Anybody noticed oil sliding most of the day today? I’m watching it now and it is dropping like a rock! Something tells me the EIA weekly inventory report tomorrow morning (Wednesday) is not going to be that positive. Currently, WTI Crude is trading around $50.39 per barrel. If it drops below $50.00 tonight it will be the first time in a week since the OPEC meeting. What will tomorrow hold? Not sure, but here are the trades you should be watching:
Denbury Resources [stock_quote symbol=dnr]
You knew this was coming right? Of course! My big winner for 2016! I’ve been watching Denbury for over a year and she’s been hitting $4.00 per share all week, but pulling back. I told someone yesterday that it is currently range bound until crude makes another move. I actually said it is range bound between $3.65 and $3.95 per share. Today, it hit a low of $3.66 and closed at $3.94. I couldn’t have been more accurate (or shocked)…
If WTI continues South overnight (which is really a 50/50 chance) then DNR will sell off tomorrow and we may get yet another fantastic opportunity to enter. What would I do? Simple…
SELL the DNR JAN 3 PUT for 3.33% return or $0.10 per contract.
The break even would be $2.90 and the underlying stock price would have to drop a whopping 26.40% to hit break even. Maybe sell a little now and wait…if DNR continues down sell more. I cannot stress enough how closely DNR trades with the price of WTI crude. They literally trade in parallel so watch oil to get an idea on DNR’s direction. It’s that easy.
Nvidia [stock_quote symbol=nvda]
This is not an oil play, but I’ve been making money all week on this one. Man I love this company and stock! What a performer. I would be a seller (immediately – like opening bell tomorrow) of the DEC 93 PUT for around $2.00 per contract or 2.15% return. Doesn’t sound like much, but that’s 2.15% in nine (9) days people!! Much sooner if the stock continues higher. I believe it will hit $95.00 very soon and if that happens before Friday you’re almost guaranteed the entire premium by the end of the week. This is not the JAN expiration, it’s the DEC!
Break even would be roughly (depending on what price you get) $91.00 per share. The stock would have to drop 2.56% to hit break even. I owned the DEC 85 CALL this morning with a break even of $92.47 and I was fine calling the shares at that price. I’m sure as hell ok with being put the shares at $91.00!
I wouldn’t mind owning this stock for the long-term, so really you would be selling an ATM or at-the-money PUT option against a stock you want to own with a 30% chance (my own calculation) of being exercised and actually getting the shares. Easiest 2% you’ll ever make…
I will continue to issue this warning for the rest of the year. It is extremely probable that we will see a market selloff at the end of this week or next before Christmas and the end of the year. Let’s face it, we’ve all taken profits and the profit taking may not be finished. Buyer beware!
This is why I’m selling contracts against stock I don’t mind owning. You could very well get put the shares if the market sells off…
Today I sold ALL positions. I am 100% in cash awaiting crude inventories and DNR movement. I was profitable on Amazon and Nvidia today so I took it, but lost a little on Home Depot. I owned the APR 125 CALL on Home Depot and could have held, but I want to be completely in cash at the end of this year. I will buy the same APR 125 CALL back after the first of the year…especially for earnings season!
Amazon [stock_quote symbol=amzn]
Home Depot [stock_quote symbol=hd]