The markets continued lower on worries from Europe and lack of support from Bernanke.
The European debt crisis returned in a much larger fashion this week as Italy and Spain began showing signs of stress similar to Greece two years ago. Bond yields are spiking and banks are spiraling lower. Overseas markets sold off hard with the Italian bourse falling -5%.
Both of these countries are too big to save, at least with the current safety programs of the ECB, EU and IMF. These countries are many times larger than Greece with debt in the trillions instead of the 350 billion euros in Greece. They are not likely to self destruct overnight but we have seen this movie before and the stars are headed down a lonely road at night without backup.
The U.S. economics today were positive but the reports were lagging data for February. They were ignored. The earnings from Alcoa and Supervalu were positive but those companies are too small to really move the market sentiment needle.
The selloff continued in spectacular fashion and pushed the losses on the major indexes to -4% for the last week. The selling may not be over despite the big numbers. We just have to wait and see how this week plays out.
Bernanke gave a speech on Monday night and did not say one word about the payroll surprise. That depressed the markets as they pondered the Fed's next action or in this case lack of action.
We lost a lot of good positions to stop losses today. All but one were profitable so we can't complain. Two of them had profits of more than $800 per contract!
When the market finds a bottom we will load up again but probably not this week. Even if the market started higher on Wednesday it is still a good bet any rebound will be sold. Profit taking that has been put off for three months rarely resolves itself in five days.
Send Jim an email
Current Position Changes
BNO - Brent ETF (Short Put)
The BNO declined to our stop at $84.75 and closed our April $84 put. We entered the put at $2.25 on March 1st and the option was trading at $1.20 when the stop was hit for a gain of +1.05.
Closed BNO Apr $84 Put @ $2.25, exit $1.20, +$1.05 gain
BAC - Bank of America (Combination)
BAC declined to hit our stop at $8.75. We entered the long term play on August 26th when BAC was $7.62. Because it was a LEAP play I let it run too long when the decline began but we were still profitable.
Closed BAC Long 2013 $7.50 Call @ $2.38, exit $2.08, -0.30 loss
Closed BAC Short 2013 $7.50 Put @ $2.17, exit $0.77, +1.39 gain
Net credit +1.09
BZH - Beazer Homes (Combination)
Beazer declined to hit our stop at $2.75 to take us out of the long term combination play.
Closed BZH Long 2013 $2.50 Call @ $.80, exit $.83, +0.03 gain
Closed BZH Short 2013 $2.50 Put @ $1.05, exit $0.65, +.40 gain
Net credit +0.43
SD - Sandridge Energy (Combination)
Sandridge declined to our stop at $7.25 to take us out of the long term combination play.
Closed SD Long 2013 $7.50 Call @ $2.55, exit $1.28, -1.27 loss
Closed SD Short 2013 $7.50 Put @ $2.35, exit $1.56, +.79 gain
Net loss -0.48
PHM - Pulte Homes (Combination)
Pulte declined to our stop at $7.85 to take us out of the long term combination play.
Closed PHM Long 2013 $5.00 Calls (3) @ $1.02, exit $3.35, +$2.23 x 3 gain
Closed PHM Short 2013 $7.50 Put @ $3.80, exit $1.34, +2.46 gain
Net credit: $2.23 x 3 = $6.69 +$2.46 = $9.15
JEF - Jefferies (Combination)
Jefferies declined to our stop at $17.60 to take us out of the long term combination play.
Closed JEF Long 2013 $13.00 Calls (2) @ $1.80, exit $4.60, +$2.80 x 2 gain
Closed JEF Short 2013 $13.00 Put @ $2.98, exit $.20, +$2.78 gain
Net credit: $2.80 x 2 = $5.60 +$2.78 = $8.38
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)
RIG - Transocean (Short Put Spread)
RVBD - Riverbed (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.