The markets are moving sideways as we wait for the weekend speeches by Ben Bernanke and Mario Draghi at Jackson Hole.
This is the last week of summer vacations and volume is going to be extremely low as we head into the Labor Day weekend. This year that volume slump into the last summer holiday will have an even larger reason because of the speeches by the dynamic duo of central bank heads.
Ben Bernanke will speak on Friday about changes in monetary policy. He has used this Jackson Hole speech in the past to give hints about impending FOMC actions. In 2010 he almost promised prompt action by the Fed and QE2. The S&P rallied from 1050 to 1200 in the weeks that followed ahead of the actual QE2 announcement on Nov 3rd. That was the day after the elections so there was no appearance of political motives ahead of the election.
While Bernanke probably does not want his annual Jackson Hole speech to become an announcement of pending monetary policy it should be seen as a sentiment indicator for Bernanke. He is not going to say anything that is contrary to his position and that means analysts can read between the lines to determine his probable course of action.
This year the markets may be disappointed. The economic indicators have improved since the July FOMC meeting where the members appeared ready to launch a new program soon unless the economy showed significant signs of improvement. The economy has not shown "significant" signs but there are signs of improvement starting with the better than expected jobs report. Bernanke will probably want to wait until the regular FOMC meeting on Sept 12th to hint about new stimulus so the committee can see the Sept 4th ISM number and the Sept 7th payroll report. There is no reason to whip the market into a frenzy on Friday when the numbers could move in the Fed's direction and they would not have to do anything on the 12th. This suggests Bernanke's speech will be a history lesson on monetary policy and not a forecast.
The Mario Draghi speech on Saturday could be a market mover and it may not be up. Everyone will want him to give some clues on how the ECB is planning to implement his "whatever is necessary" comments regarding saving the euro. There is a growing list of countries stating opposition to future bond buying to keep rates low for Spain, Italy, etc. With opposition growing he may want to keep his comments vague and not disclose any details ahead of the ECB meeting on Sept 6th and the German vote on the ESM on the 12th.
Both central bank heads may have significant reasons for keeping their comments neutral and the market is hoping for big clues to strong monetary policy announcements in the future.
Basically the market is setup to fail since a lot of positive expectations have already been priced in since the FOMC minutes last week. However, since we can never be sure what a central banker is thinking we can't make a reasonable assumption they will disappoint.
What we end up with is a market moving slowly sideways on very light volume, only 4.4 billion shares today, and expected to decline even more as the week progresses. The light volume will only accentuate any headline moves so it would be the equivalent of walking softly through a minefield.
I don't think we should add any plays today. Next week should give us an entirely different view of the market after it reacts to the speeches. This is a week for caution rather than aggression. It is entirely possible that we could launch off to new highs next week or crash back to distant support depending on what those bankers say. I prefer not to risk money in the market on what could be coin toss events for direction.
I remain cautious about increasing our positions significantly until we see a decent dip. We are way overdue.
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Current Position Changes
BBY - Best Buy (Short Put - Closed)
The Best Buy play was closed at the open on Tuesday as planned. Unfortunately we did not plan for BBY to gas down -1.50 at the open on a headline. The play was opened in response to the founder Howard Schulze making an offer for $24-$26 per share. The play was closed when the company rebuffed his offer. We found out today that they have now agreed to allow Schulze to conduct due diligence. That is too late to help us and the play was closed at the low for the week.
Closed: Short Sept $18 Put, entry $1.15, exit $1.95, -.80 loss.
VMW - VMWare (Short Put - Closed)
The VMWare position was stopped on Thursday when support at $95 failed and shares fell below our $92.50 stop loss. There was no specific news on VMW and it appeared to be in reaction to the market drop.
Position closed: Short VMW Oct $87.50 @ $2.80, exit $4.00, -1.20 loss
New Short Put Recommendations
New Covered Call Recommendations
Long Term Recommendations
New Aggressive Recommendations
Existing Play Recommendations
Links to original play recommendation
EXXI - Energy XXI (LT Covered Call)
RIG - Transocean (Covered Call)
SBUX - Starbucks (Short Put Spread)
FFIV - F5 Networks (Short Put)
BBY - Best Buy (Short Put)
CRR- Carbo Ceramics (Short Put)
EBAY - Ebay Inc (Short Put)
CRM - SalesForce.com (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
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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.
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