Expectations for the FOMC meeting on Thursday are so high that it will be very hard for traders not to be disappointed.
The markets turned negative today after holding Thursday's ECB spike for the better part of three days. That was longer than I expected but evidently traders were hoping for a continued breakout over the recent highs and there was just no follow through.
The markets turned sharply negative in the afternoon and the selling accelerated into the close. Leading the decline was shares of Apple ahead of their iPhone 5 announcement on Wednesday. Apple shares lost -2.6% or $18 during regular trading and a few more bucks after the close.
Apple has a history of declines around major product announcements. With the stock at a new high at the open of $683.29 somebody decided it was time to sell. When Apple announced the iPhone 4 the stock fell -7.6% in the following week. The iPad 2 announcement preceded a -6.1% sell off. The iPhone 4s saw a -2.3% decline. The New iPad was followed by a +1.8% gain so no trend is 100%. Since Apple has rallied so strongly in August and then stalled in the 660-680 range the potential for profit taking is strong.
I mention this decline in Apple because Apple has such a major impact on the Nasdaq and market sentiment. The Nasdaq fell -32 points with PCLN -13, GOOG -7 and ISRG -5 helping the Apple decline.
Now that Europeans are back from their month long August vacation the headlines are flowing and problems with the Greek bailout took center stage. Greece has failed to complete the terms of the last bailout agreement and the fate of their next 31 billion euro payment is in jeopardy. You can expect this headline to return daily all week until the EU ministers meet this weekend and decide what to do.
Lastly the FOMC announcement on Thursday is weighing on the market. The expectations are so high for new stimulus programs that the Fed will have a hard time meeting them. It will be hard for the market not to be disappointed and even if the announcement has a lot of stimulus it is already priced into the market.
Tomorrow is 9/11. While there are no expectations or warnings of terrorist activity we may have had a few traders taking chips off the table just in case.
I remain cautious about adding new positions until we see a decent dip. We are way overdue.
Send Jim an email
Current Position Changes
IOC - Interoil (Short Put - Stopped)
We entered this play at the open on Tuesday at $79.50 and the stop at $75.50 was hit about an hour later. That turned out to be almost the low for the week. Crude prices fell sharply at the open on Tuesday and that along with a -125 point drop in the Dow was the one-two punch for this play.
Short Sept $70 Put @ $2.38, exit $3.30, -0.92 loss
LVS - Las Vegas Sands (Short Put - Stopped)
The tight stop on LVS worked against us when the shares dipped at the open on Wednesday on news from China. The dip to $40.50 was the low for the week and shares rocketed higher the rest of the week.
Short Oct $41 Put @ $1.84, exit $2.42, -0.58 loss
Chart of LVS
EBAY - Ebay Inc (Short Put)
I am adding a stop loss on the Ebay position to protect our profits in case of a market decline. Add a stop at $45.95.
Short Oct $42 put @ $1.09, add stop loss at $45.95
CRR - Carbo Ceramics (Short Put)
I am adding a stop loss on the short Sept $65 put at $67.95. There is no stop on the December $55 put.
Short Sept $65 put @ $2.52, add stop loss at $67.95
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
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.