Ben Bernanke will create headlines again this week in Congressional testimony. Will his words power the rally higher?
The market was lackluster on Monday as traders consolidated positions ahead of the two days of Bernanke testimony this week. After the market rocketed higher after his speech last week you have to wonder if he will rethink how he wants to portray the potential end of QE. The prior news conference crushed the market and the performance last week sent it rocketing higher. He actually said the same thing both times but he said it differently.
The market will be holding its collective breath on Wednesday in hopes he blesses the rally with a confirmation that QE will live long and prosper.
Earnings begin to accelerate this week with Wednesday the busiest day with IBM, INTC, EBAY, AXP and SNDK to name a few. The earnings are going to increase volatility and the new plays I added today will have short fuses. We will need to exit them the day before earnings in each case.
The market is running on borrowed time. The rally since June 24th has not wavered. it is time for a pause even if it is just a couple days.
I am personally expecting a weak market in August but that is just a gut feel after looking at hundreds of stock charts. The rate of climb is slowing and that suggests the market is tiring.
Send Jim an email
Current Position Changes
DDD - 3D Systems (Close)
The put on 3S Systems has declined to ten cents. We could leave it open and just let it expire on Friday but why keep the risk when closing it is so simple. You never know when bad news will break out. I don't like to take the chance. At this point we are risking a potential hit of $5 to $10 on bad news for a 10 cent gain. Close the position.
Buy to close DDD July $42 Put, entry $1.55, currently .10, +1.45 gain.
CTRX - Catamaran (Closed)
Catamaran was not improving. We added a stop the prior week and while that stop has not been hit the stock was going nowhere. We had a very low premium of only 54 cents so we have a lot of risk if CTRX suddenly decides to break support at $47.25.
I recommended last week that we close this now for a miniscule profit rather than level it open and exposed to risk.
Closed CTRX July $45 Puts, entry .54, exit .21, +.33 gain
OUTR - Outerwall (Raise stop loss)
Outerwall has rallied to $64 and the trend higher is continuing. The put has not declined enough to close so I am raising the stop loss to $60.95. There is no reason to risk a loss even with OUTR this high.
Raise stop on OUTR Aug $57.50 put, stop $60.95.
Z - Zillow (Raise stop loss)
Zillow is on a mission to make new highs every day in July. Let's hope it continues. I am raising the stop loss on this position to $59.75.
Raise stop on Z Aug $50 put, stop $59.75.
New Short Put Recommendations
ALNY - Alnylam Pharmaceuticals
This company published some early trial data for an innovative process using "gene splicing" to eliminate certain diseases. By switching off the genes that cause disease it can be eliminated in a person's body. The company is testing this process on liver cancer, respiratory tract infections, hemophilia and high cholesterol. The most advanced testing is on a treatment for amyloidosis, a rare mutations in a gene that causes a buildup of protein in various organs. The drug is administered by injection under the skin to ensure slow release.
The initial results are very positive and the stock has rallied over $10 in the past week. There is a high potential for the process and even higher probability the company will be acquired by someone else after the positive test data.
I would not normally recommend a company that has rallied so sharply but I believe the gains will stick with the biotech investors looking for the next big thing. If this process really works the medical possibilities are endless.
Earnings: August 6th.
Sell short ALNY August $45 Put, currently $1.70, stop $47.25
FSLR - First Solar (Short Put)
First Solar rallied strongly the last two days after China said it was going to ramp up installed solar capacity by 500% to boost the domestic industry amid declining profits. China said it was aiming for installed capacity of 35 gigawatts by 2015. Chinese solar companies soared but U.S. companies like First Solar also gained ground.
First Solar had recently formed support at $45 and quickly raced off to $50 on the news. We could probably use a higher strike but I am going to err on the side of caution and use the August $45. We will need to exit before earnings on August 1st.
Earnings August 1st.
Sell short FSLR Aug $45 Put, currently $1.70, no stop.
New Covered Call Recommendations
New Aggressive Recommendations
GMCR - Green Mountain Coffee (Short Put)
This company never fails to produce high premiums for calls and puts. It is a headline generator that analysts love to hate. GMCR rallied +6% on Monday on news it announced a new Cafe brewing system. The Keurig BOLT Cafe Brewing System can brew a 64-ounce pot of coffee in two minutes. With this new product GMCR is taking aim at medium to large offices where premium coffee is brewed in large volumes. It also targets restaurants where fresh coffee is a must. The new system is being beta tested in selected offices in July and will be distributed all over the U.S. and Canada in the months to come.
Instead of losing market share when its patents on the K-cups expired the company has actually gained share as more and more coffee brands partner with GMCR to get their coffee into the Keurig system. GMCR just announced Costco is going to offer their private label Kirkland coffee in K-Cups. This will be a huge boost for the system because of Costco's volume.
Earnings August 7th.
Sell short GMCR August $67.50 Put, currently $4.25, no stop.
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
HLF - Herbalife (Covered Call)
PHM - Pulte Homes (Covered Call)
PHM - Pulte Homes (CC Update)
GMCR - Green Mountain Coffee (Covered Call)
GMCR - Green Mountain Coffee (CC Update)
SLW - Silver Wheaton (Covered Call)
SLW - Silver Wheaton (CC Update)
BZH - Beazer Homes (Covered Call)
BSFT - Broadsoft (Covered Call)
JASO - JA Solar (Covered Call)
DDD - 3D Systems (Short Put)
LGF - Lions Gate Films (Covered Call)
LGF - Lions Gate (CC Update)
BBRY - BlackBerry (Covered Call)
CTRX - Catamaran Corp (Short Put)
Z - Zillow (Short Put)
CRR - Carbo Ceramics (Short Put)
GOLD - Rangold Resources (Short Put)
OUTR - Outerwall (Short Put)
TSLA - Tesla Motors (Covered Call)
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.