Q3 earnings are half over but plenty of companies are still left to report over the next two weeks.

As I explained last week the number of companies reporting earnings is putting a real crimp on the number of available candidates. We don't normally hold a position over an earnings report so report dates are always a consideration.

The market is also starting to lose momentum. We could be just consolidating for another push higher but the fiscal year end for funds is Thursday and at this point they are playing the hand they are holding. After Thursday they will be free to add or subtract stocks from their portfolios for 2014.

The earnings cycle has been less than exciting with an above average number of companies beating on earnings but 46% missing on revenue. Q4 warnings are also stronger than normal.

The difference between those that beat and those that miss is amazing. Stocks are spiking 5-10% on beats and falling 5-10% on misses. There are very few "happy mediums" where the stock remains in the prior trend.

For premium sellers this is dangerous and the quarterly reminder not to hold positions over an earnings report.

This earnings confusion happens once a quarter and we just have to tough it out until the reporting cycle passes.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions - None


Current Position Changes


GMCR - Green Mountain Coffee (Closed short put)

I recommended we close the aggressive put last Tuesday after GMCR began declining on Whole Foods entry into the K-cup market.

Closed GMCR Nov $65 Put, entry $3.10, exit $4.85, -1.75 loss.

GMCR Chart


YOKU - Youku Toudou (Covered Call)

Youku Toudou went into a dive on Friday that continued on Monday to stop us out at the $27.65 level. The entire Chinese Internet sector is tanking along with the Chinese market. The iShare China ETF (FXI) imploded and all the Chinese ADR stocks were crushed.

Closed YOKU Nov $31 Call, entry $30.84-$2.27, exit $27.65-1.00, -1.92 loss

YOKU Chart


New Short Put Recommendations


RH - Restoration Hardware

Restoration Hardware does not report earnings until Dec 12th. They have rebounded from the September earnings miss and are on the verge of breaking through resistance at $70.50. Multiple analysts have recommended the October dip as a buying opportunity. Plan to be out of this play on December 10th.

Sell short Dec $65 Put, currently $2.85. Stop loss $63.40.

RH Chart


IOC - Interoil Corp

Interoil is a very small energy company with a very large gas discovery offshore Papua New Guinea (PNG). The company is not large enough to develop it on its own. Several months ago they signed an exclusive deal with Exxon to negotiate a deal to develop the reserves and deliver the gas to Exxon's LNG facility. The exclusive talks expired recently and Exxon lost its exclusivity. Immediately after the expiration Shell joined the battle and submitted an offer to Interoil.

Exxon said it's PNG LNG project is complete and the company is "advancing expansion opportunities on the future development of the Elk/Antelope reserves held by Interoil. Exxon said the major terms have already been agreed upon and Exxon is proposing that 4.6 Tcf of Interoil gas be used to augment supplies to the PNG LNG facility and allow the construction of another train at the facility.

With the sudden appearance of Shell in the deal a bidding war could develop. Shares of IOC rallied on the news.

Sell short Dec $62.50 Put, currently $3.60, stop $63.45

IOC Chart


New Covered Call Recommendations


None


New Aggressive Recommendations


None


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

PHM - Pulte Homes (Covered Call)

PHM - Pulte Homes (CC Update)

BZH - Beazer Homes (Covered Call)

JASO - JA Solar (Covered Call)

CZR - Caesar Ent (Covered Call #1)

GMCR - Green Mountain Coffee (Covered Call)

GMCR - Green Mountain Coffee (Aggressive Short Put)

SLCA - U.S. Silica Holdings (Covered Call)

LNG - Cheniere Energy (Covered Call)

YOKU - Youku Toudou (Covered Call)

GDX - Gold Miners ETF (Covered Call)

CZR - Caesar Ent (Covered Call #2)


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.