Getting there is all the fun.

Once you reach the top of a mountain what do you do? Take a good look around and then start back down. That is what the markets did on Monday. The Dow and S&P broke over some large round number resistance and spent the day looking around before heading back down at the close.

Obviously nobody knows where we are going this week but traders appeared to be a little nervous when the new highs did not hold. The retracement could have been just a small bout of profit taking or it could have been the start of a larger decline. Futures are positive overnight so it does not appear on the surface to be the start of a rout. With plenty of darkness before morning anything is possible.

We had a couple covered call positions end in the money and called away. US Silica expired and I am recommending a new call. IOC spiked $20 and I am recommending we close the existing put and open a higher strike.

Fortunately we are out of the earnings cycle now and we have more plays available to us.

I added more covered calls than puts this week because the call premiums were inflated.

If you have any specific plays you would like to suggest please send them to me. I am not bashful about using your ideas. As long as we can all make money it does not matter where the ideas come from.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions - None


Current Position Changes


IOC - Interoil Corp (Close)

Interoil spiked $20 on positive news about their gas find and our put is nearly worthless. I suggest closing it and writing the December $80 put to replace it.

Earnings were actually a loss but they received a $250 million loan from Credit Suisse to drill six wells and acquire seismic while they negotiate the sale of their previously discovered gas reserves.

Close IOC Short Dec $62.50 Put, entry $3.50, currently .41, +3.09 gain.
Sell short Dec $80 Put, currently $3.20, stop $82.25

Chart


RH - Restoration Hardware (Stop Change)

I am raising the stop loss on RH from $63.40 to $68.75. The stock gave back $2.15 today in a weak market. Support is right at $70.

Raise stop on Dec $65 put to $68.75

Chart


SCTY - Solar City (Stop Change)

Solar City was knocked for a -$4.58 loss today after a Barrons article prompted Senator Jeff Sessions to question the taxpayer-funded grants the company receives for its panels. The Barrons article was August 31st and claimed Solar City reported "fair market value" of its installations at more than the costs the company incurred to sell and install the panels. Sessions thought that was dishonest. SCTY says it reports the value of the completed installation which is greater than the sum of its parts.

When you take depreciation on an automobile in business or a piece of computer equipment you claim the fair value or the price you paid for it not the manufacturers cost.

I have no idea if this letter from Sessions will lead to anything but the stock sold off hard on the news. Rather than close the position for a big loss I would like to give it a chance to recover. This company is backed by Elon Musk so I believe it has staying power.

The original trade idea was to keep the stock if put and write calls on it because the option premiums are so large. If the letter from Sessions is going to tank the stock I would rather take our loss and exit the position. Conditions have changed.

Add stop loss on Dec $52.50 put at $47.65.

Chart


BZH - Beazer Homes (Called)

We had a November $18 call that closed in the money and would have been called. This ended the BZH position. We entered this position back in May and had been underwater for several months while we worked our way out of trouble.

BZH shares @ $20.95, called $18.00, -2.95
Short Nov $18 call, entry .98, called for .98 gain.
Short Aug $19 call, entry .87, expired for .87 gain.
Short June $21 call, entry $1.05, expired for $1.05 gain.
Premium received $2.90, loss on shares -2.95, -0.5 net loss.

Chart


JASO - JA Solar (Called)

We entered a covered call on JA Solar back in May at what turned out to be a six month peak. We nursed back to health and eventually made a decent profit. The November $11 call closed in the money and would have been called.

Closed JASO shares, entry $11.02, called $11.00, -0.02 loss.
Short June $10 call, entry $2.00, closed 0.20, +1.80 gain.
Short Sept $10 call, entry $1.20, expired, +1.20 gain.
Short Nov $11 call, entry $1.05, called, +1.05 gain.
Premium received $4.05, loss on shares -0.02, net +4.03 gain.

Chart


SLCA - U.S. Silica (Expired)

We had a November $35 call on U.S. Silica. Shares of SLCA closed on Friday at $33.46 and the call expired. I am recommending we sell a January $35 call, currently $1.05. Our profit if called would be roughly $4.50.

Short Nov $35 call, entry $1.00, expired, +1.00 gain.

Sell short Jan $35 call, currently $1.05, Stop $30.25

Chart


New Short Put Recommendations


JCP - JC Penny

I am sure this symbol shocked a few readers. Yes, JCP. Recent reports have numerous large hedge funds taking a position in JCP shares. Apparently the improving same store sales suggests Penny's might have a decent holiday shopping season. While that is yet to be proven the stock is rising.

Sell short Dec $8 put, currently .60 cents. No stop.

Chart


New Covered Call Recommendations


INCY - Incyte Corp

Incyte is on a roll. After spiking up in August they continue to make higher highs. Then announced on November 7th they were pricing $750 million in convertible notes. The notes were priced at $375 million at 0.375% and $375 million at 1.25%. They are replacing a portion of the $500 million of 4.75% notes due in 2015. This was a good deal for the company. Shares rallied from $38 to $47 on the news. The deal was closed on Thursday. Shares were barely negative on Monday in a down market. I am proposing we sell an ITM covered call to give us some protection against a fade in price.

Buy-write INCY Dec $45 call, currently $46.96-$3.70, no stop.

Chart of INCY


NLNK - Newlink Genetics

Shares of Newlink have been flat lining at $17.50 for over a month. They are starting to act like the stock wants to move to the upside. I am recommending we sell the $17.50 strike, which is slightly in the money to give us a little protection against a falling market.

Buy-write NLNK Dec $17.50 call, currently $17.91-$2.10, no stop.

Chart


CSIQ - Canadian Solar

CSIQ has a very nice trend underway and it seems to have divorced itself from the volatility of the other solar stocks. I am recommending we sell an ATM strike that gives us strong downside protection.

Buy-write CSIQ Dec $31 Call, currently $30.97-$2.40, no stop.

Chart


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)

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)

RH - Restoration Hardware (Short Put)

IOC - Interoil Corp (Short Put)

DDD - 3D Systems (Short Put)

FSLR - First Solar (Short Put)

INTU - Intuit (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.