Fund managers dumped their year end window dressing with highly liquid blue chip stocks getting crushed in the largest Dow decline in months. Apparently managers were waiting for the calendar to turn over before taking profits and restructuring their portfolios. Year end tax selling was light but now in 2015 the dumping is in full swing.
When the S&P futures reopened for trading tonight they quickly rose +4 points but over the next couple of hours they turned negative again. Before I finished the play write-ups the futures had rebounded to +2.50. Needless to say there is some heightened volatility in the market and no direction is guaranteed.
The rebound in December added over 1,000 Dow points at the highs but -600 of those have been stripped away since December 31st. Profit taking and window undressing are in full swing.
Selling premium is a bullish strategy so attempting to do this in a down market carries some additional risk. I did add three plays today but please wait for a positive market before making your entries.
We should not trade just because the newsletter comes out on Mondays. We should only trade when it makes sense to enter a position.
Send Jim an email
Long Term Positions
Current Position Changes
EXAS - Exact Sciences (Stopped)
The covered call on EXAS was stooped out at $26.25 today as the market imploded. Ironically Lake street Capital initiated coverage with a buy rating and $33 price target with plenty of good things to say. Unfortunately the market drop overruled the new buy rating.
Closed EXAS shares, entry $27.76, exit $26.25, -1.51 loss.
Closed short Jan $27 call, entry $1.40, exit 0.60, +.80 gain
Net loss -0.71.
FEYE - FireEye (Short Put)
Every cyberattack that makes the headlines is a plus for FireEye. They were selected to help in cleaning up the Sony hack. FEYE and Palo Alto networks are now considered the leaders in the cyber security field. FEYE declined the prior two days with the Nasdaq but rebounded on Monday to gain a buck in a bad market. As a small cap stock they should be favored if the market cooperates over the next several weeks.
Earnings Feb 10th.
Sell short Feb $30 put, currently $1.75, stop loss $30.65.
GWPH - GW Pharma (Short Put)
GW Pharma makes real medicines from cannabis. They sold off since July but have recently found support at the 300-day average. They were added to the Nasdaq in late December. The stock gained 50 cents on Monday in a bad market.
Earnings Feb 5th, plan to exit before then.
Sell short Feb $65 puts, currently $3.00, stop loss $66.75
New Covered Call Recommendations
NPSP - NPS Pharmaceuticals
NPS put itself up for sale and Shire is considering a bid. The potential bid will probably come after the FDA approves the drug Natpara on Jan 24th. The drug will treat hypoparathyroidism.
Analysts believe the drug will be approved but there is no guarantee.
If it is not approved we could see a significant drop in the stock price. For that reason I am recommending a deep in the money call to reduce our risk.
Earnings Feb 18th.
Buy write NPSP Feb $35 call, currently $38.13-$5.40.
Net gain if called $3.27
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CLVS - Clovis Oncology (Aggressive Covered Call)
CLVS - Clovis Oncology (Update Existing Position)
CLVS - Clovis Oncology (Covered Jan Call)
BHI - Baker Hughes (Covered Call)
NGVC - Natural Grocers VC (Put spread)
SODA - Sodastream (Bearish Call Spread)
VIX - Volatlity Index (Bearish call spread)
OVX - Oil Volatlity Index (Bearish call spread)
HLF - Herbalife (Bear Call Spread)
GILD - Gilead Sciences (Short Put)
ONVO - Organovo Holdings (Covered Call)
EXAS - Exact Sciences (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.