With the volatility index at 12 there is no premium left in August positions. Even with the earnings inspired movement the VIX has failed to bounce and that will push us into September positions next week.
The lack of a material selloff this week after numerous earnings disappointments suggests the market is ready to move higher. The S&P is only -1% off its highs and found solid support on Wednesday at 2110. The Dow has been the worst performer simply because the Dow components have been turning in some really bad news.
Apple, IBM, United Technology, Caterpillar, Verizon, etc, have all weighed on the index. The banks have provided decent support with expectations for a rate hike in September and stronger than expected earnings.
The good thing about the Dow being a narrow index is that we will run out of earnings disasters really quick. There are five more components reporting on Thursday but none are expected to really cause trouble. Those are MCD, MMM, GM, CAT and Visa. Caterpillar caused trouble today when they posted an 8K saying Q2 sales declined 14% on top of a -12% decline in Q1.
The Volatility Index ($VIX) is hovering at 12, which is a historical level at which sell offs can occur. This represents extreme complacency and nobody is buying puts to protect their positions. With nobody buying puts the premiums shrink and makes it really hard to find plays. Add in the 2000 companies that have earnings over this three week period and there are very few stocks to choose from.
I am going to err on the side of very few plays rather than a bunch of questionable plays where I have to stretch to find premium in this market. Forcing plays in search of premium is never a good plan.
The S&P futures are up +5 points late Wednesday suggesting the market will open higher on Thursday.
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Items shaded in blue were previously closed.
Current Position Changes
Stop Loss Updates
Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.
In the July expiration cycle 70% of our positions were profitable. It was those other three that cost us a gain for the month. The Zillow spike on the announcement of an asset sale was the biggest loss with a net loss of -1.58 on the position. That one trade kept us well out of profitability. The 41 cent loss on TSO was manageable and the 21 cent loss on Wynn was also manageable if those were the only two losses.
Without those three losers the other 7 trades would have netted a gain of $3.43 per share.
YUM - Yumm Brands (Close)
YUM quit going down and actually gained 69 cents today in a bad market. I am recommending we close this trade while it is profitable and avoid an eventual stop out if the shares continue higher. There is no reason we have to remain in a trade just because it is open.
Close Aug $95 short call, entry .98, currently .56, +.42 gain
Close Aug $105 long call, entry .12, currently .05, -.07 loss
Net gain 35 cents.
NFLX - NetFlix (Bull Put Spread)
Netflix blew out earnings and rallied $15 on the news to just below $118. Shares have fallen back to $111 with the $110 level appearing as support. With the improving metrics and cheaper stock price thanks to the 7:1 split I am recommending a put spread. If NFLX falls below $109 we will stop out. As long as that does not happen in the next couple days the premium decay in the August options should work in our favor. The S&P futures are up +4.50 late Wednesday evening. This suggests a bounce at the open on Thursday.
Earnings July 15th.
Sell short Aug $105 put, currently $1.40, stop loss $108.95
Buy long Aug $95 put, currently .26, no stop.
Net credit $1.14
ZOES - Zoes Kitchen (Bull Put Spread)
Zoes is in blast off mode. Shares have rocketed from $41 to $45 in the last two days in a bad market. This explosive move came on no news. The company has 125 restaurants serving a fresh, wholesome Mediterranean inspired dishes with Southern hospitality. It has a heavy shot interest. Stifel recently put a $52 price target on the stock. Stifel expects earnings to come in above consensus for 2015.
Earnings Aug 27th.
Sell short Aug $40 put, currently $1.75, stop loss $42.85
Buy long Aug $35 put, currently .95, no stop.
Net credit 80 cents.
These were potential plays I did not use today. If you are looking for something else to play you can start here. These are not official recommendations.
Bear Call Spreads
Symbol Strikes Credit Earnings
OIH - 33/35 - .31 - N/A
XLE - 73/75 - .41 - N/A
ADI - 65/75 - .35 - Aug 25th
Bull Put Spreads
Symbol Strikes Credit Earnings
AMBA - 100/105 - .65 - Sept 3rd
GPRO - 50/55 - .60 - earns over
Existing Play Recommendations
Links to original play recommendation
TIF - Tiffany (Bear Call Spread)
LULU - LuluLemon Athletica (Bear Call Spread)
XOP - Oil Exploration ETF (Bear Call Spread)
YUM - YUM Brands (Bear Call Spread)
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.