Monday's gain was too good to last.
There is a lot of darkness left before morning but the S&P futures have gone from +3 to -7 and it looks like we could be in for another support test on Tuesday. The rally on Monday on the S&P and Nasdaq returned to just below key resistance levels ahead of Apple's earnings.
The earnings were a blowout but the afterhours reaction to the news was muted. Shares were up only about $1 and multiple analysts downplayed the results as "already priced into the stock."
Whether the overnight decline has anything to do with Apple is of course unknown. We could be looking at simply another failure at resistance in a continuation of the October decline. The geopolitical events are too numerous to mention and China posted only 7.3% GDP growth in Q3. That is the slowest growth since the financial crisis.
If the rally is going to fail this is exactly where it should happen. The S&P futures returned to just over 1,900 before retracing their steps overnight.
I went ahead and added several plays but PLEASE do not enter these positions unless the S&P is i positive territory. Selling option premium is a bullish strategy for bullish markets. There is no reason to cause yourself grief by selling into a down market. If the S&P openes negative and then rebounds later in the day then you can initiate the positions.
I added several spread positions rather than outright naked puts. With the volatility in the market and very few stocks showing a positive trend it is best to hedge our bets and try to just scrape a few dollars off the top and not try to go for a home run. The market has beaten us up pretty bad the last several weeks so we need to be cautious with any new plays.
Send Jim an email
Long Term Positions
Current Position Changes
Here are the earnings dates for our current positions. We need to be out of the positions before the earnings. That is not applicable for the long term positions or stock held for future call writing. Covered call positions will be evaluated the week before the expiration.
FB - Oct-29th
MU - Jan 6th
AMBA - Dec 5th
CLVS - Oct-30th
KPTI - Nov 5th
PRAN - UNK
ATK - Alliant Techsystems (Stopped 10/16)
ATK dropped sharply with the market on the 16th and stopped us out at $122.25 only to rocket higher to nearly $130 the following day. That is the problem with stops. You can't live without them and you can't live with them.
Closed Nov $120 put, entry $2.30, exit 3.50, -1.20 loss
TKMR - Tekmira Pharma (Covered Call Closed)
Despite the relative strength of TKMR last week in a weakening market I recommended we close the covered call while we still have a profit. That was the right call with TKMR collapsing to trade at $18.50 this week.
Closed TKMR shares, entry $20.85, exit $23.65, +2.80 gain.
Closed Oct $22.5 call, entry $2.50, exit $2.05, +.45 gain.
Net gain +3.25
LOCO - El Pollo Loco (Stopped 10/15)
The market drop on the 15th was too much for LOCO to handle and the stock dropped over $2 intraday when the market opened down -370 points. We were stopped out at $33.25.
Closed Nov $34 Put, entry $3.10, exit $4.81, -1.71 loss.
ISIS - ISIS Pharma (Covered Call Closed)
ISIS shares were weakening and last week I recommended we close the covered call while we still have a profit.
Closed ISIS shares, entry $34.80, exit $37.23, +2.43 gain.
Closed Oct $38 call, entry $2.50, exit $.65, +1.85 gain.
Net gain +4.28
SPLK - Splunk (Stopped 10/15)
Splunk fell below support during the Nasdaq crash and then rebounded with the market. We were stopped out on the 15th when shares fell to $49.61 with our stop at $49.65. That was the low for the week. Stopped out by 4 cents.
Closed Nov $52.50 put, entry $2.03, exit $5.20, -3.17 loss.
New Short Put Recommendations
MU - Micron Technology
Micron has already reported earnings and raised guidance. The stock is rebounding from the MCHP inspired lows from last week and it received multiple upgrades after its earnings report.
Bull put spread:
Sell Nov $32 put, currently $2.96, no stop.
Buy Nov $28 put, currently $0.92, no stop.
Net credit $2.04, net risk $1.96.
AMBA - Ambarella
Ambarella crashed on the MCHP warnings and then rebounded once the market weakness passed. The positive earnings from Texas Instruments (TXN) tonight should provide support for the chip sector on Tuesday. Ambarella really has no immediate competitive worries and their products are on backorder so downside should be limited unless the market takes another plunge.
Earnings are Dec 4th and after the November options expire.
Bull put spread:
Sell Nov $43 put, currently $5.10, no stop.
Buy Nov $38 put, currently $2.45, no stop.
Net credit $2.55, net risk $2.45.
KPTI - Karyopharm Therapeutics
KPTI crashed from $44 to $29 three weeks ago and multiple brokers came out pounding the table on this stock. Merrill Lynch said their price target is $57 and the consensus target is $54.25. KPTI is moving off that $29 bottom and is about to break over short term resistance at $35. There is a big drug study due out in December that will provide a positive catalyst ahead of that event.
Earnings are Nov 5th so we need to be out by then.
Sell short Nov $30 put, currently $1.30, stop loss $31.65.
MSFT - Microsoft
Microsoft reports earnings this Thursday. I am expecting them to beat estimates because Intel said PC sales and server sales were booming. I am recommending a put spread on MSFT to hold over the earnings report. I know this is risky but given the beaten down tech sector and the potential for a good report I think it is worth the risk. If you are not willing to take the risk please don't enter this position.
Bull put spread:
Sell Nov $46 put, currently $2.58, no stop.
Buy Nov $43 put, currently $0.93, no stop.
Net credit $1.65, net risk $1.35.
BBRY - BlackBerry
There was a news article on Bezinga.com on Monday saying Lenovo would make an offer for BlackBerry worth $15 by the end of the week. Shares rallied on the news. This has been a recurring event. However, BlackBerry is a Canadian company and the Canadian government has previously told Blackberry a Lenovo offer would not win the necessary approvals due to security concerns.
Canadian Prime Minister Stephen Harper told Reuters in February 2012 that he wanted Blackberry to grow as a "Canadian company." BlackBerry's handset business turned a profit last quarter as the three year restructuring program reaches a conclusion.
Earnings are Dec 19th.
I believe the spike in BBRY shares will fade if no offer appears. I want to take advantage of the spike to sell a call spread.
Sell Nov $9 call, currently $1.60, no stop.
Buy Nov $11 call, currently $.58, no stop.
Net credit $1.02, net risk $0.98
New Covered Call Recommendations
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)
CLVS - Clovis Oncology (Covered Jan Call)
FB - Facebook (Long Term Short Put)
PRAN - Prana Biotech (Short Put - Update)
ISIS - ISIS Pharma (Covered Call)
TKMR - Tekmira Pharma (Short Put)
TKMR - Tekmira Pharma (Covered Call)
ATK - Alliant Techsystems (Short Put)
SPLK - Splunk (Short Put)
LOCO - el Pollo Loco (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.