After a super spike to 31 the VIX has bled points and closed at 12.67 on Monday.
The good news is that the market is in rally mode and will probably continue making new highs until Thanksgiving. The bad news is that daily new highs suck all the life out of the VIX and option premiums.
That is ok if you are buying calls in an up market but it is the pits for selling puts because the instant a strike falls out of the money the premium evaporates. Because of this bull market syndrome I had to move back to writing a bunch of put spreads instead of simple naked puts.
Buy writing a put spread that is slightly in the money on a rising stock we get the benefit of the premium that is still in the money and the benefit of the evaporation from the strike that is now out of the money.
There was no shortage of bullish candidates because more than 80% of the S&P stocks are over their 50 day averages. We just need to keep it that way for a couple more weeks.
Oppenheimer raised their end of year S&P target from 2014 to 2080 because of the low fuel prices, rising earnings and low interest rates.
Basically the end of QE3 did not result in a significant decline as it did in QE1 and QE2 and traders now believe there is no risk in the market. One day we will wake up to find that risk is indeed alive and well but until then we should take advantage of this bull market.
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.
MU - Jan 6th
UAL - Jan 22nd
UPS - Jan 23rd
AMBA - Dec 5th
PRAN - UNK
KPTI - Karyopharm Therapeutics (Closed)
I recommended we close KPTI to avoid any unnecessary earnings surprises. On Tuesday the stock plunged after opening slightly higher. It was a volatile week and they announced earnings today accompanied by more volatility. This will probably be a good candidate for another short put next week.
Closed short Nov $30 put, entry $1.05, exit $.40, +.65 gain
MSFT - Microsoft (Close Put Spread)
The option premiums have declined to the point where there is nothing to be gained by leaving this position open.
Close short Nov $46 put, entry $2.15, currently .07, +2.08 gain.
Close long Nov $43 put, entry $.83, currently .03, -.80 loss.
Net gain $1.28.
SNDK - SanDisk (Close Short Put)
SanDisk has lost its forward momentum and been trading sideways to down for the last week. The market has been moving steadily higher. If that were to change we could see a corresponding dip in this nonperforming stock. Let's exit while we have a profit.
Close Dec $85 put, entry $2.00, currently .83, +1.17 gain.
VIX - Volatility Index (Close Call Spread)
Volatility died and our call spread has nothing else to gain. We had a nice play, which we will repeat on the next volatility spike.
Close short Nov $16 call, entry $4.85, currently .35, +4.50 gain.
Close long Nov $26 call, entry $1.63, currently .05, -1.58 loss.
Net gain $2.92.
KNDI - Kandi Technologies (Closed)
Kandi reported earnings today and the stock plunged as a result. The earnings date was not published on any of the normal listing pages or we would have exited before the event. The drop triggered our stop at 15.75.
Closed Dec $17.50 put, entry $2.60, exit $3.10, -.50 loss.
GPRO - GoPro (Closed)
GoPro was downgraded by Citron Research last Wednesday and the stock fell sharply to stop us out at $76.35. I had hoped by using a November option we could avoid a big price spike on volatility. Unfortunately it did not work out when the stock fell -$10 on the 5th. The research firm said the stock target was $30. The analyst said "GoPro has spun a story, which is a very convenient fiction, for Wall Street to parrot, that is can become a media company." Interesting research paper. GoPro at $30
Today they announced an $800 million secondary offering that knocked another 4% off the price. GoPro as a momentum stock may be done.
Closed Nov $75 put, entry $2.60, exit $4.90, -2.30 loss.
New Short Put Recommendations
FEYE - FireEye (Put spread)
FireEye reported earnings on the 4th and plunged -20% afterhours. They missed on both earnings and revenue. However, that drop is being quickly erased thanks to a +45% rise in billings to $165 million and more than consensus at $154 million. Gross margins rose to 71%. Stifel Nicolaus reiterated a buy rating with a $45 target. FBN Securities reiterated an outperform rating.
Shares began accelerating after they announced a $1.9 million contract with the Dept of Energy with comprehensive real time threat intelligence, solutions, services to support the DOE's Cybersecurity Risk Information Sharing Program (CRISP). FireEye will be coordinating with Norse, a leader in cyber attack intelligence, to implement the solutions.
Also on Monday FireEye said it warned Apple back in July that the IOS had a security flaw that would allow attackers to gain control of the device. One wrong tap and an attacker can seize control. FireEye said the bug exists in IOS versions 7.1.1, 7.1.2, 8.0, 8.1 and 8.1.1 beta.
I think FireEye has recaptured the interest of investors and will move over resistance at $34. I am recommending a Dec 29/34 put spread.
Sell Dec $34 put, currently $3.00, no stop.
Buy Dec $29 put, currently $0.95, no stop.
HD - Home Depot (Put Spread)
Home Depot shares closed at a new high on Monday at $98.16. Shares traded over that level on the 31st but could not hold it. I believe HD will continue higher and trade over $100 in the near future. Stocks that reach $100 tend to surge over that level on bullish expectancy.
Business is booming and the home builders are reporting unexpectedly high numbers.
Sell short Dec $100 put, currently $3.65, no stop
Buy Dec $95 put, currently $1.54, no stop.
DAL - Delta Air Lines (Put spread)
Delta closed at a new high on Monday just over $43. There has been a little consolidation over the last week and I think shares will fly higher in the days ahead. This is their busy quarter and with oil so cheap they are going to be printing money.
Sell short Dec $45 put, currently $2.75, no stop.
Buy Dec $40 put, currently $.77, no stop.
HOG - Harley Davidson (Put spread)
I am going to recommend the 62.50/67.50 spread but I really think you could step out to the $70 for a home run.
Sell short Dec $67.50 put, currently $2.37, no stop
Buy Dec $62.50 put, currently .60, no stop.
HPQ - Hewlett Packard (Put spread)
Hewlett Packard just announced a 3D printer that is going to be the first of many and lead to HP monopolizing the space. Shares have been in a steady uptrend since the October bottom. I think they will eventually make new highs. However, they have earnings on Nov 25th and I want to exit the play on Monday the 24th. There is pretty decent support at $35 and $36 so the downside risk is minimal.
Sell short Dec $38 put, currently $1.93, no stop.
Buy Dec $34 put, currently .40, no stop.
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)
MU - Micron (Put Spread)
AMBA - Ambarella (Put Spread)
KPTI - Karyopharm Therapeutics (Short Put)
MSFT - Microsoft (Put Spread)
SNDK - SanDisk (Short Put)
BBH - Biotech ETF (Short Put)
UAL - United Continental (Short Put)
UPS - United Parcel (Short Put)
GPRO - GoPro (Short Put)
KNDI - Kandi Technologies (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.