Changes
NTAP - NetApp $53.30 (Short Put)
NetApp is recovering from the decline in March and April and closed at a two month high on Friday. Earnings are not until May 25th so we have two weeks for premiums to decline before we have to exit.
Do not enter this position unless NTAP and the S&P are both positive.
Sell short NTAP June $49.00 Put, currently $1.16, stop loss $50.95
Chart of NTAP
PRU - Prudential Financial $63.69 (Short Put)
Prudential reported earnings last week that beat estimates and the stock rebounded sharply to a three week high. Everything appears to be positive for PRU and the CEO said they had $2.0-2.5 billion in immediately spendable capital. The only risk for Prudential shares today appears to be the market.
Do not enter this position unless PRU and the S&P are both positive.
Sell short PRU June $60.00 Put, currently $.94, stop loss $62.40
Chart of PRU
ATI - Allegheny Technologies $70.00 (Short Put)
ATI reported stronger than expected earnings on April 27th and those strong earnings kept the stock from declining more than a couple dollars in last week's volatility. If we have any kind of positive market this week I would expect ATI to rise.
Do not enter this position unless ATI and the S&P are both positive.
Sell short ATI June $65.00 Put, currently $1.80, stop loss $68.25
Chart of ATI
New Long Term Recommendations
New Aggressive Recommendations
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 please let us know.