After last week's dip the option premiums are inflated and we have fewer stocks knocked out of contention by pending earnings reports.

I am backing up the truck today with a full list of recommendations. I am hoping Yellen will bring out her dovish side in the House testimony on Tuesday.

The S&P futures are up strong tonight and the Dow and S&P closed right on resistance. If we blow over it in the morning I think the markets could run a lot higher. However, if she shows her hawk feathers we could be in for six more weeks of bearish markets.

Be prepared to exit your positions if the market does not like what she says.

Several of the recommendations tonight have earnings in late February. I will look at the charts just before earnings and make a decision to hold or exit based on the facts at the time. I listed the earnings dates in each play.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


VNET - 21 Vianet (Close, Write New)

The 21Vianet Feb $25 call has declined to 15 cents and there is nothing to be gained by leaving it open. I am recommending we close that call and write a new March $22.50 call, currently 85 cents. If we wait until the February call expires the premiums on March will be lower.

VNET shares have declined from our entry point at $23.11 to close at $21.11 today. Support is $20.50.

Close Feb $25 call, entry .71, currently .15, +.56 gain.

Sell short March $22.50 call, currently .85 cents, stop loss $20.45

Chart


New Short Put Recommendations


VRX - Valeant Pharma

Valeant spiked from $112 to $135 back in early January and then consolidated at the $135 level for a month. It appears VRX is about to break out of that consolidation and move over $140. I am recommending we sell the March $130 put, currently $5.90. This is a huge premium on this stock as a result of the volatility over the last month. Shares have held over $130 since mid January and the market weakness had very little impact on VRX shares.

Earnings Feb 27th. Caution advised. Closure possible.

Sell short VRX March $130 Put, currently $5.90, stop $131.75.



NLNK - Newlink Genetics

Newlink is on a rocket ride higher. After spiking from $23 to $35 in January the stock consolidates in the $32-$37 range for the last three weeks. Friday began a breakout that accelerated today with a $3 gain. I am recommending the March $35 put. That was the support level over the last two weeks during the weak market.

Earnings Feb 27th. Caution advised. Closure possible.

Sell short NLNK Mar $35 Put, currently $3.60, no stop.



SINA - Sina Corp

SINA collapsed from $90 to $63 on the emerging market worries and the potential slowdown in China. I believe those worries are overblown and it appears SINA is rebounding from the lows. The stock is very oversold and further declines are not anticipated. I am recommending we sell an OTM March $62.50 put, currently $2.84.

SINA has been very reactive to the 300-day average and that supplied support on the recent drop.

Earnings Feb 19th. Caution advised. Closure possible.

Sell short SINA March $62.50 put, currently $2.84, stop $64.25



VJET - Voxeljet AG

VJET declined in January to roughly the price where it traded post IPO at $30. As soon as it hit that level buyers appeared. The March $30 put has $1.80 in premium and appears to be a nice value for this low dollar stock.

No earnings date listed.

Sell short VJET March $30 Put, currently $1.80, stop $30.95.



AEGR - Agerion Pharma

AEGR shares began declining in November from the $100 level. They hit $56 in late January and came to a dead stop. After trading there for two weeks the rebound began and the last two days have been dramatic. I am recommending we sell a March put at that support level.

Earnings March 4th. Caution advised. Closure possible.

Sell March $57.50 put, currently $3.00, stop 59.75



New Covered Call Recommendations


ARWR - Arrowhead Research

We already have a position in ARWR using the March $15 call which is deep in the money. There is nothing preventing us from doubling up on this high flyer with high premiums. For those not in the original play this is an opportunity to capitalize on this runner.

Earnings May 8th.

Buy-write ARWR March $20 Call, currently $17.99-$1.30, no stop.
Profit if called is $3.31 on an $18 stock.



New Aggressive Recommendations


YUM - YUM Brands

YUM reported decent earnings for a change and guided for 20% earnings growth in 2014. The stock had been under pressure since early January on bird flu headlines in China. The CEO on the call said they were not seeing any impact to sales from those headlines. China's same store sales are expected to rise in 2014 and that is YUM's largest market. I believe the worst is over and YUM is going t return to the highs near $80 in the coming months. I am recommending an in the money put using the July $80 strike to capture the rebound in YUM shares.

There is no additional risk in selling an in the money put than an out of the money put. The extra premium received offsets the in the money risk. Do the math and you will see.

Earnings April 22nd.

Sell short YUM July $80 Put, currently $9.30, stop loss $69.75.



ILMN - Illumina

This stock refuses to go down. Analysts keep upgrading the targets and saying things like "stock could double" etc. I hesitated to play this again without a decent dip but it won't dip. This is an aggressive play with the strike at the money. Aggressive traders may want to jump up to the $170 strike for extra premium.

Earnings are April 29th.

Sell short March $160 Put, currently $7.60, stop $146.75



New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

CZR - Caesar Ent (Covered Call #1)

CZR - Caesar Ent (Covered Call #2)

CZR - Caesar Ent (Covered Call #3)

TSLA - Tesla Motors (Long Term Short Put)

INCY - Incyte (Covered Call)

VNET - 21Vianet (Covered Call)

TAN - Solar ETF (Long Term Short Put)

CLVS - Clovis Oncology (Aggressive Covered Call)

ARWR - Arrowhead Research (Covered Call)

EXAS - Exact Science (Covered Call)

CLVS - Clovis Oncology (Aggressive Covered Call)

HIMX - Himax Tech (Covered Call #2)

BBRY - BlackBerry (Covered Call)

GILD - Gilead Sciences (Short Put, Cov Call)

PRAN - Prana Biotech (Covered Call)

GALT - Galectin Therapeutics (Covered Call)

QIHU - Qihoo 360 Technology (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.