This is the last big week for adding October premium because once we reach the September expiration October premiums wilt.

The markets started off mixed this week and I chalked it up to various things including the $25 billion drag from the Alibaba IPO next week. Unfortunately the S&P futures are sinking overnight and Tuesday does not look promising. However, there is a lot of darkness left before morning.

I added extra plays this week because we are approaching the September expiration next week and October premiums will fade. We are going to have a tough time adding November plays because the Q3 earnings cycle will be in full bloom.

I also expect the market to tank at the end of October. I know I am going out on a limb here with that prediction but that is my forecast. We need to make money in the October expiration cycle then skinny down the number of positions just in case a major dip does appear.

Jim Brown

Send Jim an email



Current Portfolio


Current positions

Covered Calls

Long Term Positions


Current Position Changes


SCTY - Solar City (Stopped)

SolarCity declined to hit our stop on Tuesday at $67.45 and that dip was the low for the week. It knocked us out of both the short term and the aggressive positions.

Closed Sept $65 Put, entry $2.33, exit $1.29, +1.04 gain.

Aggressive position:

Closed Sept $75 Put, entry $10.05, exit $8.14, +1.91 gain.
Previously closed Long Aug $65 put, entry $2.65, exit zero, -$2.65 loss.
Net loss -74 cents.



GWPH - GW Pharma (Stopped)

GW declined to hit our stop loss at $86.65 on Tuesday to close the position with a decent gain.

Closed Sept $80 Put, entry $3.20, exit $1.25, +1.95 gain.



GTAT - GT Advanced (Stopped)

Apple supplier GT Advanced declined sharply on Wednesday when Apple shares declined nearly $5 on the Samsung product announcement. This knocked us out of the covered call position when our stop was hit at $16.65.

Closed GTAT shares, entry $18.50, exit $16.65, -$1.85 loss
Closed Sept $20 call, entry $.95, exit $.40, +.55 gain.
Net loss -$1.30



INSY - Insys Therapeutics (Close)

Insys is on the verge of breaking support at $33.40 and I want to bail on this position before that happens. Close the position at the open on Tuesday.

Close Oct $33 put, entry $2.40, currently $2.85, -.45 loss



RCPT - Receptos (Close)

Receptos has not broken support but the options market maker is playing games with the prices. Since we entered the position he has dropped the bid prices to a ridiculous level. If RCPT were to decline sharply and we were forced to exit on a stop loss the damage would be severe. In order to try and prevent this I am recommending we place a buy to close order with a limit price of $3.75 on the October $45 put. By putting a limit order in the system we will become the bid in this situation. The market maker will either have to take our bid so he can maintain the ridiculous spreads or he will have to let our bid be the market. That will expose his ridiculous prices on the rest of the options.

Issue a Buy to Close limit order @ $3.75 for the short Oct $45 put.




CLVS - Clovis Oncology (Add Calls)

We have a stock position in Clovis that was left over from a busted covered call play. We have long calls against it but the stock is not moving. I am recommending we begin selling additional covered calls against it to reduce our cost.

Sell short January $55 call, currently $3.60, no stop.



Play Updates


PRAN - Prana Biotech

We have a long call position in Prana that was left over from a covered call that went against us. We bought (3) of the Nov $3 calls on the initial dip in hopes PRAN would rebound and the gains would offset our original losses.

Prana spiked to $2.94 on Friday on news a drug was awarded orphan status by the FDA. Shares have declined since the spike but the key here is that Prana is not dead. I still believe PRAN will move over that $3 level by November. We are only one press release headline away from a big move. The biotech sector lives and dies by headlines so we know another one is coming in the weeks ahead.

Long (3) Nov $3 calls @ .48, currently .30.



New Short Put Recommendations


ARWR - Arrowhead Research

We have played Arrowhead before. They are a biopharma company specializing in RNAi therapeutics. They posted strong earnings and guidance in mid August and shares have powered higher since then. Volume is rising and shares closed at a five month high today.

Sell short Oct $16 put, currently $1.80, stop loss $14.85



EXAS - Exact Sciences Corp

Exact Sciences Corporation, a molecular diagnostics company, focuses on developing diagnostic screening products for the early detection and prevention of colorectal pre-cancer and cancer. We have played them before.

They are trading at a new high after a strong move up in August. They shot higher last week after presenting at Baird's 2014 Health Care Conference. Investors must have liked what they heard. The prior week they moved higher after the Mayo Clinic became the first hospital to use their Cologuard testing product.

Sell short Oct $20 put, currently $1.50, stop loss $20.65



UBNT - Ubiquiti Networks

Network solutions provider Ubiquiti is about to break out to a new five month high thanks to new coverage by FBN Securities with a buy rating and a $55 price target. Shares had stalled on their recent rally with support in the $46 range. A breakout should trigger some short covering.

Sell short Oct $44 Put, currently $1.35, stop loss $44.95



New Covered Call Recommendations


ARWR - Arrowhead Research

We have played Arrowhead before. They are a biopharma company specializing in RNAi therapeutics. They posted strong earnings and guidance in mid August and shares have powered higher since then. Volume is rising and shares closed at a five month high today.

Buy-write Oct $17 call, currently $16.69-$2.05, stop $13.85



EXAS - Exact Sciences Corp

Exact Sciences Corporation, a molecular diagnostics company, focuses on developing diagnostic screening products for the early detection and prevention of colorectal pre-cancer and cancer. We have played them before.

They are trading at a new high after a strong move up in August. They shot higher last week after presenting at Baird's 2014 Health Care Conference. Investors must have liked what they heard. The prior week they moved higher after the Mayo Clinic became the first hospital to use their Cologuard testing product.

Buy write Oct $22 call, currently $22.14-$2.25, stop loss $20.35.



New Aggressive Recommendations


SPLK - Splunk Inc (Covered Call)

Splunk has gone vertical after spiking from the $44 level last week. Shares are about to break over resistance at $60 and the sudden burst of activity has really pumped up the premiums. The company raised guidance on revenue, earnings and new customer growth. This "big data" firm has finally caught fire.

I am reaching out to the $62.50 strike with the stock at $59.42. If called we will pocket $5.48.

Buy-write Oct $62.50 Call, currently $59.42-$2.40, stop loss $54.35.



GPRO - GoPro

This rocket ride has kicked in the boosters with a $5 gain on Monday. FBN Securities initiated coverage with a buy rating and a $70 price target. That was enough to crush the shorts once again. Barely a day goes by that GoPro does not get some positive headlines.

I am recommending the $50 strike, $13 out of the money in anticipation for this spike to fade. Premiums are worth the risk.

Sell short Oct $50 Put, currently $2.45, stop loss $52.25



New Long Term Recommendations


None


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)

PRAN - Prana Biotech (Short Put - Update)

SCTY - SolarCity (Aggressive Short Put)

SCTY - Solar City (Short Put)

GWPH - GW Pharma (Short Put)

SRPT - Sarepta Therapeutics (Covered Call)

ISIS - ISIS Pharma (Covered Call)

INSY - Insys Therapeutics (Short Put)

AVGO - Avago Technologies (Short Put)

GTAT - GT Advanced Technologies (Covered Call)

NLNK - Newlink Genetics (Covered Call)

RCPT - Receptos (Short Put)

ASPS - Altisource Portfolio Soln (Short Put)

ACHN - Achillion Pharma (Covered Call)

OCN - Ocwen Financial (Covered Call)

TKMR - Tekmira Pharma (Short Put)

PRTA - Prothena Corp (Short Put)

TKMR - Tekmira Pharma (Covered Call)

NBIX - Neurocrine Biosciences (Covered Call)

PRTA - Prothena Corp (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.