New highs daily but the pace of gains is slowing.

The S&P closed at a new high again today but only by +0.07 of a point. The Dow lost -27 points and the Nasdaq gained +2. However, Mondays have not been big gainers in recent weeks. That title goes to Tuesdays. More than 74% of the gains in this rally have come on Tuesday's. The Dow has been up for 17 consecutive weeks on Tuesday.

Personally I don't care what day of the week produces the gains as long as they continue to be produced. The May covered calls are all in the money and will be called away assuming the market does not trip over the next four days. Several are up really big and we could have another flash crash and they would still be called away.

GMCR is up +$25 from where we entered the position. Tesla is up +$30. SolarCity is up +$10. I really wish I had been more aggressive on those positions but you don't get rich swinging for the fences. You get rich by consistently hitting singles.

The put premiums are still flat and with the VIX at 12 they will stay there until the market stumbles. If we could sell puts on the VIX I would do it in a heartbeat but the premiums are too low even deep in the money.

That means we are going to have to stick with mostly covered calls for another week(s) until put premiums inflate again.

Jim Brown

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Current Portfolio


Current positions


Current Position Changes


MNST - Monster Beverage (Closed)

Monster had been going sideways in a positive market. We had a May $52.50 put with 8 days to go but the stock could not seem to break out of its consolidation rut above $55. I was afraid the lack of forward motion would resolve itself into a decline if the market were to weaken. We had a decent profit and I would rather capture that profit than get knocked for a loss while we try to squeeze out a few more pennies.

I recommended in the last newsletter to close the position for a profit. That worked out great for us because MNST imploded on Thursday and losing -$6 at the open. We were safely out two days earlier.

Closed MNST May $52.50 Put, entry $2.35, exit $1.10, +$1.25 gain

MNST Chart


New Short Put Recommendations


PPC - Pilgrim's Pride

Positive earnings has put this stock on a new trajectory and I think we have a good opportunity to sell a decent ITM put for basically no margin. The stock is $11.34 and we can sell the $12.50 put for $1.30. At the current rate of ascent it should be ITM by the June expiration. The percentage gain compared to the margin cost is very strong. I wish I could find a dozen of these every month.

Sell short PPC June $12.50 Put, currently $1.30, no stop

PPC Chart


New Covered Call Recommendations


BZH - Beazer Homes

Beazer took off last week after posting better than expected numbers. The housing sector is in lift off mode and spring housing market surveys and reports should be getting stronger. We already have a June call on Pulte Homes (PHM) but I want to get BZH while it is cheap at $21. If we do get a dip we can write a new call next month.

Buy-write BZH June $21 Call, currently $20.96, $1.10, no stop.

BZH Chart


New Long Term Recommendations


None


New Aggressive Recommendations


GMCR - Green Mountain Coffee (Covered Call)

This is an aggressive play because of the price but the return is strong. The stock price is $77 and the June ATM call is $3.90. Using margin to buy the stock that equates to roughly a 10% return for one month. If GMCR were to weaken slightly and not be called away we could do it again next month. The option premiums on GMCR should remain strong regardless of which direction it travels.

This stock would also work for a naked put for June. The $75 put is $3.05 today and margin is slightly less than a covered call.

The chart is a little scary since the good news last week catapulted GMCR into another price range but it closed at a new high on Monday.

Buy-write GMCR June $77.50 Call, currently $77.38, $3.90, no stop

GMCR Chart


Existing Play Recommendations


Links to original play recommendation

RIG - Transocean (Covered Call)

BSFT - Broadsoft (Covered Call)

GMCR - Green Mountain (Covered Call)

MNST - Monster Beverage (Short Put)

SLW - Silver Wheaton (Covered Call)

TSLA - Tesla Motors (Covered Call)

SCTY - Solar City (Covered Call)

HLF - Herbalife (Covered Call)

CCJ - Cameco (Covered Call)

PHM - Pulte Homes (Covered Call)


Margin Requirements:

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.