Despite the continued new highs there are a lot of stocks showing multiday losses.

Looking at several hundred charts today in preparation for the newsletters showed me a lot of underlying weakness that is not showing up in the daily gains and new highs on the indexes. There were quite a few with decent multi-day declines even though the internals were painting a different picture.

There were 772 new highs and 134 new lows but the vast majority of the charts I scanned were trending lower. Decliners of 3,717 outpaced advancers of 3,064 but I sure did not see those advancers in my research.

It looks like the market is tired again and there is a rotation out of many of the recent gainers. The Internet sector was crushed with strong losses everywhere. The only sector with real gains was biotech but most of those companies are high share prices and high volatility.

Energy equities sold off after the deal with Iran brought back the worry of more oil on the market in early 2014. Energy equities needed to take a break after hitting highs in early November.

While the earnings schedule was not a factor in picking plays this week the lackluster market was a challenge. I am limiting the new entries and closing a couple that have drifted lower.

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)

We started a new position using the December $80 put last week when the stock was at $90. Since then the stock has trended down and closed at $84.50 on Monday. I am starting to worry about a breakdown in support and I want to close that position and exit the play while our loss is small. With oil prices weakening we could see a volatility event in IOC. This is a company where the lack of news can be a warning that the next news could be ugly.

Close IOC Short Dec $80 Put, entry $3.25, currently $4.21, .96 loss.
Initial position: Short Dec $62.50 put, entry $3.50, exit .53, +2.97 gain.
Net gain $2.01.

Chart


DDD - 3D Systems (Close)

Despite good news about a partnership with Motorola the shares of DDD declined -1.22 today. A decline on good news plus a lower intraday high suggests the momentum may have left DDD shares.

I am recommending we close the short put on DDD to prevent a bigger loss.

Close DDD Dec $70 Put, entry $3.10, currently $3.50, -.40 loss.

Chart


SCTY - Solar City (Stopped)

I lowered the stop on SCTY last Monday after bad news killed the rebound in the shares. The news had staying power and the stock was crushed for another large loss on Tuesday. We were stopped out at the revised stop of $47.65 and that was a fortunate event because the stock closed at $44.71 today.

We did take a big loss on the play because the drop was so dramatic in only two days time. Shares fell -$10 in two days or -20%.

Stopped SCTY Dec $52.50 put, entry $2.60, exit $6.90, -4.30 loss

Chart


FSLR - First Solar (Stop Change)

First Solar declined to support at $58 before rebounding. We have a December $60 put so this is a critical area to watch. Solar as a sector was been knocked for a loss last week. First Solar is one of the strongest stocks in the sector and I expect it to rebound first. However, expectations are no guarantee and I am putting a stop loss on the play at $57.75. If that $58 support level breaks I want to be out of the play.

FSLR Short Dec $60 put, add stop loss at $57.75.

Chart


CSIQ - Canadian Solar

CSIQ had a very nice trend underway and it seemed to have divorced itself from the volatility of the other solar stocks. However, CSIQ struggled all week and then declined -6% today. I am adding a stop loss at $27.95.

CSIQ Dec $31 Cov Call, add stop loss at $27.95

Chart


New Short Put Recommendations


SRPT - Sarepta Therapeutics

This stock was crushed in mid November when the FDA told them to slow down on their drug approval requests until they had more test data. Shares were cut from $36 to $12 in one day. They are slowly coming back and I suspect the majority of the volatility is over.

There are two ways to play this recovery. The January $17 covered call is $1.80 and 50 cents OTM. The Jan $16 shot put is $1.75 and also 50 cents OTM. Obviously it is cheaper to play the put since the margin is less. However, if you play the call side you might have the opportunity to score some appreciation befor eyou are called.

Sell short Jan $16 Put, currently $1.75, stop 13.45.

Chart


New Covered Call Recommendations


None


New Aggressive Recommendations


VJET - Voxeljet AG

VJET is another 3D printing company. It recently came public on the NYSE at $20 and soared to $70. A short recommendation by Citron last week knocked the entire sector for a loss. VJET shares collapsed from $70 to $35 in three days.

VJET has several competitive advantages. They are the fastest commercially available. They operate in continuous operation without manual intervention between parts. The VX4000 is six times larger than the next largest commercial 3D printer and allows much larger finished pieces.

Basically VJET printers are larger, faster and continuous, which means no breakdown or setup between print jobs.

I believe the selloff in VJET is over. I am recommending a slightly ITM $40 put with a very high premium with VJET shares at $39.39. If we were put our cost would be roughly $35 and the same level as support. I am using a December strike with only four weeks to go. Once VJET is over $40 the premium should evaporate quickly.

Sell short VJET Dec $40 Put, currently $5.20, stop $32.85

Chart


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

PHM - Pulte Homes (Covered Call)

PHM - Pulte Homes (CC Update)

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)

IOC - Interoil Corp (Short Put 2)

SLCA - U.S. Silica Holdings (Covered Call 2)

JCP - JC Penny (Short Put)

INCY - Incyte (Covered Call)

NLNK - Newlink Genetics (Covered Call)

CSIQ - Canadian Solar (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.