The last couple days have been ugly for the tech sector with major declines in some high flyers. At the same time the energy sector has been in rally mode.
I am profiling two new plays today and both are in the energy sector. Both are takeover targets, both have rapidly increasing production and both have been immune to the market volatility over the last two days. Hopefully this trend will continue.
The biggest roadblock in the market's path is the Philly Fed Manufacturing Survey at 10:AM on Thursday. For that reason I am recommending we wait and see what the market is doing at 10:15 before entering these plays. I realize this is difficult for those with jobs and limited access to a computer. If this is your profile then I would probably pass on these entries and wait for the next newsletter.
Futures are down -6.50 tonight so we may not get an entry at all if they don't recover by morning.
We were stopped out of the DECK position today when our stop was hit at $87.75. I received an email from a reader asking why I had set it so wide when Deck was $94.38 when we entered the play. I was trying to avoid the recent intraday volatility by setting the stop just below the gap open on the 12th. If that gap were filled we would be stopped. Obviously hindsight is 20:20 and it would have been nice to have set it at $91.50 to take us out on the first tick down. Wider stops means fewer exits but also larger losses when those exits occur. I always encourage readers to set their own stops where they feel the most comfortable. If I set a stop at $88 and you feel better at $91 then you should do $91. You are in the drivers seat. I am just the tour guide.
Current Position Changes
DECK - Deckers Outdoor (Stopped)
The Decker play was stopped out at $87.75 at 11:05 this morning. The option was trading at $3.00 at the time for a loss of 85-cents on the play.
New Short Put Recommendations
CLR - Continental Resources $59.79 (Short Put)
Continental is a shale gas driller quickly converting to a shale oil driller in an effort to get more oily and away from the bottom dollar prices for natural gas. They are also a takeover target. With a market cap of only $11 billion they are fair game for a major company like XOM, COP, CVX or BHP. Production is expanding rapidly and they continue to raise guidance. They have not weakened as the market volatility hit over the last couple days. In a positive market they should do even better.
Do not enter this position unless the S&P and CLR are both positive after 10:15
Sell Short Sept $55 Put, currently $1.55, stop $56.75
Chart of CLR
RRC - Range Resources $62.70 (Short Put)
Range Resources is also a shale gas driller quickly converting to a shale oil driller in an effort to get more oily and away from the bottom dollar prices for natural gas. They are also a takeover target. With a market cap of only $10 billion they are fair game for a major company like XOM, COP, CVX or BHP. Production is expanding rapidly and they continue to raise guidance. They have not weakened as the market volatility hit over the last couple days. In a positive market they should do even better. (Yes, I know, it is the same description as CLR but still applicable.)
Do not enter this position unless the S&P and RRC are both positive after 10:15
Sell Short Sept $57.50 Put, currently $1.45, stop $59.75
Chart of RRC
New Covered Call Recommendations
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)
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.