This is hardest week of the earnings cycle to sell options.
This is the busiest week of the earnings cycle with more than 500 companies reporting earnings. The next week is only slightly less frantic.
There are multiple problems. The market rally has crushed the volatility and put/call premiums are very low.
Any company that reports earnings over the next 2-3 weeks has a higher premium value because of the implied earnings volatility but also much higher risk. Like we saw with BlackBerry an earnings miss can knock 25% off the stock price at the morning open and there is nothing a holder can do about it. For this reason we normally avoid recommending plays to hold over an earnings report.
With the next two weeks the busiest of the earnings cycle that knocks a very large number of stocks out of contention as possible plays.
For companies that have already reported earnings the lack of an impending earnings event has sucked all the premium out of their options. All the pre earnings volatility premium evaporates in the 48 hours after the event. That takes them out of contention for a new play.
Lastly, August and September are typically the weakest months of the year for the market. Once the Q2 earnings cycle begins to fade as it will next week the market "typically" begins to fade with it. This year may be different but I hesitate to load up the portfolio with a bunch of downside liability and then watch the market collapse.
I am closing a couple additional positions where premiums have shrunk in order to reduce our risk.
I added our first weekly option play with a covered call on SRPT. The call expired this Friday. If it works out for everyone I am going to start looking for additional weekly plays to further reduce our risk. Quick in, quick out, reevaluate and do it again.
I am personally expecting a weak market in August. The rate of climb is slowing and that suggests the market is tiring.
Send Jim an email
Current Position Changes
DDD - 3D Systems (Closed)
The put on 3S Systems had declined to ten cents. We could leave it open and just let it expire on Friday but why keep the risk when closing it is so simple. You never know when bad news will break out. I don't like to take the chance. At this point we are risking a potential hit of $5 to $10 on bad news for a 10 cent gain. We closed the position last Tuesday.
Closed DDD July $42 Put, entry $1.55, exit .10, +1.45 gain.
GOLD - Rangold Resources (Close)
Rangold exploded higher over the last two weeks and the August $60 put has declined to 25 cents. I am recommending we close it rather than risk a reversal. We can use the margin on a new play.
Close GOLD AUG $60 Put, entry $2.55, currently .25, +$2.30 gain.
ALNY - Alnylam Pharmaceuticals (Stopped)
That was quick! We instituted the short put on ALNY at the open on Tuesday at $49.98 and before the close we were stopped out at $47.25. Fortunately the option premium did not move as much as the stock price.
The stock found support at $42 and I am tempted to try it again.
ALNY August $45 Put, entry $1.90, exit $2.30, -.40 loss
Z - Zillow (Close)
Zillow may have just put in a climax top. The +7% spike today was nearly double that at 3:PM. I am recommending we close this position without waiting to see if sellers appear.
Buy to close Z Aug $50 put, entry $3.20, currently .45, +2.75 gain
BSFT - Broadsoft (Closed)
The Broadsoft July $30 call expired in the money and would have been called away to close the position.
BSFT July $30 Call, entry $1.40, called +1.40 gain
BSFT stock, entry $28.28, called @ $30, +1.72 gain
Net gain +$3.12
New Short Put Recommendations
New Covered Call Recommendations
CSIQ - Canadian Solar
Canadian Solar like all the other solar companies got a huge boost from the Chinese news they would greatly increase their build out of solar energy. All the solar stocks are in rally mode but most of them have earnings over the next couple weeks and are not suitable for a call play. CSIQ has earnings on August 15th. CSIQ was in rally mode before the Chinese news and guidance has been good so I expect them to stand on their own with earnings.
Buy-Write CSIQ Aug $14 Call, currently $1.35. No stop
JASO - JA Solar
We wrote calls on JASO in June and the stock dipped and we were not called away. After patiently waiting several weeks for the rebound to come we can now sell calls on it again for a profit.
Sell JASO Sept $10 Call, currently $1.15, no stop.
Previously sold: June $10 call @ $2.00. Stock cost $11.02.
New Aggressive Recommendations
SRPT - Sarepta Theraputics (One Week Covered Call)
Option premiums for SRPT are sky high on both the puts and calls. SRPT has a drug for Muscular Dystrophy that is expected to be approved by the FDA in the coming weeks and speculators are heavily involved on both sides.
The stock rallied +4.5% on Monday on no news. There are claims that the phase IIB study participants saw almost miracle results.
I am recommending a short term covered call and we will keep rewriting week to week until we are called. This $4.50 call expires this Friday.
Earnings are August 7th. This call expires on the 2nd. If we are not called sell the stock immediately to avoid any earnings volatility. We can buy it back after earnings and write calls again.
Buy-Write SRPT July WK 4, $46 Call, currently $4.50, no stop
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
PHM - Pulte Homes (Covered Call)
PHM - Pulte Homes (CC Update)
GMCR - Green Mountain Coffee (Covered Call)
GMCR - Green Mountain Coffee (CC Update)
SLW - Silver Wheaton (Covered Call)
SLW - Silver Wheaton (CC Update)
BZH - Beazer Homes (Covered Call)
BSFT - Broadsoft (Covered Call)
JASO - JA Solar (Covered Call)
DDD - 3D Systems (Short Put)
LGF - Lions Gate Films (Covered Call)
LGF - Lions Gate (CC Update)
BBRY - BlackBerry (Covered Call)
Z - Zillow (Short Put)
CRR - Carbo Ceramics (Short Put)
GOLD - Rangold Resources (Short Put)
OUTR - Outerwall (Short Put)
TSLA - Tesla Motors (Covered Call)
FSLR - First Solar (Short Put)
ALNY - Alnylam Pharma (Short Put)
GMCR - Green Mountain (Short Put)
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.