The Asian markets failed to meltdown on Sunday night and the S&P futures are up strongly. Anyone still short could wake up on Tuesday to a real headache.
S&P futures are up +17.50 late Monday but as we all know that could be erased in minutes with a headline from overseas. The Shanghai Composite was down -2.5% on Monday and has not yet opened for trading on Tuesday. The Japanese Nikkei was fractionally positive on Monday after a -7% decline last week.
There is a lot of Chinese economic data due out this week and that could easily change market directions. The Dow fell -272 points on Friday as longs exited positions to avoid being caught on the wrong side of the market if Asia melted down over the weekend. They are going to be kicking themselves tomorrow if the futures do not reverse.
A lot of analysts still believe we are going to retest the lows from August and that is definitely a possibility. Several believe that last week was our retest when the markets suffered their second worst point loss in a year. I am neutral on the topic today. However, the individual Dow stocks are still ugly with more than half in a strong downtrend that may not be reversed with just one session of positive S&P futures.
I am moving to October strikes this week. There is no premium left in September unless you are right at the money and with the potential for short squeezes and volatility dips, we definitely do not want to be writing premiums at the money.
September is the worst month of the year for the markets but in years with an ugly August, it tends to do a little better. With the Fed on the calendar in only 8 trading days, there will be a cloud over the market regardless of what happens in Asia.
Keep your positions small and let us hope a direction appears that is something other than sideways.
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
EOG - EOG Resources (Call Spread)
Crude prices are falling again with a -$1.50 decline on Monday to $44.50. Most analysts believe we will see a continued decline back into the $30s. The energy stocks rallied last week when the WTI short squeeze failed to immediately retrace the gains. Now that the retracement has begun I think it is safe to go back into some energy shorts.
Earnings November 4th.
Sell short Oct $82.50 call currently $1.79, stop loss $80.35
Buy long Oct $87.50 call, currently .78, no stop.
Net credit $1.01.
UAL - United Continental Airlines (Put Spread)
With oil prices falling and planes flying full the airline sector is one of the strongest sectors. There are very few negatives and a lot of positives. All are expected to post stronger earnings for Q3.
The August flash crash managed to knock UAL back to $50 for a few seconds but the lows on the following days halted at $52. Without another flash crash I seriously doubt UAL will see $50 again.
Earnings Oct 22nd.
Sell short Oct $50 put, currently .86, stop loss $52.25
Buy long Oct $45 put, currently .39, no stop
Net credit 45 cents.
TIF - Tiffany (Call Spread)
Tiffany is tarnished after reporting disappointing earnings for Q2. They blamed the strong dollar and declining tourism. Both are related. The strong dollar is a headwind for tourists wanting to come to America. Everything they want to buy and take home costs more. Sales in Europe are weak. They did report decent sales in Canada and Latin America. The difficult global environment caused Tiffany to warn on guidance for the rest of the year. Full year forecasts were lowered from $4.20 to $3.99 and that is a 5% decline from the same period in 2014. Shares are very close to a new 52-week low.
Earnings November 24th.
Sell short Oct $85 call, currently $1.29, stop loss $84.25
Buy long Oct $90 call, currently .52, no stop loss.
Net credit 77 cents.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
SWKS - Skyworks Solutions (Bear call Spread)
URI - United Rentals (Bear call Spread)
NSC - Norfolk Southern (Bear call Spread)
MNST - Monster Beverage (Bear call Spread)
$VIX - Volatility Index (Bear call Spread)
XOP - oil Exploration ETF (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.