I wrote last week there was trouble ahead for the markets and this week is even worse.
We saw the Dow decline -193 for all of last week and it has already lost -128 only one day into this week. The mess in Washington does not appear to be improving and the government is more than likely to shutdown at least temporarily on Tuesday.
As of 10:PM ET the Senate has just voted down the latest House proposal and sent it back to the House without any Obamacare language. With only 2 hours before a government shutdown starting at midnight the House has to decide if they are going to continue the fight or give up and vote on the clean funding bill.
With the debt ceiling fight still ahead they need to pick their battles carefully. If they lose too much credibility in the budget fight they will be handicapped in the debt ceiling fight.
They cannot win the Obamacare delay proposition. The president will veto anything they send him and use the bully pulpit to crush the republicans in the court of public opinion.
I believe we are going to see some additional volatility this week. Selling premium is not a tactic for use in a volatile market where we can see triple digit moves in either direction at any time. Selling premium is best done in a trending market. Once the headline war in Washington is over we should get that trending market.
I am not adding any new plays in the middle of this maelstrom. Please be patient. If the situation is resolved I will add some later this week and hopefully at a lower level.
There is no need to force plays just to have something to do.
Send Jim an email
Long Term Positions - None
Current Position Changes
TSLA - Tesla Motors (closed)
We had an October $140 put on Tesla with the stock at $181. In theory we could let it run and squeeze another 60-80 cents out of the position. However, we were already up +$6 and there is always risk when a position is open. While not probable it was possible for the market to correct and TSLA shares to crash back to $140. We closed the position and took profits.
Closed TSLA Oct $140 Put, entry $6.99, exit .77, +6.22 gain.
QIHU - Qihoo 360 Technology (Stopped)
We had a short $80 November put with a stop at $81.75. That stop was hit when shares dropped back to $80 on the big opening gap in the market on Monday.
Nov $80 Put, entry $4.50, stopped, exit $6.10, -1.60 loss
BBRY - BlackBerry (Stopped)
The pain just keeps getting worse for BlackBerry. It appears the "tentative" offer by the major stockholder has a $150 million breakup fee even though it is not a firm offer. This makes BlackBerry's position seem even more precarious and despite the $9 offer the shares continue to decline.
We had a stop loss on this position at $7.75 and that was hit exactly to the penny at the open on Thursday. Our protective $8 put expired the prior week.
BBRY shares, entry $13.82, exit $7.75, -5.88 loss
Short July $15 covered call, entry .73, exit .02, +.71 gain.
Long Sept $8 put, entry .42, exit .00, -.42 loss
Short Nov $12 covered call, entry .99, exit .03, +.96 gain.
Net loss = -$4.82
CZR - Caesars (Close)
We have an October $25 covered call on Caesars that has declined to 15 cents. Rather than leave this position open to expire in three weeks I am recommending we close it and prepare to sell a new call on the next bounce. Caesars has declined since we initiated the position and we need a bounce to inflate premiums before we sell a new call.
Buy to close Oct $25 call, entry $2.57, currently .15, +2.42 gain.
New Short Put Recommendations
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
PHM - Pulte Homes (Covered Call)
PHM - Pulte Homes (CC Update)
BZH - Beazer Homes (Covered Call)
BBRY - BlackBerry (Covered Call)
JASO - JA Solar (Covered Call)
QIHU - Qihoo (Short Put)
GMCR - Green Mountain Coffee (Covered Call)
TSLA - Tesla Motors (Covered Call)
CZR - Caesar Ent (Covered Call)
RAX - Rackspace Hosting (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.