No entry on the play recommendation from Sunday but I am going to replay it again tonight.
Carbo Ceramics (CRR) opened negative on Monday and did not fulfill the requirements to enter the trade. I studied it again and I still believe it is close to a bottom and we can enter a profitable trade once it finds support. This is a very volatile stock and carries high premiums. Once buyers appear it should move quickly in our favor. I am recommending the trade again today.
I also added targets to the short puts we currently have in process. Three of them are approaching zero and we could find a quick exit at those targets if the market rebounds again.
Currently the futures are up strong and the dollar is dropping like a rock. I can't find any specific news on the Greek debt swap. It appears the euro is rising on assurances from the Greek Prime Minister that it is imminent. Also, the EU leaders agreed on the fiscal compact at their Brussels meeting on Monday.
Commodities are rising as well.
I am going to add a new short put on copper. Despite the recent rally the improving expectations for China and the falling dollar as a result of Fed actions should keep it moving higher.
Send Jim an email
Current Position Changes
SD - Sandridge Energy (Close)
I was going to hold SD until the premiums increased and then write another covered call but we are already up +$2 so there is no reason to continue holding that stock in our portfolio. Close the position.
Close Long Stock SD, adjusted cost $5.80, currently $7.96, +2.16 gain.
Several of our short term naked puts are closing in on zero. Rather than leave them open and risk a downside surprise I put a target of 10-cents on XOP, MCP, IOC and CTSH. Cognizant is a new play and has a long way to go but no harm getting ready.
New Short Put Recommendations
JJC - Copper ETF
Copper has rallied strongly since early January on expectations for economic improvement in China. The central bank was rumored to announce a rate cut last week and it did not come but analysts still believe it is in the pipeline. They can't afford to have any further decline in the economy or risk a sharp rise in unemployment. For a communist country unemployment is a really bad thing because the natives get restless very quickly.
The Fed appears to be on track for another round of QE, probably in March if not before. The pledge to keep interest rates low until late 2014 means cheap money will be around for a long time. That is good for commodities.
Don't enter this position unless the SPX and JJC are both positive at the open.
Sell short March $45 Put, currently $0.80. Stop $47.75
Chart of JJC
New Covered Call Recommendations
Long Term Recommendations
CRR - Carbo Ceramics (Short Put)
Carbo reported earnings last week and missed the street estimates. The volume of fracking materials Carbo shipped to the Haynesville Shale declined by 70% as more drillers shutdown gas rigs and sent them off to find a liquids rich location half way across the continent.
I believe this is a temporary situation. Once the drillers setup shop again on top of an oil play the fracking materials are going to flow. If anything the move should be beneficial for Carbo because it put the drillers on a more stable path.
I am recommending a short put and a long put to protect against an unexpected decline. The long put will be a shorter duration so we can get it at a cheaper price. If the play is not going in our direction by the time the long put is facing expiration we will exit the short put and cancel the play.
Do not enter this position unless the S&P and CRR are both positive by 10:AM
Sell short CRR June $90 put, currently $8.70, no stop
Buy Long CRR Feb $90 Put, currently $2.25, no stop
Chart of CRR
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)
YHOO - Yahoo (Long Term Combo)
PHM - Pulte Homes (LT Leveraged Combo)
JEF - Jefferies (LT Leveraged Combo)
HITK - Hi-Tech Pharma (Covered Call)
LEAP - Leap Wireless (Covered Call)
MCP - MolyCorp (Short Put)
IOC - Interoil Corp (Short Put)
MMR - McMoran (Short Put)
CTSH - Cognizant Tech (Short Put)
WFC - Wells Fargo (Combination)
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.