The October recommendations worked out well with a decent monthly gain. Even our busted plays made money and we cannot complain when that happens.
We had 8 positions in the October strikes and six of them were profitable. We were fortunate that the Aetna and XBI positions reversed trend significantly and the long puts were very successful.
While this does not happen in every play this is why I do not close the long sides when we are stopped out of the short sides of the transaction. Every so often, the trend reversal will be significant and we can make up for all the little losses we suffered along the way.
The numbers shown below are for one contract in each position. You can do the math based on your normal position size.
The earnings cycle is removing about 85% of the potential plays because most companies report earnings over the next three weeks. The November strikes are nearly dead despite having four weeks left until expiration. Any stock that has already reported earnings has no premium and those that are still to report are sky high but not playable.
After a crummy day in the market, the futures are up +5 points in afterhours thanks to some positive earnings surprises. Let's hope that continues to hold and the market can move over resistance and into a decent Q4 rally.
Send Jim an email
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.
LEN - Lennar (Closed)
We were stopped out of the short put and the long put last Thursday when LEN dipped to $48.41. Out stop was $48.85. Since then LEN has rebounded to a new four-week high. I looked at reinstating the position but there is not enough time left in the November strikes.
Closed Nov $47 short put, entry .94, exit $1.08, -.14 loss.
Closed Nov $42 long put, entry .33, exit .29, -.04 loss
Net loss 18 cents.
XBI - Biotech ETF (Stopped)
The biotech sector has been nothing if not volatile over the last month. Just when it appeared it would crash again a rally spike appeared instead. We were stopped out on the spike to $68.41 with our stop at $65.55. The worst part of the deal is that the market makers have widened the bid/ask spread significantly because of the volatility. We suffered a major loss of $1.02 on the stop with the bid ask spread nearly $1.
When the XBI rolled over again I looked at reentering the short side but with the wide spreads it was too risky. With the meltdown in Valeant (VRX) today the sector is not likely to rebound enough to put our long call in the money but there is always that chance. I did not close it today. I will give it another week.
Closed Nov $68.33 short call, entry $1.18, exit $2.20, -1.02 loss.
Retain Nov $75 long call, entry .43, currently .25.
WYNN - Wynn Resorts (Call Spread)
Wynn is in serious trouble. Because of the slowdown in gambling in Macau they don't know if they will make any money from their new $4 billion casino when it opens in March. The government will not even tell them how many tables they can operate. There has been 17 consecutive months of declines in casino revenue in Macau with September down -35%.
The Chinese government said two weeks ago it would support gaming in Macau but did not say how or when. Casino stocks rallied sharply. On Monday Macau officials held a meeting and claimed they had "no plan to make any changes lightly" and demanded "clear understanding and full compliance" from the casino sector. Shares sunk again.
On Wednesday Las Vegas Sands actually beat on earnings but missed on revenue. Shares spiked $2 in afterhours. WYNN shares spiked about $1 in afterhours on the LVS news but I do not expect that gain to last. Wynn already reported earnings and it was ugly. They do not report again until January.
Sell short Nov $75 call, currently .92, stop loss $70.25
Buy long Nov $85, currently .33, no stop loss.
Net credit 59 cents.
HOG - Harley Davidson (Call Spread)
Harley reported earnings that were a huge disappointment. Earnigns of 69 cents missed estimates for 78 cents. They also guided lower on shipments and revenue and announced they were laying off an undisclosed number of workers. Their market share of motorcycles in the US has always been well over 50%. Share in Q3 declined from 56.3% to 52.4% and will likely fall under 50% in the next two quarters. Polaris owned Indian Motorcycles are gaining share rapidly with a less expensive bike.
Sell short Nov $50 call, currently .47, stop loss $48.65
Buy long Nov $55 call, currently .10, no stop.
Net credit 37 cents.
Existing Play Recommendations
Links to original play recommendation
LEN - Lennar (Put Spread)
ADI - Analog Devices (Put Spread)
XBI - Biotech ETF (Bear Call Spread)
MON - Monsanto (Put 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.