The market decline on Friday and the Ukraine dip today provided premium selling opportunities.

The decline knocked a lot of stocks back to support but there were a lot of charts that looked rather ominous. I love a really bad day in the market. The stocks that fail to decline or rebound strongly are the ones you want to bet on for the next market rally. There were several nice candidates today that fit that criteria.

However, there were quite a few charts that showed no effort to rebound. In a normal day of research I look at between 400-700 charts. I think at least 80% today did not show a bounce. There were a lot of stocks that just took the hit and remained at the lows with a one day decline. Normally a strong momentum stock will take the hit at the open and then rebound into the close. I saw very few rebounds today. In fact, there were a lot of continuation declines from last week. The Friday spike turned into an afternoon decline and quite a few stocks just continued that decline.

I don't know if there is a trend developing where funds are selling into the first and last days of the month since that has been the pattern for the last 8 months or today was different.

The Ukraine crisis should blow over in the next day or so. Politicians will realize they can't do anything but complain and investors will decide there will be no war. The dip should be bought. If fighting breaks out that dip buy could be delayed by several days depending on the severity. Russia has overwhelming force so any battle should be over quickly.

Because we don't know what is going to happen in the Ukraine and in the market I only recommended a few positions today. There is no reason to rush in only to have another -150 point decline on Tuesday.

A reader pointed out this week that some numbers in the portfolio graphics for covered calls were not correct. This was my fault. I had copied a bad formula at some point in the past and then propagated it in the weeks that followed. I believe I have corrected all the errors. If you see something that is not right please email me with the symbol and problem.

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


Stop loss updates

Check the portfolio graphics for stop loss changes in bright yellow.


TAN - Solar ETF (Close)

The put on the solar ETF has declined to 37 cents from the entry price of $1.70. The ETF has declined in both of the last two days. I am recommending we close this put and book the gain rather than hope to squeeze out another dime or two.

Close Apr $35 put, entry $1.70, currently .37, +1.33 gain.



QIHU - Qihoo 360 Technology (Closed)

When I removed the expired February options last week I overlooked the QHIU position. It was a deep in the money covered call and would have been exercised at expiration.

QIHU Feb $90 covered call, entry $90.28-$7.50, exit $90.00-$0.00, +$7.22 gain.



XONE - Exone Corp (Close)

We have a short March $40 put on XONE and the stock is on the verge of breaking support at $45. Rather than take a chance I am recommending we close this position for a minor profit.

Buy to close, XONE Mar $40 Put, entry $1.25, currently $1.05, +.20 gain.



VRX - Valeant Pharma (Closed)

The short put on VRX was stopped out on Monday when VRX traded down to our stop loss at $142.75. We still exited with a decent gain despite the stop.

Closed Mar $130 Put, entry $5.60, exit $1.77, +3.83 gain.



NLNK - NewLink Genetics (Close)

Newlink had earnings scheduled for February 27th. I warned everyone that holding over these earnings could be disastrous but because we were $15 OTM on NLNK I was going to hold over. They did not announce earnings on schedule and RW Baird downgraded them from buy to neutral. The combination of the missing earnings and the downgrade knocked the stock down from $50 to $39. Instead of closing for a nice profit I now have to close it for a loss.

I sure hope a lot of readers took me up on my warning and exited before the 27th.

Buy to close Mar $35 put, entry $3.50, currently $5.00, -$1.50 loss.



YY - YY Inc (Close)

YY Inc has earnings after the close on Tuesday. I am recommending we close the position at the open on Tuesday and pocket our profits.

Buy to close, YY Mar $60 Put, entry $3.20, currently .85, +2.35 gain.



TKMR - Tekmira Pharma (Watch)

TKMR dropped -8% today on no news. I am hoping it was simply profit taking and the reaction to the negative market. We currently have a stop loss at $17.95 to close the entire play. Watch for the stop but keep your fingers crossed the market rebounds on Tuesday.



QIWI - QIWI Plc (Watch)

QIWI is the Russian equivalent of Paypal and the Russian stock market fell -12% on Monday. QIWI is listed on the Moscow Exchange. QIWI shares fell -17% on the news but fortunately that was from $49 to $39 and we entered the position at $41. We are still profitable on the play and I am not recommending an exit yet. I raised the stop loss to $37.85 and just below support. Hopefully investors will realize war is not imminent and the stock will rebound.



New Short Put Recommendations


CLVS - Clovis Oncology

Clovis took a dive in January and gave back nearly $20. That drop has been erased and the stock spiked to a new high on Friday. Earnings were last Thursday after the close that pleased analysts. The company had no revenue. However, the drugs pipeline made up from any lack of earnings. They are "aggressively moving forward" on multiple drugs according to the CEO. JP Morgan raised the price target from $94 to $101 and Leerink raised their target from $104 to $110.

Shares spiked to $89 after the earnings but fell back to $76 this morning before buyers raced in and pushed it back to $83.50 and a new closing high. I believe this was a buying opportunity or in our case a selling opportunity.

Sell short April $75 Put, currently $4.70, stop $74.50 (ITM)



SLXP - Salix Pharma

Salix reported earnings on Thursday and analysts were quick to raise price targets. Brean Capital raised the price target from $108 to $125 on the strong drug pipeline and pending approval dates. Q4 revenues were up +30% to $358 million. Full year revenue up +27% to $934 million. Earnings were $1.06 per share. Full year earnings were $3.76 per share.

Unlike other drug companies Salix actually has earnings and that makes it the gold standard for the sector. They reiterated successful trials and positive expectations for final trials in progress.

The stock spiked to $120 on Friday after the earnings and then sold off today to $106 before rebounding to close up +$2.82 at $111. That was a very nice bounce on in an ugly market.

Sell short April $105 put, currently $3.80, stop $105.50.



New Covered Call Recommendations


None


New Aggressive Recommendations


None


New Long Term Recommendations


LMT - Lockheed Martin

LMT has a killer chart. It is a steady uptrend with a week long pause to consolidate about every six weeks. This allows traders to take profits and new buyers to step in. The last five days has been one of those consolidation pauses. That is our opportunity to hitch a ride to the next level.

Lockheed is a primary defense contractor and with Russia stirring the pot I expect the defense sector to continue to find work. Even though President Obama is trying to cut back on the armed forces there will still be new contracts for high technology items. On Saturday the Defense Department awarded two contracts to LMT and one was for a battlefield laser to be completed and delivered in 2016. The laser will destroy missiles, mortar rounds, UAVs, aircraft and anything on the battlefield including IEDs and humans. Technology developers will always find new money.

I am reaching out to June on this position using the $170 strike. Given the recent rate of climb we should be well out of the money before expiration unless the market decides to really correct.

Sell short June $170 put, currently $11.10, stop loss $158.95.



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)

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.