It seems like every Monday night for the last few weeks the S&P futures have been down hard and the outlook cloudy. Today is a carbon copy of prior Mondays.
The S&P futures are down -11 as a result of events overseas primarily with Greece. I am not going to bore you with all the gory details but the futures gapped down hard and then rebounded to -7 before rolling over again.
As in prior weeks there was plenty of gloom over the market and I cautioned you not to enter positions if the market was down the next morning. Nothing has changed.
However, in case everyone has been paying attention all the prior dips have been bought. The worry about the market correcting has been misplaced. The buy the dippers are back and the S&P-500, S&P-400, Russell 1000, 2000 and 3000 all made a new high on Friday. The Nasdaq posted the biggest breakout of all with a +90 point sprint above 4,800 for a new 15 year high.
This suggests we should not worry too hard about a potential lower opening on Tuesday. Traders were betting last week that Greece would agree to a compromise and so far that has not happened. This is weighing on the futures tonight. However, the full meeting of the EU finance ministers is on Tuesday and there is a strong possibility they will hammer out a deal. The consequences of not doing a deal are too great for either side to seriously consider. If there are rumors of a deal on Tuesday the market should celebrate.
There is a small chance the new highs on Friday were a double top formation but I see that as a small risk. The bulls are back and earnings are almost over. However, even a small risk is still a risk. We need to see the markets move higher over the next three days to confirm Friday's breakout.
This is expiration week and I am sure there will be additional volatility.
Don't initiate new plays unless the market is positive at the open. Selling premium is a bullish strategy.
Send Jim an email
I added a column to the portfolio graphic for the earnings date. We will always exit a position before that date unless specifically mentioned otherwise in the play description. For the plays where we will not exit I added the No-X designation in the portfolio.
Current Position Changes
SFM - Sprouts Markets (Close)
Shares of SFM have rallied about $2 since we opened the play and our February options are practically zero. I am recommending we close the position rather than wait until Friday's expiration.
Close Feb $37.5 Put, entry $1.50, currently .14, +1.36 gain.
Close Feb $32.5 put, entry .13, currently .05, -0.8 loss
Net gain $1.28
MU - Micron (Update)
Micron exploded higher last Tuesday to stop out the short side just minutes after it was opened. Fortunately it gapped open so the option premiums gapped open with it. The long side is very profitable and I am putting as stop loss on it to avoid giving back those gains.
Closed Mar $26 call, entry $3.64, exit $3.85, -.21 loss.
Maintain long Mar $30 call, entry .95, currently $2.54, +1.59 gain.
GOGO - GOGO Inc (Close)
We have a left over Feb $15 call on GOGO that needs to be closed before the premium bleeds to zero at Friday's expiration.
Close Feb $15 call, entry .60, currently 1.20, +.60 gain.
Stopped 1/26: Feb $12 call, entry $2.12, exit $3.20, -1.08 loss
Net loss 48 cents.
SODA - Sodastream (Close)
We have a leftover long call on SODA that needs to be closed before expiration. We were stopped out on the short side on Jan 22nd.
Close Feb $19 call, entry .58, currently 1.15, +.57 gain.
Stopped 1/22: Feb $15 call, entry $2.69, exit $4.40, -1.71 loss
Net loss $1.24.
SRPT - Sarepta (Expiring)
The covered call on SRPT is expiring on Friday. It is a $13 call and the stock is at $12.76. I would prefer to see SRPT close at that level so we can write another call. The stock is trending slightly higher but market volatility could hold it below that $13 level. Just be aware that we could be called away. If not then we will write a new call next Monday.
Aggressive traders may want to buy back the 40 cent call on Tuesday in what should be a negative open. On the next day the market is positive and SRPT is moving higher sell a new March $13 call, currently 95 cents. If we are called this Friday it will be for a breakeven. Adding another month would give you a profit.
You could also watch the price of SRPT and the call on Friday and if you can buy the call back for a few pennies rather than risk being called I would probably take that chance so you can write again.
Expiring Feb $13 call, entry .70, currently .40, stock at $12.76.
NPSP - NPS Pharma (Will be called)
NPSP is going to be acquired by Shire for $46. Our $35 call is deep in the money and we will be called away. I wish we had sold a higher call but while hindsight is 20:20 foresight is frequently cloudy.
NPSP shares, entry $38.50, exit $35.00, -$3.50 loss.
Feb $35 call, entry $6.60, called $6.60 gain.
Net gain $3.10.
FIVE - Five Below (Expiring)
FIVE has finally started moving in our direction with the drop from $34 to $32.50 last week. We are short the Feb $30 calls. We need to close these calls on Friday and hopefully they will be a lot cheaper if Five continues lower.
I lowered the stop loss to avoid a loss.
Close Friday Feb $30 call, entry $5.10, currently $3.20, +1.90 gain today.
Expiring Feb $35 call, entry $1.72, expiring, -$1.72 loss.
FUEL - Rocket Fuel (Expiring)
We have a leftover long Feb $15 call on FUEL with the stock at $14.30. The stock gained +5% on Friday and appears to have some momentum. We need to close the call but a breakout by FUEL could put us in the money.
I am hesitant to just close the call on Tuesday but there are only four days this week. We really have no choice.
If you want to watch the stock and take a chance that is up to you.
Close Feb $15 call, entry .75, currently $1.00, +.25 gain
Closed Feb $11 call, entry $2.37, exit $2.80, -.43 loss.
Net loss -.18
$OVX - Oil Volatility Index (Bear Call Spread)
The volatility in oil prices has been ridiculous since we put this position in the portfolio. We are seriously underwater and this expires on Feb 18th. We need to close this spread and roll it out to March. Oil prices are trying to rise and the $OVX has declined -10 points in the last three days.
I am recommending we roll out to the March expiration series because the April options don't have any premium.
If crude prices are positive on Tuesday I would wait until the close to roll the spread to March.
Close short Feb $40 call, entry $6.50, currently $19.80.
Sell short Mar $40 call, currently $9.50, no stop.
Close long feb $60 call, entry $2.80, currently $1.00
Buy long Mar $60 call, currently $1.80.
Net debit -$7.80.
INTC - Intel (put spread)
Intel crashed after earnings but found a bottom on the 200-day average .Twice it tested that level two weeks apart and has started to move higher. This is a low volatility play and should be low risk after that double test of the $32.75 level.
Earnings April 14th.
Sell short March $36 put, currently $1.89, no initial stop.
Buy long March $33 put, currently $.43, no stop.
Net credit $1.46
CREE - Cree Inc (Put spread)
Cree spiked after earnings then pulled back slightly and has now rallied back to resistance at $38. A breakout here should easily move past $40.
Earnings April 21st.
Sell short March $40 put, currently $2.98, no initial stop.
Buy long March $35 put, currently .67, no stop.
Net credit $2.31
ACAT - Arctic Cat (Put Spread)
Arctic Cat has exploded after earnings and broke out to a 6-month high on Friday at $39. This stock is on fire and breaking through the $40 level seems to be a given today. We have a month for that to happen and the premiums are decent.
Earnings April 29th.
Sell short March $40 put, currently $2.10, no initial stop.
Buy long March $35 put, currently .55, no stop.
Net credit $1.51
MSFT - Microsoft (Put Spread)
Tech stocks are on a roll with a huge breakout to a 15-year high on Friday. Microsoft crashed after earnings and investors are coming back now that the damage has been done. The stock made a post earnings low on Feb 2nd and a 4-week high on Friday. This is a low volatility play with decent premiums. You won't get rich but the risk is minimal.
Earnings April 23rd.
Sell short March $45 put, currently $1.77, no stop.
Buy long March $42 put, currently .38, no stop.
Net credit $1.39
Extra Potential Plays
These were extra plays I researched and did not use. If you are looking for more candidates I would start here.
All are put spreads.
Sym Long/Short, Prem/Prem, Earnings
NTAP 37/40 put $.52, $2.06, 5/13
XLNX 40/43 put, $.52, $1.87, 4/22
SNCR 40/45 put, $.75, $2.40, 5/07
INFA 42/45 put, $.80, $1.80, 4/23
TWTR 45/50 put, $.89, $3.10, 4/29
ABBV 55/60 PUT, $.89, $2.85, 5/01
HRS.. 75/80 put, $.95, $2.90, 5/08
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
OVX - Oil Volatlity Index (Bearish call spread)
SRPT - Sarepta Therapeutics (Covered Call)
NPSP - NPS Pharma (Covered Call)
FIVE - Five Below (Call Spread)
GOGO - Gogo Inc (Call Spread)
SODA - Sodastream (Call Spread)
FUEL - Rocket Fuel (Call Spread)
XOP - Exploration ETF (Short Put)
TFM - Fresh Market (Short Put)
SFM - Sprouts Farmers Market (Put Spread)
INFY - InfoSys (Put Spread)
FCX - Freeport McMoran (Put Spread)
ATI - Allegheny Technologies (Put Spread)
CSIQ - Canadian Solar (Covered Call)
DHI - DR Horton (Put Spread)
MU - Micron (Call Spread)
TDC - Teradata Corp (Put Spread)
INFA - Informatica (Put Spread)
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.