Two positions have impending earnings and we should consider an exit.

When I recommended the short put positions in VRX and NLNK I warned that earnings for both companies would be on Thursday, Feb 27th. We are profitable in both positions and a wise course of action would be to exit those positions before the close on Wednesday.

We are $17 out of the money on the VRX position and $15 OTM on the NLNK position. We know how volatile the post earnings reactions can be but since we are so far out of the money on each one I am going to hold over these earnings reports in the newsletter. Readers should decide on their own whether they want to take this risk.

Letter to editor

I received this email regarding the February 17th newsletter. In that newsletter I mentioned the flood of earnings due out the next week and cautioned against entering new positions ahead of those earnings. I listed six companies with impending earnings for those wanting to "live dangerously" and speculate ahead of those earnings. I cautioned against this practice in most circumstances.

I received this email.

I am in my trial period, and appreciate your caution in recommending put sales. But I thought that was what Option Writer was all about.

But I also see a whole list of Covered call recommendations. I like CCs, but are your recommendations that I buy the stocks you are recommending even though I may now nothing about them, or wouldn't otherwise buy them, solely for the purpose of then selling covered calls? How do you assess the quality of the stocks for CC purposes, other than they may be volatile and produce nice premiums? Thanks

I appreciate it when readers email with questions because it shows me where I am failing to address these issues in the newsletter.

Yes, the newsletter is about writing covered calls and selling naked or "cash secured" puts. It is not about taking undue risk by selling puts in a volatile or down-trending market or in front of potentially volatile events like an earnings report. We have seen double digit declines in numerous stocks that miss earnings by only a couple of pennies or simply say something investors did not like. In normal circumstances we never hold a position over an earnings report in any of the Option Investor newsletters. In the case of VRX and NLNK I am making a conscious decision to hold over based on how deeply we are out of the money. However, cautious investors should exit these plays before earnings.

In the case of the covered calls I review hundreds of stocks each week looking for the best combination of chart patterns, company fundamentals and option premiums. I only choose the best combinations I can find. There are always companies with better fundamentals. There are always better charts. Unfortunately those companies rarely have any option premiums because the volatility is lower. I try to balance the three criteria and only recommend positions that have a better than average chance of succeeding.

Readers should always decide if they want to accept my recommendations or do their own due diligence before entering any trade. No stock picker is ever 100% right and there will always be positions with losses over the long term. However, I believe my record speaks for itself. Readers can go to the archives and look at every play ever recommended and the eventual result. Every newsletter has a recap of existing positions.

If a reader does not like a specific recommendation they are not required to enter the play. I always recommend that readers only enter the plays that fit their personal risk profile. I have tried to break down the plays into normal, long term, aggressive, etc to qualify the potential risk and give readers direction in deciding which play to enter.

I am constantly asked by readers if they should just enter every recommendation in any of our newsletters. The answer is a resounding NO. Readers should only enter the positions that fit their personal risk profile. That means you may have to spend a few minutes thinking about each position and making a personal choice. There is always another day and a new list of recommendations. Just because you pass on particular plays in a specific newsletter it does not mean you are out of luck. There is always another day to trade as long as you have capital available to trade.

Lastly, readers always ask "I just started my trial should I enter all the existing recommendations in the portfolio?" Absolutely not! The recommendations are made for a specific day with a specific chart pattern and a specific premium. All of those factors change dramatically from day to day. We enter the put positions expecting the premium to drop dramatically in the days and weeks ahead. If you come into the newsletter a week or two after that position was initially launched then the premium has already deflated and the risk-reward is no longer the same as the day it was recommended. I would always wait for the next newsletter and begin your investing with the new recommendations.

If you have any other questions I am always available to answer them. Please use the link below to send me your questions or concerns.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


None


New Short Put Recommendations


None


New Covered Call Recommendations


None


New Aggressive Recommendations


None


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)

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)

QIHU - Qihoo 360 Technology (Covered Call)

VRX - Valeant Pharma (Short Put)

NLNK - Newlink Genetics (Short Put)

VJET - Voxeljet (Short Put)

ARWR - Arrowhead Research (Covered Call)

YUM - YUM Brands (Aggressive Short Put)

ILMN - Illumina (Aggressive Short Put)

VJET - Voxeljet (Short Put)

YY - YY Inc (Short Put)

XONE - Exone (Short Put)

QIWI - QIWI Plc (Covered Call)

INCY - Incyte (Covered Call)

NUS - NuSkin (Short Put)

FEYE - FireEye (Short Put)

AAL - American Airlines (Covered Call)

TKMR - Tekmira Pharma (Covered Call)

NOW - ServiceNow (Covered Call)

FB - Facebook (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.