Selling option premiums is normally considered a bullish strategy. There are strategies to take advantage of a declining market but few investors care to use them. We are by nature a bullish group.

Even in Option Investor there are very few readers who use the bearish recommendations and buy puts. That means when a bear market comes along we are normally hung out to dry on our existing bullish positions.

We lost several more positions over the last week and several more went significantly underwater. There have been multiple reasons for the various market declines but there was no reason on Friday. The S&P tried to reach 1,900 three times and failed each time at 1,897. Apparently a major sell program was triggered on the third attempt and the rest is history.

Monday's follow through was the aftershock to Friday's market quake. Many investors were scared out of the market as analysts immediately went bearish after Friday's market reversal. Monday was also margin selling day as traders were forced to sell after Friday's plunge.

The broad market decline has really put a crimp in our portfolio but the eventual rebound should revive it.

With all the charts so bearish I could not find anything to add today that justified the risk. With the market closing on its lows anything is possible for Tuesday. The S&P futures opened at +3.50 and are slowly returning to the flat line. I would love to add some plays to recover what we lost last week but I think today that being cautious is the right move. If the market recovers I will add some plays later this week.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Past performance

Click for 2014 Statistics Through February

Click for 2013 Statistics


Current Position Changes


Stop loss updates

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


AVG - AVG Technologies

AVG declined more than -10% over the last two days to drop from nearly a six-month high to a six-week low and stop us out at $19.45. The magnitude of the reversal exactly mirrored the drop in the market. It was not a stock problem but a market problem. Two days ago this was a winner at the highs and now it is a sinner.

Closed APR 22.50 put, entry $2.10, exit $3.00, -.90 loss



NLNK - Newlink Genetics (Stopped)

Newlink dipped below our stop at $24.95 on the 3rd to close this position. That was more than a -50% drop from the February highs. This is a prime example of how the biotech sector crashed.

Closed May $30 Put, entry $3.30, exit $6.20, -2.90 loss



VRX - Valeant Pharma (Stopped)

VRX was another casualty of the continuing biowreck. Shares declined to our stop loss at $124.85 on the 4th to knock us out of the play.

On Thursday the stock was at $135 and it closed at $119 today.

Closed April $125 Put, entry $2.40, exit $4.60, -2.20 loss.



GMCR - Green mountain Coffee (Stopped)

GMCR was another casualty of the Nasdaq implosion with more than a $10 drop in two days to stop us out at $103.45. When stocks drop $10 a day for no reason it is tough for any strategy to be successful.

Closed May $110 put, entry $7.20, exit $11.40, -4.20 loss



NPSP - NPS Pharma (Stopped)

Another biotech bites the dust. We sold a $30 covered call on NPSP last week when the stock was $29.88 and threatening to break over resistance at $30. The market decline over the last three days knocked it back to $25 to take us out of the play at $26.85.

Closed NPSP shares, entry $29.88, exit $26.85, -$3.03 loss
Closed May $30 call, entry $2.00, exit $1.05, +.95 gain.
Net loss -2.08



MOBI - Sky-Mobi Ltd (Close Call)

We have an April $10 covered call on MOBI that we entered when MOBI was $11.46. The stock declined in the Nasdaq sell off the prior week.

Last week I recommended we hold the April call unless MOBI rallied to $9.75 and then close that call and write the May $12.50 call. MOBI reached $9.63 before rolling over.

The April call has now declined to only 10 cents and there is no valid reason to remain short. I am recommending we buy to close the April call and wait for a market rebound to sell a new strike.

The fact that MOBI rallied to $9.63 on Wednesday shows that buyer are still around. We are just caught in the market currents and we need a couple positive days to reinflate the call premiums.

Close April $10 call, entry $2.20, currently .10, +2.10 gain.
Maintain the sell stop on MOBI at $9.75.
If the stop is hit immediately write the May $12.50 call.



New Short Put Recommendations


None Selling puts is a strategy for bullish markets.


New Covered Call Recommendations


None Selling calls is a strategy for bullish markets.


New Aggressive Recommendations


None Selling puts is a strategy for bullish markets.


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

CLVS - Clovis Oncology (Aggressive Covered Call)

EXAS - Exact Science (Covered Call)

GILD - Gilead Sciences (Covered Call)

AAL - American Airlines (Covered Call)

FB - Facebook (Long Term Short Put)

AVG - AVG Technology (Short Put)

MOBI - Sky-Mobi Ltd (Covered Call)

KNDI - Kandi Technology (Covered Call)

GMCR - Green Mountain Coffee (Short Put)

NLNK - Newlink Genetics (Short Put)

LNG - Cheniere Energy (Short Put)

NUS - NuSkin (Aggressive Short Put)

PRAN - Prana Biotech (Short Put)

PRAN - Prana Biotech (Short Put - Update)

PRAN - Prana Biotech (Short Put - Update)

VRX - Valeant Pharma (Short Put)

IOC - Interoil Corp (Short Put)

NPSP - NPS Pharma (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.