The market is clearly in a summer swoon as the dog days of summer drag on.

We had a bad week with the big market decline. Several of our short put positions were stopped out and a couple for a large loss. However, we also closed several positions for a big win to give us a positive week overall.

The Dow fell -70 today and the S&P -9 to close at 15,000 and 1,646 respectively. That was another six week low for both indexes and they closed at the lows for the day. With the potential for continued declines into September I am hesitant to add any further short put positions. Selling put is a bull market strategy and this is not a bull market.

We closed positions in TSLA and GMCR for big gains. These two stocks appear to be successfully resisting the market declines. I know these are higher dollar stocks than most investors are accustomed to writing calls on but the premiums are very strong and the stocks are strong relative to the market. For that reason I am adding TSLA back as a new September call. We made $15 on the August call. GMCR is already in the portfolio as we have written calls on it for the prior two months and won on both.

I did add one short put on JCP. After being severely abused in the press over the last two weeks it appears to have found support at $12.50 and analysts are starting to say nicer things about the potential return as a normal retailer. The premiums are decent because of the volatility. We can sell a September $13 put for $1.20 or roughly 10% of the stock price. For a stock that cheap that is a great premium.

I don't expect the markets to recover until after the debt ceiling battle and FOMC meeting in September. We will probably decline 7% to 8%, maybe more, ahead of those events. There will likely be short term rebounds along the way but no bull market.

Cash is a position. There is no need to force plays just to have something to do. We have had a good run the last several months so be patient and limit your positions.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


GMCR - Green Mountain Coffee (Closed short put)

We had a short August $67.50 put that has declined to 5 cents. There was nothing to be gained by leaving it open and there is always risk with an open position. We closed the position on Tuesday.

Closed GMCR AUG $67.50 put, entry $4.22, exit .05, +$4.17 gain

GMCR Chart


GMCR - Green Mountain Coffee (Expired)

We had an August $77.50 short call on GMCR. The stock closed at $76.39 on Friday and the call expired. This was the second covered call on GMCR that expired in our favor. I am adding another one today.

We originally enter the GMCR position with the stock at $76.88. We wrote the $77.50 call twice for premiums of $3.65 and $5.65. This makes our adjusted cost in GMCR $67.28. If we are successful in doing this the third time with the market in decline this will be an outstanding position. GMCR has found resistance at $80 so the $77.50 strike appears to be the right call.

GMCR Aug $77.50 call, entry $5.65, expired, +5.65 gain.

GMCR Chart


TSLA - Tesla Motors (Aug $130 called)

Tesla continues to be the stock that won't die. Our somewhat aggressive August $130 call was in the money at expiration by about $12 and would have been called.

TSLA Stock, entry $124.64, exit $130.00, +5.36 gain
TSLA August $130 covered call, entry $9.90, called +$9.90 gain.

Recap: +5.36, +9.90 = $15.26 gain.

TSLA Chart


SLW - Silver Wheaton (Aug $22 called)

Our third covered call on Silver Wheaton expired deeply in the money and the position was called away. This was our third call written on this position.

SLW AUG $22 covered call, entry .76, called, +.76 gain.

Prior positions:

Short May $23 call, entry $1.13, expired, +1.13 gain.
Short July $24 call, entry $0.99, expired, +0.99 gain.

SLW stock, entry $22.63, called $22.00, -.63 loss.

Recap, +.76, +1.13, +.99, -.63 = +2.25 gain.

SLW Chart


HLF - Herbalife (Sept Short Put Stopped)

Herbalife collapsed this morning after news broke that a star salesman committed suicide. John Peterson earned more than $3 million in 2012 and was a member of the Founders Circle. He rose to fame using an online lead generation tactic that Herbalife banned this year after Bill Ackman attacked the tactic. Apparently Peterson saw no future in Herbalife without that tactic.

The stock dropped from $65 to $60.50 intraday and stopped us out at $62.50.

HLF short Sept $60 put, entry $2.70, exit $3.25, -.55 loss.

Herbalife Chart


HLF - Herbalife (Close November Short Put)

Herbalife collapsed this morning after news broke that a star salesman committed suicide. John Peterson earned more than $3 million in 2012 and was a member of the Founders Circle. He rose to fame using an online lead generation tactic that Herbalife banned this year after Bill Ackman attacked the tactic. Apparently Peterson saw no future in Herbalife without that tactic.

The stock dropped from $65 to $60.50 intraday. We don't know what the lasting implications will be for HLF shares so I am recommending we take this additional risk off the table.

Close HLF short Nov $57.50 put, entry $4.25, Currently $5.35, -1.10 loss.

Herbalife Chart


YY - YY Inc (Short Put Stopped)

YY broke below support on Thursday to stop us out at $39.25 on a collapse in the Chinese stock market. The U.S. markets had their second worse day in 2013 on Thursday so it was a double hit.

Closed YY Short Sept $60 Put, entry $2.70, exit $3.90, -$1.20 loss.

YY Chart


AEGR - Aegerion Pharma (Short Put Stopped)

AEGR fell beneath support on the big market drop on Thursday to stop us out at $88.95.

Closed Sept $85 put, entry $3.40, exit $5.30, -1.90 loss.

AEGR Chart


FSLR - First Solar (Closed)

First Solar was crushed when they reported earnings on August 7th. Shares dropped from $47 to $40 and have yet to recover. We had an August $45 put that is now in the money. I considered just letting the put be exercised and sell call against the stock but FSLR is right on the edge of support at $40 last Monday and a weak market or sector could push us even farther into the red. I recommended closing the position and take the loss.

Closed AUG $45 Put, entry $1.71, exit $4.75, -3.04 loss.

FSLR Chart


New Short Put Recommendations


JCP - JC Penny

There has been a firestorm of controversy surrounding JCP over the last two weeks. Most of it negative. However, even in a weak market the stock has found solid support at $12.50. I don't know what else could happen to JCP to push it lower. Quite a few brokers believe the ousting of Ackman, agreement to sell his shares and the return of proven retail executives should be the beginning of a recovery.

Because of the volatility the premiums are decent on the front month puts. I am going to recommend a $13 put for $1.20. If you prefer less risk the $12 put is .79 cents. The difference in risk is minimal.

Sell short JCP Sept $13.00 put, currently $1.20, no stop.

JCP Chart


New Covered Call Recommendations


GMCR - Green Mountain Coffee

We had an August $77.50 short call on GMCR. The stock closed at $76.39 on Friday and the call expired. This was the second covered call on GMCR that expired in our favor. I am adding another one today.

We originally enter the GMCR position with the stock at $76.88. We wrote the $77.50 call twice for premiums of $3.65 and $5.65. This makes our adjusted cost in GMCR $67.28. If we are successful in doing this the third time with the market in decline this will be an outstanding position. GMCR has found resistance at $80 so the $77.50 strike appears to be the right call.

Sell Short GMCR Sept $77.50 call, currently $5.30, no stop

GMCR Chart


New Aggressive Recommendations


TSLA - Tesla Motors

We made $15 on the last covered call on Tesla and the upward trend on the stock has not changed. Premiums are even higher because of the market volatility. Many investors are just now understanding that Tesla is a monopoly in the high end electric car market. As they begin producing SUVs and smaller, lower cost entry level vehicles the buzz is only going to increase.

Consumer Reports gave the Tesla Model S a whopping 99 out of 100 satisfaction rating. This is well above the highest rating ever given a production car in the history of Consumer Reports. I believe the next highest was in the mid 80s.

Tesla is also producing components for other car makers. This is a relatively unknown portion of their business.

I am categorizing this play as aggressive because of the high price level of TSLA and the potential for a market decline. The stock was up +$3 today with the Dow down -70. Always go with relative strength.

I am recommending the September $150 strike. If called we should make about $12 on the position. If we are not called we are still assured high premiums for the next month.

Buy-Write TSLA Sept $150 call, stock currently $144.90, call $7.00, no stop.

TSLA Chart


New Long Term Recommendations


None


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)

JASO - JA Solar (Covered Call)

LGF - Lions Gate Films (Covered Call)

LGF - Lions Gate (CC Update)

BBRY - BlackBerry (Covered Call)

TSLA - Tesla Motors (Covered Call)

FSLR - First Solar (Short Put)

GMCR - Green Mountain (Short Put)

CSIQ - Canadian Solar (Covered Call)

JASO - JA Solar (Covered Call)

QIHU - Qihoo (Short Put)

TSLA - Tesla Motors (Short Put)

HLF - Herbalife (Short Put)

YY - UU Inc (Short Put)

SCTY - Solar City (Aggressive Short Put)

HLF - Herbalife (Long Term Short Put)


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.