The Joint Super Committee appears to have dropped the ball and they will not be proposing spending cuts. The market is not happy.
It is Sunday night and the S&P futures are down -11 points again for a multitude of reasons. The first is because the committee tasked to cut $1.2 trillion in spending could not come together on a compromise solution. You will hear the reasons over and over again in the news this week so I won't repeat them here.
The market may not be happy about the result but in an election year both sides held to their core beliefs and now they can go to their districts and blame the other side for no progress. This was probably a blessing for President Obama because he can continue blaming the "do nothing congress" for the country's woes.
In reality this is nothing more than political theater. Lawmakers can go back to work in 2012 and propose dozens of ways to avoid the mandatory spending cuts that kick in as a result of no JSC plan in 2013. They make the rules and they can change them so this week of theater is a political campaign for the 2012 election cycle. I think the market will get over it.
There were more killings in Syria and Egypt erupted again into violence and Israel ratcheted up their call for an attack on Iran. The Euro debt crisis added another day of he said, she said with Merkel vowing not to use the ECB for country bailouts and Sarkozy demanding immediate action before the French bond yields hit disaster levels. France has the biggest exposure to Italy and Greece in terms of debt owned by banks.
Spain held elections and the conservative center-right party severely trounced the socialist party. Socialist seats in the legislature fell from 169 to 110 and their worst performance ever. The conservative Popular Party (PP) ended up with 186 seats and far more than the 176 it needed for an absolute majority. In the Senate conservatives won 134 seats and the PP won 50. In the popular vote the conservatives won 44.6% and the socialists took 28.7%.
Spain is almost sure to follow in the path of Italy and Greece but the new winners are vowing to take quick and decisive action to prevent a disaster.
Japan reported on Sunday that exports fell for the first time in three months, eroded by a stronger yen and a weakening global economy. Singapore warned Sunday night that its economy will likely suffer a sharp slowdown next year as export demand for developed countries slows. Singapore relies heavily on exports and is considered a bellwether for other Asian countries.
I believe we are better off not taking any new positions ahead of this holiday shortened week given all the economic and political headlines. There is never any rush to add plays when the direction of the market is unstable. I suggest we nurse our existing positions and look for better entries in the following week. If conditions suddenly pick up on Monday I will reconsider.
If you want to live dangerously, sell calls on LNKD at the open on Monday. They have a huge 24 million share lockup expiring.
Send Jim an email
Current Position Changes
GBX - Greenbrier (Covered Call)
We were stopped out of Greenbrier on Thursday when GBX traded down to our stop at $20.75. We made 73-cents on the option but lost -2.83 on the decline in stock prices for a net of -$2.10. The market suffered its biggest loss in eight weeks and we were fortunate we did not see more positions stopped out.
Closed GBX covered call, -2.10 net loss.
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)
SD - Sandridge Energy (CC + Long Term Combo)
YHOO - Yahoo (Long Term Combo)
PHM - Pulte Homes (LT Leveraged Combo)
XOP - Oil Exploration SPDR (Short Put)
UWM - UWM ETF (Covered Call)
JJC - Copper ETF (Covered Call)
COG - Cabot Oil & Gas (Short Put)
OXY - Occidental Petroleum (Short Put)
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.