The payroll numbers on Friday pushed the S&P futures down -20 points.
Unless something extraordinary happens on Sunday night the Monday open is going to be very ugly. Futures have rebounded to -16.50 but at 1,374 the market is poised to open below prior support.
If we were really courageous we could plan a couple plays to buy at the opening dip on Monday. However, with the negative sentiment created by the huge miss in the Nonfarm payrolls that might not be a good plan.
Granted we could see traders rush in and buy the dip on Monday but I am thinking economic sentiment may have changed dramatically. Couple that with the start of the Q1 earnings cycle and the first time in nine quarters where earnings are actually going to decline rather than rise and investors may have lost the urge to be long.
The official S&P estimate for Q1 earnings is for a decline of -0.1%. If you take out Apple that becomes a decline of -1.6%. This is early in the cycle and odds are very good those numbers will get worse.
That leaves us with a quandary for Monday morning. Do we buy the dip or not? One thing in our favor will be the sharp spike in volatility at the open. Option premiums will be out of sight, especially put premiums. Of course that does not help if the dip has no bottom. If we get a slight bounce and then the bottom falls out we could be left holding an expensive bag.
I am voting for a 24 hour cooling off period. Let's see what Monday brings and look at the options again on Monday night.
The recommendations from last Sunday were not entered because the S&P was negative for the first 30 min of trading on Monday. I hate that because DANG rallied all week and would have been a great play. Caesar's also rallied but to a lesser extent. If we get a market bounce on Monday I will reconsider those recommendations.
We were stopped on GDP and ATHN in last week's volatility and we will probably be stopped on another position on Monday.
Yahoo announced a meeting to discuss major reorganization plans on Tuesday. Yahoo shares have failed to react to any of the recent news and there appears to be no mention of a pending acquisition of any Yahoo components by Alibaba or Softbank although those conversations are continuing. I am probably going to recommend closing the Yahoo position on Wednesday if nothing happens as a result of the Tuesday meeting.
Send Jim an email
Current Position Changes
ATHN - AthenaHealth (Short Put)
ATHN declined to hit our short put stop at $73.35. The option was trading at $2.35 when the stop was hit.
Closed short June $65 Put @ $3.80, ext $2.35, gain +$1.45
GDP - Goodrich Petroleum (Short Put)
The short put on GDP was stopped out when GDP declined to our stop of $18.15. The option was trading at $1.67 when the stop was hit.
Closed GDP June $17.50 Put @ $1.20, exit $1.67, -0.47 loss.
New Short Put Recommendations
New Covered Call Recommendations
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)
BK - Bank of New York Mellon (Long Term)
SD - SandRidge Energy (Long Term CC)
YHOO - Yahoo (Long Term Combo)
PHM - Pulte Homes (LT Leveraged Combo)
JEF - Jefferies (LT Leveraged Combo)
GLD - Gold ETF (Short Put)
WFC - Wells Fargo (Combination)
CRR - Carbo Ceramics (Short Put)
EXXI - Energy XXI (LT Covered Call)
UGA - US Gasoline ETF (Short Put)
BNO - US Brent ETF (Short Put)
ATHN - AthenaHealth (LT Short Put)
RIG - Transocean (Short Put Spread)
RVBD - Riverbed (Short Put)
GDP - Goodrich 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.