The lack of an expected debt limit compromise over the weekend has caused a serious drop in the S&P futures with a decline of as much as -19 points at the open. Reportedly both sides will try to get together again on Monday but the markets are trading as though it may not happen.
I hate these Sunday night events. I get all psyched up for some new plays while I am writing all the weekend content and then Sunday night comes with a major decline in the futures and it is back to square one. Even more importantly a -20 point drop in the futures suggests a large triple digit drop in the Dow at Monday's open and a possible stop out on our existing positions. This is highly frustrating. I can remember the days when stocks traded on fundamentals and the geopolitical news was mostly ignored. Of course that was in bull market periods where the news was just another buying opportunity for the bulls.
Gold is exploding with the futures trading up to $1624 late Sunday night. The dollar opened lower but is rebounding slightly.
I believe this artificial political crisis will pass as it has the last 74 times the raised the debt limit and the three times the limit was actually hit. Those were in 1985, 1995 and 2002. In 1995 it took five months to raise the limit and the U.S. did not default and the global economy did not self-destruct.
Obviously this time is different with the weak economy and the extreme polarization of the political system in the USA. When a compromise is finally approved this week I expect the market to rally. Because of those expectations I am going to add a couple plays tonight. The U.S. is not going to default so it is just a matter of time before the problem is resolved.
If you are a cautious trader I would recommend waiting until that market rebound occurs before adding any new positions.
I added a target on AGU for an exit and updated the stop losses. Check the portfolio graphic for details.
Current Position Changes
See portfolio graphic for new stops/targets
RRC Earnings 7/25 - hold over
AGU Earnings 8/3 - Exit 8/1
WNR Earnings 8/4 - Exit 8/1
ANF Earnings 8/17 - No recommendation yet.
New Short Put Recommendations
VMW -VMWare $106.72 (Short Put)
VMWare beat the street in earnings last week and guided higher. The stock shook off some post earnings depression and rallied to close at the high for the week. If we get a decline at the open on Monday I am looking for it to spike the put premiums. I want to sell the $97.50 put, which is under strong support at $100 with the stock at nearly $107 at Friday's close. That should be a relatively safe strike although the premium is light for a $100 stock. Hopefully a Monday dip will inflate that premium.
No requirements for entry other than wait five minutes to allow the put premiums to inflate.
Sell short VMW August $97.50 Put, currently $1.10, Stop $3 under the stock price at entry. For example if VMW gaps down to $104 at the open then the stop would be $101.
Chart of VMW
New Covered Call Recommendations
CAT - Caterpillar $105.15 (Covered call)
CAT reported earnings that missed slightly because analysts expected super human results. CAT supplied amazing results but just not quite good enough for an analyst community that was each trying to outdo the other with progressively higher earnings expectations.
I think CAT will rebound almost immediately. If it does not we will sell another call in September. There is no scenario that I can envision other than global economic collapse that does not have CAT trading higher by year-end.
No qualification on entry. Buy (sell) the dip.
Buy/Write CAT August $105 Covered Call, currently $105.15-$3.20, stop $101.50
Chart of CAT
New Long Term Recommendations
New Aggressive Recommendations
None until a positive market trend returns
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)