Who would have believed a week ago that the Nasdaq would be making new 14 year highs?
If you don't like the tone of the market just stick around a week and it will change. We did not rally straight up and there was definitely a wall of worry to climb with the geopolitical headlines but we did climb it.
The Nasdaq broke out to a new 14 year high today but the rest of the indexes are still lagging. The Russell is still -50 points from its high and the Dow is an even -300 points below its historic high. In relative terms those are not big distances but this is August and typically the worst month of the year, especially over the next two weeks.
However, history is a guide not a guarantee and we could just as easily continue higher in this low volume market. When managers come back to work after Labor Day they may see they were left out of a rally and begin to chase prices. It is also possible they will see the market at the old highs and decide that will be a good place to take profits.
The S&P futures are positive and rising again tonight but all it will take is one headline from the Ukraine to erase the positive gains.
However, unless Putin himself stands up in the turret of a tank and storms across the border the mainstream media will continue to take his word that he is not helping the rebels.
What we are seeing today is a "plausible denial invasion." As long as he continues to say we are not there the reporters will continue to report the invasion in vain.
The market appears to be in geopolitical ignore mode with only occasional blips for a reality check. That suggests we will continue to move higher.
Janet Yellen speaks at the end of the week and she can cause far more damage than Putin.
Send Jim an email
Long Term Positions
Current Position Changes
NOW - Service Now (Close/Stopped)
NOW is still pressing support at $55 but maintaining that level. However, it dipped just low enough to stop us out at $54.45 last Tuesday. The long put was also closed at the open on Tuesday. The $7 decline over the last two weeks was painful.
Stopped Sept $65 Put, entry $7.90, exit $11.10, -3.20 loss.
Closed long Aug $55 put, entry $1.80, exit .65, -1.15 loss.
MOBI - Sky Mobi (Close)
MOBI posted better than expected earnings and rallied +26% on Monday to close at $8.46. This is a stock we had left over from a covered call where the underlying dropped sharply while we were holding it. Our adjusted cost is $9.41.
I am recommending we bail on the shares at this level. Typically a stock with an earnings spike will decline in the days ahead and we have held this long enough.
Close MOBI shares, adjusted entry $9.41, currently $8.47, -.94 loss.
New Short Put Recommendations
INSY - Insys Therapeutics
INSY reported earnings on the 12th that were far above analyst estimates on both earnings and revenue. They also guided higher and said they have one new drug application and at least four new drug investigational applications coming in the second half. Shares soared and broke out of their recent congestion range.
Resistance it about $42 and I am recommending an October $33 strike with a high premium. The October series was just opened so there is no volume on any strike tonight.
Sell short Oct $33 Put, currently $2.50, stop $31.15.
AVGO - Avago Technologies
AVGO is a chip maker specializing on RF devices, light sensors, amplifiers and dozens of other devices. They announced last week they were selling their LSI Axxia Networking business to Intel for $650 million in cash. This business primarily includes networking and infrastructure products for wireless networks and enterprise gateways.
They bought LSI for $6.6 billion in December and they are splitting off the parts that don't fit their product mix. They announced in May they were selling LSI's flash storage business to Seagate for $450 million in cash.
AVGO is slimming down to its fighting weight and shares are accelerating higher. Shares are nearing a breakout to a new high over $76.
Sell Oct $72.50 put, currently $2.25, stop loss $72.95.
New Covered Call Recommendations
GTAT - GT Advanced Technologies
GTAT is the maker of the scratch resistant sapphire glass that Apple is using on the next generation iPhone. Reportedly Apple gave them $700 million to upgrade production of the synthetic sapphire. The second most common complaint about Apple phones is scratched or broken screens. The first complaint is the need for a bigger screen. By switching to the super hard glass they hope to improve the customer experience. For $700 million that is a huge bet that it will.
The stock it $18.23 and I am going to step out to the $20 strike. The stock is moving up ahead of the Sept 9th iPhone announcement and analysts believe it will hit $20.
Buy-write GTAT Sept $20 Call, currently $18.23-.85, gain if called $2.62, no stop.
NLNK - Newlink Genetics
Newlink hit the jackpot with its nearly ready for testing Ebola vaccine. The vaccine is being accelerated and although no official timetable for testing has been set there are numerous agencies pressing the company to accelerate the trials. They plan to test it on 100 healthy volunteers. The vaccine has been 100% effective in preventing the disease in primates.
The Defense Threat Reduction Agency gave them a letter contract that will fund IND pre-clinical toxicology studies and includes the manufacture of clinical materials. "Advancing this drug into Phase 1 human safety studies is a major priority."
Shares rallied $4 over three days on the news but I doubt it is going to stop there.
Premiums are high because of the pending news value.
Buy-write NLNK-Oct $30 call, currently $27.99-$4.40, no stop, gain if called $6.41.
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
CLVS - Clovis Oncology (Aggressive Covered Call)
CLVS - Clovis Oncology (Update Existing Position)
FB - Facebook (Long Term Short Put)
MOBI - Sky-Mobi Ltd (Covered Call)
PRAN - Prana Biotech (Short Put - Update)
SCTY - SolarCity (Aggressive Short Put)
NOW - ServiceNow (Aggressive Short Put)
GILD - Gilead Sciences (Short Put)
WCG - WellCare (Short Put)
SCTY - Solar City (Short Put)
GWPH - GW Pharma (Short Put)
YY - YY Inc (Short Put)
SRPT - Sarepta Therapeutics (Covered Call)
ISIS - ISIS Pharma (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.