Despite a rocky week the Volatility Index remains at five-month lows.
A low VIX means low option volatility and low premiums. Put premiums were almost invisible. I struggled to find even a single put that was worth playing. With the Russell and Nasdaq declines over the last couple weeks the majority of the stocks we would normally play have terrible charts. A small two day rebound in the Nasdaq and Russell did not improve the outlook.
I do believe the markets are trying to move higher but the Russell and Nasdaq need to lead up like they led down and the Nasdaq has strong resistance at 4,150. I will be thrilled if it comes to pass but I am not counting on it.
With no volatility in the market even the call premiums were low. I get a lot of requests to recommend more covered calls and I did find some of those I could recommend.
I apologize for not listing more short puts but I refuse to sell a put for $1 on a $65 stock and that was what I was finding. The risk is too great. If you want to live dangerously write puts on Zillow (Z) the premiums are huge but so is the risk.
I would caution readers about carrying too many positions. The market is nervous right now and the slightest little thing can cause stocks to crash. We were hit with several of those "out of the blue" events last week.
Summer is normally negative for the markets and even a positive market can be very choppy in the summer months. So far the market, as measured by the S&P is flat for May with only a +2 point gain as of Monday's close. Apparently only tech and small cap investors sold in May and went away. Actually they went into the big caps with the S&P and Dow close to new highs.
The market has been range bound since early March so we should have a large directional move in the coming weeks. Nobody knows which direction that move will take but it is coming.
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Long Term Positions
Click for 2014 Statistics through February
Click for 2013 Statistics
Current Position Changes
New stop Losses
Please check the portfolio graphics above for new stop losses in bright yellow.
LNG - Cheniere Energy (Closed)
LNG was a May $60 put and the stock closed at $57.99 on Friday. The put should have been covered at the close for $2.80 for a profit of $3.70.
Closed May $60 Put, entry $6.50, exit $2.80, +3.70 gain.
INCY - Incite Corp (Stopped)
Incite collapsed on Thursday from $56 to $51 after an abstract on one of their drugs was posted online at ASCO. Meeting Abstract
Shares were crushed and brokers immediately came out in support of Incite but the damage was already done. We were stopped out at almost the low of the day on Friday. Sometimes they miss the stops by a few pennies and sometimes they hit them by a few pennies.
Closed INCY June $45 Put, entry $2.50, exit $3.10, -.60 loss.
EMES - Emerge Energy (Closed)
We dodged a serious bullet on this position. We had a June $65 put with the stock over $88 last Monday. I recommended we close it on Tuesday and we exited with a nice $1.50 gain.
Shares hit a high of $93 at the open on Tuesday and then crashed back to $74 by Friday. The $15 rally the prior week was erased in two days after the company went ex-dividend on the 14th.
Closed June $65 Put, entry $1.70, exit .20, +1.50 gain.
SCTY - Solar City
Solar City and other solar stocks were crushed on Thursday after India said it was thinking about tariffs for imported solar. Reportedly the Indian government had found evidence that solar companies had dumped excess product in India at cheaper prices than in their home markets. The government is considering imposing tariffs on U.S. and Chinese solar products.
SCTY fell from $56 to $49 on the news and stopped us out at $50.50. Sometimes we are just standing in the wrong place at the wrong time.
Closed June $50 Put, entry $2.61, exit $3.68, -1.05 loss.
INSM - Insmed (Stopped)
Insmed collapsed from $16 to $13 over the last three days to stop us out of the position at $13.25. The decline came after the company presented at a medical conference on the 13th. Apparently investors did not like what they heard. There was no news relating to the presentation content.
Closed INSM shares, entry $14.85, exit $13.25, - $1.60 loss
Closed INSM June $15 call, entry $2.15, exit .86, +1.29 gain
Net loss .31 cents.
I moved PRAN, MOBI and KNDI to the "long stock" section of the portfolio graphic. On MOBI and KNDI the entry price was adjusted for the premium previously received. On PRAN the entry price is the price the day we bought those calls. We are down -$3 in the closed positions overall not counting the cost of the calls.
MOBI appears to have found a bottom and once it begins to rise again we can sell a new covered call.
KNDI is struggling to hold support at $11 after two weeks of multi dollar spikes. The buyers and sellers are playing tug of war. Once it firms we can sell covered calls again.
New Short Put Recommendations
EXAS - Exact Sciences Corp
Exact is a molecular diagnostics company developing diagnostic screening products for the early detection of cancer. We have played it in the past. The stock collapsed from $15 to $11 in the biotech selloff and is currently rebounding with a close at $12.81.
I chose EXAS because of the strength of the rebound and the $11 level was strong support. This is a cheap put but should be relatively safe.
Earnings are July 31st.
Sell short July $11 put, currently 75 cents, no stop.
New Covered Call Recommendations
GTAT - GT Advanced
GT Advanced Technologies provides materials and equipment for the solar, light emitting diode LED) and electronics industry worldwide. Shares declined from $17.50 to $13 after Q1 earnings came in at a 22 cent loss. However, they reiterated the full year guidance. The miss related to quality control issues delaying the sapphire screens used on Apple's iPhones. The company said 2014 will be a "transformational year." They have already received $440 million from Apple and will receive $578 million for the full year.
Immediately after the earnings a flurry of brokers started pounding the table on their outlook. Shares halted their decline at the 100-day average and are beginning to rebound.
I am recommending a $17 call strike with the stock at $14. If everything goes as planned that would be about a $4 profit on a $14 stock.
Earnings August 6th.
Buy-Write GTAT Sept $17 Call, currently $14.19-$1.10, stop loss $12.75
YNDX - Yandex
Shares of YNDX declined from their January high of $45 to $22 in late April as worries over Russia and the Ukraine weighed on the stock and Russian market. Yandex is a Russian Internet search engine.
However, Putin just signed a law that requires Internet search engines to locate servers handling Russian traffic in Russia by August 1st. This is similar to Chinese rules. They will have to store all searches and user data for a minimum of six months. Putin claims the Internet is a creation of U.S. spy agencies.
What this means is that Google and Facebook will probably leave Russia rather than locate their servers and technology in Russia and accessible to Russian authorities. This is a win-win for Yandex. The stock has been rising daily for the last three weeks.
Deutsche Bank and Barclays both said the crackdown has zero impact on Yandex and will be good for their future business.
I am recommending a July $32 call strike, which is about where the next resistance level resides. If called we can net the $1.30 premium plus $1.46 in stock appreciation.
Buy-write YNDX July $32 call, currently $30.56-$1.30, no stop.
Possible Covered Call Plays
I am not going to make these covered calls official plays but for readers who want more exposure these would be where I would start. These will not be followed in the newsletter. They are just suggestions.
TMUS - T- Mobile - Rumors of a possible merger of Sprint (S) and TMUS are pushing both stocks higher.
TMUS July $35, currently $1.33, +$2.55 gain if called.
OCN - Ocwen Financial - Shares are rising on rumors of a regulatory settlement.
OCN July $35, currently $1.85, +$2.71 gain if called.
ITMN - Intermune - Shares are up on positive drug news and buyout rumors.
ITMN - June $39, currently $2.80, +$2.88 gain if called. Good chance you will get to write it again if Monday's gain fades.
YELP - Yelp Inc - recovering from a dip to $50 and closed at a two-week high today.
YELP June $57.50, currently $3.60, +$3.83 gain if called.
New Aggressive Recommendations
New Long Term Recommendations
P - Pandora
Pandora crashed from $40 to $22 in the Nasdaq selloff and held at that level. Shares have now posted a higher low and potential breakout over $25. I think the prospects for Pandora are outstanding. They control the vast majority of the streaming radio audience and they are constantly rumored as a takeover target.
I am going for a long dated option using the September $22 strike. That is support and it has a decent premium.
sell short Sept $22 Put, currently $2.00, 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)
APC - Anadarko (Long Term Short Put)
GWPH - GW Pharmaceutical (Long Term Short Put)
GWPH - GW Pharmaceutical (Short Term Short Put)
INCY - Incyte Corp (Short Put)
INSM - Insmed Inc (Covered Call)
INSM - Insmed Inc (Long Term Short Put)
SCTY - Solar City (Short Put)
NLNK - Newlink Genetics (Short Put)
ARWR - Arrowhead Research (Covered Call)
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.