Irrational exuberance has reached its theoretical limit for me. The S&P is up +19.5% from the October lows.

I believe we should take profits on some of our positions. We could see them move higher but bulls make money, bears make money and pigs get slaughtered.

I think we should exit DLTR, SHLD, HPQ and NVDA.

SHLD and HPQ have outperformed and we have some very nice profits. The option on SHLD is only 11-cents so about the only way it can go is against us.

Hewlett Packard announced favorable news after the close today and the stock did not move. It was up +5% in regular trading so I am thinking the good news is already priced in. We are up nearly $3 on the trade so let's bail out and pocket some gains.

Dollar Tree has failed to perform. The market is up +19% in three weeks and DLTR has gone sideways. If the market decides to rest I fear DLTR will break down. Even with the underperformance we are up $1 so no harm in an early exit.

Nvidia is the same circumstances. It has failed to perform in a strong market. It is time to bail while we can still do it profitably.

McDermott (MDR) missed on earnings and put us in a negative position. I am not recommending we close MDR. I believe it will recover by yearend and we have January options.

I fear the market is going to have a serious bout of profit taking over the next few days. It may not be Friday but I think it is coming. The FOMC has a two day meeting on Tue/Wed and there are three high profile ISM reports due out on Mon/Tue.

October month end is upon us and that is the fiscal year end for mutual funds. They had to buy this week to avoid having cash on their yearend statements after the biggest monthly rally since 1987.

All of these factors suggest we could see some weakness in the days ahead. I am looking forward to a dip to buy because I expect more gains in early November.

However, the closer we get to Thanksgiving the rougher the road might be as investors start worrying over the results of the congressional super committee.

Take some money off the table and start looking for a new entry point.

Jim Brown

Send Jim an email

Current Portfolio

Current positions

Current Position Changes

DLTR - Dollar Tree (Close Short Put)

Close the short NOV $72.50 put, currently 70-cents

SHLD - Sears Holding (Close Short Put)

Close the short NOV $52.50 put, currently 11-cents

HPQ - Hewlett Packard (Close Short Put)

Close the short JAN $25.00 put, currently $1.27

NVDA - Nvidia (Close Short Put/Long Call)

Close the short JAN 2013 $15.00 put, currently $3.44
Close the short JAN 2013 $12.50 Call, currently $4.60

JJC - Copper ETF (Covered Call)

Raise the stop loss to $42.75 on stock and call

XOP - Oil Exploration ETF (Short Put)

Raise the stop loss to $48.50 on short put

New Short Put Recommendations


New Covered Call Recommendations


New Long Term Recommendations


New Aggressive Recommendations


Existing Play Recommendations

Links to original play recommendation

BAC - Bank of America (Long Term)

BAC - Bank of America (Update 8/31)

BZH - Beazer Homes (Long Term)

MDR - McDermott International (Long Term)

BK - Bank of New York Mellon (Long Term)

NVDA - Nvidia (Long Term)

SD - Sandridge Energy (CC + Long Term Combo)

YHOO - Yahoo (Long Term Combo)

HPQ - Hewlett Packard (Aggressive Short Put)

PHM - Pulte Homes (LT Leveraged Combo)

XOP - Oil Exploration SPDR (Short Put)

UWM - UWM ETF (Covered Call)

JJC - Copper ETF (Covered Call)

Margin Requirements:

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.