Eventually the market battery is going to run dry but not today.
The major indexes closed in the red but the losses were minimal and that suggests the bulls are not done. The S&P pulled back only -2 points from its record close and that is hardly a cause for alarm.
I cautioned on Monday we would see a short squeeze on Tuesday and that happened as expected. The S&P rallied to close right at 1,912 and well over the prior high close at 1,900.
The sell in May crowd was wrong this year but the number of analysts predicting a summer decline appears to be growing.
A reader emailed me today asking "If so many analysts are expecting a sharp decline over the next couple of months, why is the VIX so low?" Good question and I have no sure answer. The VIX is calculated by the size of the premiums in at the money S&P options. When everyone rushes into puts to protect their portfolios the premiums rise and that boosts the VIX. Apparently nobody is buying puts and they either don't expect a serious decline or they are planning on simply exiting the market using stop losses if a decline appears.
The other option is that the major analysts are not speaking for the herd. The analysts may be bearish but the herd is not and therefore we can grind slowly higher.
While nobody knows for sure and quite a few people are expecting a summer decline I would caution you not to overextend your portfolio. Take smaller positions and only those you feel comfortable holding through some market volatility.
Send Jim an email
Long Term Positions
Click for 2014 Statistics through February
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Current Position Changes
New stop Losses
Please check the portfolio graphics above for new stop losses in bright yellow.
CLVS - Clovis Oncology (Closed Call)
I recommended we close the short call on Tuesday to capture the $14 in profit and be prepared to write another call if we get a spike in the shares. The ASCO conference is this weekend.
Unfortunately the stock fell -$7 on no news on Tuesday to put us further into the red in the underlying stock.
Closed July $75 Call, entry $16.20, exit $2.00, +14.20 gain
New Short Put Recommendations
FEYE - FireEye Inc
Fireeye is a network security company currently providing bleeding edge security against concentrated attacks by nation state organizations and bad actors. They recently discovered an attack by the Iranian Ajax security team on 77 victims in the USA.
They are tracking corporate espionage at the highest levels and are recognized by most as the latest in cutting edge technology to not only prevent intrusions but tell governments and corporations what was stolen in the event of a breech and more importantly where it went.
Shares have rallied over the last week despite a large lockup expiration on the 21st.
Sell short July $32 puts, currently $2.00, stop $29.85.
EMES - Emerge Energy Services
We play this stock in early May when it was ramping up to its high at $90. We exited just before the ex-dividend drop with a nice profit. Now the stock is in rally mode again and the option premiums are huge.
Sell short July $90 put, currently $4.20, stop loss $85.50.
New Covered Call Recommendations
ISIS - Isis Pharma
ISIS was named to the Barron's top ten acquisition target list over the weekend. That along with positive mention by two Piper Jaffray analysts pushed the stock up about $6. That inflated the call premiums ahead of the ASCO meeting this weekend. I am recommending we write an out of the money call to capitalize on any further stock movement. If we are not called we will get to write the call again.
I am recommending two positions. One will be a short term July position and the other a longer term October position.
Buy-write July $33 call, currently $30.79-$1.95, no stop.
Buy-write Oct $35 call, currently $30.79-$3.20, no stop.
ITMN - Intermune Inc
Intermune is a biotechnology company developing drugs to treat pulmonology and orphan fibrotic diseases. On the 19th Leerink's Howard Liang said the results of the recent ASCEND and INPULSIS trials presented at the American Thoracic Society and published in the New England Journal of Medicine, built a relatively strong case that favors Esbriet over the competition for pulmonary fibrosis (PF). The data suggested the drug could be extended into other strategies.
UBS analyst Matthew Roden said the drug was now "derisked" and expects a FDA approval and broad adoption as a front line option for PF. "We now consider Intermune as a realistic takeout candidate."
Shares rallied $5 on the news and are still trending higher.
Buy-write July $42 Calls, currently $40.38-$2.17, stop loss $36.45
New Aggressive Recommendations
New Long Term Recommendations
See ISIS in Covered Call Section
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)
NUS - NuSkin (Aggressive Short Put)
PRAN - Prana Biotech (Short Put - Update)
APC - Anadarko (Long Term Short Put)
INSM - Insmed Inc (Long Term Short Put)
ARWR - Arrowhead Research (Covered Call)
EXAS - Exact Sciences (Short Put)
GTAT - GT Advanced (Covered Call)
YNDX - Yandex (Covered Call)
P - Pandora (Long Term Short Put)
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.