What will the market do when there are no more headlines from Greece? The markets have been driven by the news for weeks and we are finally down to the last stages of this ongoing disaster.
The volatility has been huge. The Dow has move more than 200 point on each of the last five days. So far, 2015 has had the most down days in the last 12 years. That is an amazing statistic since the Nasdaq and Russell 2000 were at new highs just three weeks ago.
The S&P closed right at resistance at 2100 after rebounding +55 points from last Wednesday's lows at 2044. Today's close is only 30 points away from a new high. It is actually possible we could be retesting those highs if all the dominoes fall the right way in Greece and the EU over the next week.
With Greece out of the headlines, we can start focusing on other things like Q2 earnings. Once past the critical earnings a short three weeks from now the market will begin to focus on the dog days of summer and the potential for a Fed rate hike in September. That is looking like almost a sure thing once the uncertainty over Greece is gone.
Yellen will testify this week before Congress and you can bet she is going to reiterate the Fed's desire to raise rates and she will probably mention the declining uncertainty surrounding Greece. The Greek vote in parliament will be over before she takes center stage in Washington on Wednesday. She will know how that the Greek situation will play out before she gives her testimony.
I believe the market is tired of the volatility and the bottom we saw last week will hold. I switched to put spreads this week because the three days of gains has disrupted the declines on the majority of the charts. Those in decline may still roll over again but I do not want to take a chance in a bullish market.
Send Jim an email
The fourth column in the portfolio graphic is 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
HLF - Herbalife (Stopped)
Herbalife finally quit going up and we were stopped out with shares rolled over. This was a very successful play and we should be happy with the result.
Closed July $45 short put, entry $1.40, exit .17, +1.23 gain.
BOBE - Bob Evans Farms (Bull Put Spread)
Bob Evans rallied strong in June and then pulled back only about $1 over the last two weeks of market volatility. Shares were very close to a new 4-month high today. A break over $52 could trigger some short covering. This is a play on relative strength in BOBE.
Earnings August 25th.
Sell short August $50 put, currently .70, stop loss $50.25
Buy long August $45 put, currently .15, no stop
Net credit 55 cents.
SPLK - Splunk Inc (Bull Put Spread)
Splunk provide software that enables organizations to gain real-time operational intelligence. The company's products enable users to collect, index, search, explore, monitor, and analyze data regardless of format or source users. It offers Splunk Enterprise, a machine data engine with collection, indexing, search, reporting analysis, alerting, monitoring, and data management capabilities; and Splunk Cloud service.
Basically they are a cloud service company. Shares were up last week because they bought "machine learning and analytics services provider" Caspida for $190 million. Caspida significantly strengthens Splunk's cyber security offerings. Caspida uses machine learning (sort of an artificial intelligence) to automatically detect threats. This is a big deal for Splunk because it fits right into their existing business.
Because of the volatility we can write this spread under existing support and still make a profit.
Earnings August 27th.
Sell short August $65 put, currently $1.05, stop loss $66.75
Buy long August $60, currently .60, no stop.
Net credit 45 cents.
New Covered Call Recommendations
ZOES - Zoes Kitchen
Zoes reported an earnings surprise in June that rocketed the stock higher by +$9 over two weeks. The good news finally faded and shares returned to consolidate at the $39-$40 level for four weeks. Zoes broke out of that range on Monday on no news and could be headed back to the highs. With the $39-$40 level as support and the $40 call at $3.20 that gives us some decent protection against an unexpected event. When you consider how volatile the market has been over the last month and Zoes did not decline that shows decent relative strength.
Earnings August 27th.
Buy-write ZOES AUG $40 call, currently $41.61-$3.20 (ITM), Stop loss $38.85
Gain if called $1.59
Looking for More Plays?
I did not use these plays today but they will make a good starting place if you are looking for something else to trade.
Symbol Price Strike Credit Earnings
CUDA $30.34 - 35/40 - .25 - Oct 8th.
Symbol Price Strike Credit Earnings
DG $80.17 - 77.5/72.5 - .45 - August 26th.
LEN $53.41 - 48/50 - .25 - Sept 17th
ZOES $41.61 - 35/30 - .55 - August 27th
AMBA $99.11 - 90/85 - 1.10 - Sept 3rd
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
HLF - Herbalife (Short Put)
NSC - Norfolk Southern (Bear call Spread)
RDUS - Radius Health (Covered Call)
INSY - Insys Therapeutics (Covered Call)
XOP - Oil Exploration ETF (Bear call Spread)
JOY - Joy Global (Bear call Spread)
LULU - LuluLemon (Bear call 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.