Historically September is a down month for the market. However, if we do lose ground this September it will be headline driven rather than a seasonal cycle.
Earlier this summer there has been some big headline to watch every week that was going to "move" the market. What we got over the last three weeks was a total absence of headlines and the narrowest range for the Dow since 2005. The big headlines last week misfired and now we are left watching Europe again this week. Bernanke alluded to a coming move by the FOMC on Sept 13th but the hint was so clouded that very few picked up on it. Draghi cancelled his appearance at Jackson Hole and stayed home to work on the "massive" bond-buying program for the ECB. Based on all the hints and claims he has made over the last month it better be massive or the market is going to be very disappointed. Kicking the can down the road again is not going to cut it. The ECB meets on Thursday.
On the U.S. front the ISM on Monday, ADP Employment on Thursday and the Nonfarm Payrolls on Friday will be the wall of worry for the market to climb. The ISM is expected to be neutral but the Nonfarm Payrolls are expected to show a smaller gain than last month at +163,000. A sharp decline in the number of new jobs will be almost a guarantee of new Fed stimulus the following week. A stronger than expected jobs number, over +128,000, may not delay the stimulus unless it is very strong.
On Monday the overseas markets fluctuated on profit taking ahead of expected stimulus and then buying on the dips in anticipation of stimulus. China's economics turned down again and expectations are slowly being lowered.
Commodities rose on the falling dollar with WTI oil just over $97. Gold rose to $1700 and silver to $32.25.
The problem I have with making any bets this week is that we are only one headline away from disaster. Secondly all the market gains in recent weeks have been on stimulus hopes. That suggests a big dose of QE is already priced into the market.
S&P futures on Monday traded in a 12 point range with a drop of -8 Sunday night and then a rebound to +4 overnight on Monday. That dip to 1397 and rebound to 1409 would appear to be bullish but there is a lot of darkness before the dawn.
The VIX rebounded from five year lows last week at 13.32 to 18 on Friday but that was not enough to inflate any option premiums. Every symbol I researched had very low premiums. I am going to go back to the well again with IOC. I am going to try LVS again since gambling is up in Macau.
If you have any favorite stocks that you have been making money on selling puts please email me. Share your good fortune with us!
I remain cautious about increasing our positions significantly until we see a decent dip. We are way overdue.
Send Jim an email
Current Position Changes
FFIV - F5 Networks (Stopped)
We are snake bit on F5 after being stopped out the prior week I tried to buy the bounce and the drop on Thursday knocked us out again. I have learned my lesson here. It has been too volatile over the last month and the lower low on Friday suggests there is some additional selling ahead.
Short Oct $90 Put @ $2.60, stopped @ $96.50 at $3.45, -0.85 loss.
Chart of FFIV
New Short Put Recommendations
IOC - Interoil (Short Put)
We have played IOC several times because the premiums are always high regardless of what the stock or market is doing. IOC disappointed on earnings back in early August and lost some of its fizz. It appears to have found support at the $76 level and premiums are so high we can still get $2.43 for a September option with only three weeks left. Selling $10 OTM with three weeks to go should allow the premiums to evaporate quickly but this is IOC so we never know for sure. IOC appears to be using the 50-day average as support.
Sell short Sept $70 Put, currently $2.43, stop $75.50
LVS - Las Vegas Sands (Short Put)
Gambling revenue in Macau rose +5.5% in August after a three year low in July. Revenue rose +5.5% to $3.3 billion according to regulators. August revenue was the second highest month ever behind October 2011. This data was reported over the weekend so the stocks have not yet had time to react. I am picking LVS because the stock is relatively cheap and Wynn has been in a nasty court battle that could spew out negative headlines at any time.
I am picking a strike close to where the stocks closed on Friday in anticipation of a gap higher on Monday. Do NOT enter this play if LVS does not open positive.
Sell Oct $41 Put, currently $1.78, stop $41.50
Chart of LVS
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
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.