I certainly would not want to promise a rally but the markets refuse to go down.

The intraday rebound today stopped right at short term resistance on all the indexes. That is what is supposed to happen when markets are indecisive. This is a headline driven market and we are likely to get more headlines from Ukraine again on Tuesday so the open will be volatile again.

If the market succeeds in pushing through resistance at 1885-1890 on the S&P we are likely to see some strong short covering. However, a touch of 1897-1900 could also trigger some strong sell programs. The last time the S&P hit that level there was a strong two-day drop.

The volatility is almost nonexistent according to the VIX at just over 13. The Proshares ultra short term VIX (UVXY) closed at a new low at 52.18 compared to the split adjusted high of 97,920 back in October 2011.


I went back to the well today and recommended several plays in the biotech sector. The potential acquisitions of Allergan (AGN) and Astrazeneca (AZN) is putting a bid under the entire biotech sector. Stocks that crashed in the biowreck in March and April are now surging higher. Analysts are putting out a daily list of companies they consider takeover targets and that is keeping the sector moving.

We had a successful week where nothing was stopped out. After the last month that is an achievement.

A couple of the new plays have earnings to consider so only pick the ones that fit your risk profile.

Also, be aware that May is typically the worst month of the year for the markets. It has been down 13 of the last 16 midterm election years. Even if we succeed in moving higher this week there is no guarantee it will continue. However, May 2013 was a banner month for the bulls so we can always hope for a repeat performance.

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


KNDI - Kandi Technology

Kandi is finally starting to bounce after the horrible decline from the March highs. We are underwater about $5 on the position. We had a June $20 call that we closed for a $4.30 gain but the stock is down -$9.62 from where we entered the position. We are holding the stock in expectation of a rebound and we will sell another call once the premiums inflate.

Shares of KNDI rallied +9% today during regular trading and added another 25 cents after the close. Shares found solid support at $11 and it is about time for the shorts to give up and begin exiting the stock.



NUS - NuSkin (Update)

Nuskin has earnings on Tuesday so watch for some volatility. If you are not in this position it might be a good time to add it if we get a post earnings dip. This is a long term play using the January puts so we will remain in the position over earnings reports.

Position: Short Jan $120 Put, entry $38.60, currently $39.00, no stop



AEGR - Aegerion Pharma (Earnings Close)

Aegerion has earnings after the bell on Tuesday. I am recommending that we exit this position ahead of the release. We are fractionally negative at -35 cents because the stock has not moved since we entered the position.

Buy to close Jun $40 Put, entry $2.75, currently $3.10, -.35 loss.



YY - YY Inc (Earnings Update)

YY reported earnings after the bell today of 56 cents compared to estimates of 48 cents. Revenues up +111% to $107.2 million compared to estimates of $103.77 million. The company forecast Q2 revenues to rise +82-85%. Shares declined $1.50 in afterhours trading.

I did not recommend we exit ahead of these earnings because the $55 strike was well under the stock price at $62 and advance estimates were rising. This company is one of the few Internet stocks in strong growth mode.

Position: Short June $55 Put, entry $5.50, currently $3.20, +2.30 gain.



APC - Anadarko (Earnings Update)

Anadarko reported earnings after the bell of $1.26 compared to estimates of $1.14. They produced record volumes of oil at 819,000 Boepd. U.S. production increased about 69,000 Boepd of +12% in Q1. They raised guidance for full year production by 3.5 million Boe. This was a strong report and shares rallied in afterhours. This is a long term position so we will continue to hold over earnings.

Position: Short Jan $125 Put, entry $26.71, currently $28.15



MOBI & PRAN (No Change)

We are waiting for the market volatility to ease and a new rebound to begin in those stocks so as can sell some new covered calls.


New Short Put Recommendations


GWPH - GW Pharmaceutical

GWPH is a drug research company specializing in creating new drugs from cannabis otherwise known as marijuana. They currently sell these drugs in 25 other countries outside the USA. With the current boom in pot legalization analysts believe they will eventually be able to sell them here as well. These drugs are for pain relief, MS spasms, epilepsy and other diseases. There are more than 75 compounds in cannabis and the plant has been used medicinally since the time of the pyramids.

GW announced last week the FDA had fast tracked their Cancer Pain drug Sativex for approval.

Option premiums are insanely high after the crash and rebound over the last two months. GWPH is being mentioned daily as a takeover candidate because of their existing drug portfolio and their advanced research into cannabis.

I am going to recommend two positions on GWPH. I am recommending a short term position and a more aggressive longer term position. Choose which one fits your risk profile.

CAUTION: Earnings are Wednesday before the open. Expectations are for a jump in earnings of +1,400%. They will probably discuss their new drugs in the pipeline and the stock could SURGE or CRASH. If you want to be cautious wait until after the earnings to enter this position.

Short term:
Sell short June $65 Put, currently $6.50, no stop.

Aggressive Long term:
Sell short Aug $80 Put, currently $19.00, no stop.



INCY - Incyte Corp

Incyte is a biopharmaceutical company focusing on developing small molecule drugs for oncology and inflammation. They crashed with the rest of the sector and they are rebounding strongly. I am recommending a strike at recent support at $45 where there is a balance between premium and risk. This strike has open interest of 642 while the $50 strike has 6,000. That should give us another level of support above us.

Earnings July 31st.

Sell short June $45 Put, currently $2.45, no stop



New Covered Call Recommendations


INSM - Insmed

Insmed is a biopharmaceutical company developing drugs for serious lung infections. Their recent drug trial met with mixed results that failed to meet the short term goals but succeeded in the secondary goals. Piper Jaffray immediately raised the price target to $51 with the stock at $14. They are constantly being mentioned as a takeover candidate. Option premiums are strong with the stock breaking out over April resistance.

Earnings are Tuesday before the open. The stock will either soar or crash and burn at the open. Option premiums will explode on any volatility. Be prepared to adjust your call strike if the stock moves in either direction. If it declines below $12.50 we will sell the $12.50 strike. If it rises above $15 we will sell the $17.50 strike. If it remains at $15 we will sell the $15 strike.

Buy-write June $15 Call, currently $14.00-$2.10, no stop.



New Aggressive Recommendations


None


New Long Term Recommendations


GWPH - GW Pharmaceutical

See GWPH in the short term put category for the long term play.


INSM - Insmed

Insmed is a biopharmaceutical company developing drugs for serious lung infections. Their recent drug trial met with mixed results that failed to meet the short term goals but succeeded in the secondary goals. Piper Jaffray immediately raised the price target to $51 with the stock at $14. They are constantly being mentioned as a takeover candidate. Option premiums are strong with the stock breaking out over April resistance.

Earnings are Tuesday before the open. The stock will either soar or crash and burn at the open. Option premiums will explode on any volatility. Be prepared to adjust this recommendation if the stock moves down. If the opening decline is more than $2 abort the recommendation.

Sell August $20 Put, currently $6.20, no stop.



Existing Play Recommendations


Links to original play recommendation

CLVS - Clovis Oncology (Aggressive Covered Call)

FB - Facebook (Long Term Short Put)

MOBI - Sky-Mobi Ltd (Covered Call)

KNDI - Kandi Technology (Covered Call)

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)

EMES - Emerge Energy (Short Put)

AEGR - Aegerion Pharma (Short Put)

YY - YY Inc (Short Put)

APC - Anadarko (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.