This was a strange week with numerous stocks reversing their former trends both bullish and bearish.
The market chopped higher last week with the major gains in the Dow and the Russell losing ground for the week. The tech stocks were mixed but ended the week with a small gain.
The individual stock charts were really mixed. The smaller stocks rolled over early in the week and then recovered some by Friday while the blue chips and especially big cap techs moved higher.
The confusing factor was the plunge by the VIX despite the weakness in so many small stocks. We know the VIX is based on S&P-500 options so it is weighted towards the big cap movement and that was really apparent last week.
We had a lot of reversals in our portfolio. It was a busy week with stops and closures.
I believe the market will retain an upward bias for the next several weeks. The closer we get to the end of December the more worried I will become. I think we could see a sharp downdraft in early January so I tried to stay in the December options in this newsletter.
Futures are negative tonight and the S&P has closed over its 5-day average for the last 27 days. That is the longest streak since 1928. The longer the streak lasts the bigger the dip when it ends.
Tighten your stop losses and let's try to avoid any big losses in the coming weeks. Thanksgiving week is normally slightly bullish but there are no guarantees.
Send Jim an email
Long Term Positions
Current Position Changes
AMBA - Ambarella (Expired)
The AMBA put spread expired on Friday well out of the money for a successful play.
Short Nov $43 put, entry $4.10, expired, +$4.10 gain
Long Nov $38 put, entry $1.86, expired, -1.86 loss
Net gain +$2.24.
UAL - United Airlines (Close)
With oil prices firming ahead of the OPEC meeting I am recommending we close the position for a profit. The put has depreciated to only 30 cents and we don't have a lot to gain by leaving it open.
Close Dec $47 put, entry $1.70, currently .30, +1.40 gain.
UPS - United Parcel (Close Short Put)
UPS has lost its forward momentum after confusing comments on the holiday shopping season last week. I recommended we close the short put and continue to hold the long put.
Closed Dec $110 put, entry $5.41, exit 3.95, +1.46 gain.
Continue to hold: Long Dec $100 put, entry .68, currently .19.
FEYE - FireEye (Stopped)
FEYE dropped sharply on earnings and then began a significant rebound. That rebound failed and we were stopped out on the Wednesday drop. I am recommending we leave the long put open for another week just in case the second rebound fails as well.
Closed Dec $34 Put, entry 3.33, exit $3.60, -.27 loss.
Leave open the Dec $29 put, entry $1.13, currently .45
FB - Facebook (Closed)
Facebook lost forward momentum after the negative earnings surprise and I recommended we close it and avoid any further risk.
Closed Jan $100 put, entry $33.20, exit $25.65, +7.55 gain.
DAL - Delta Airlines (Close)
I am recommending we close this airline play before the OPEC meeting. Oil prices could rise after the meeting and pressure the transports.
Close Dec $45 put, entry $2.52, currently $2.30, +.22 gain.
Leave the long Dec $40 put open just in case.
HPQ - Hewlett Packard (Close)
HP has earnings after the close on Tuesday. While I think they will likely be positive there is definitely no guarantee the stock price will continue higher. We have seen a lot of disasters lately on decent earnings. I am recommending we close the short put and retain the long put just in case of a disaster.
Close Dec $38 put, entry $1.87, currently $1.37, +.50 gain.
Retain long Dec $34 put, entry .38, currently .16, -.22 loss.
CLDX - CellDex (Expired)
Celldex did decline as expected the day we entered the position but then rebounded to $20.83 at the close on Friday. Both calls expired in the money for a small loss.
Closed Short Nov $17 call, entry $1.25, expired $3.85, -2.60 loss
Closed Long Nov $19 call, entry .35, expired $1.85, +1.50 gain.
Net loss -1.10
GPRO - GoPro (Stopped)
It was not a fun week for GoPro. The stock gapped down on Thursday after the company announced a secondary offering of 10.3 million shares at $75 per share. The stock was at $82 when the offering was announce and it immediately plunged to $74 on the huge discount. This was another stupid move on the part of GoPro and it cost us a lot of money when the stock gapped down at the open.
Close Dec $72.50 put, entry $3.31, exit $7.53, -4.22 loss.
New Short Put Recommendations
XONE - Exone Co. (Put Spread)
XONE has been bouncing around in the $20-$23 range for a month and it looks like they are starting to show some upward indications. Resistance is $25. This is a 3D printer company and the sector got a lift on Monday on M&A rumors about 3D systems (DDD).
I am going to recommend a put spread that splits the range with a $20 long put and $25 short put. The premium makes it worth the risk and the $20 level has been strong support.
Buy long Dec $20 put, currently .90, no stop.
Sell short Dec $25 put, currently $3.70, no stop.
WWWW - Web.com (Put Spread)
Web.com was knocked for a big loss in early November on a revenue miss but the stock is rebounding nicely. They are advertising heavily and the press is good. This is a narrow spread so the risk should be minimal. (famous last words)
Buy long Dec $17.50 put, currently .70, no stop.
Sell short Dec $20.00 put, currently $2.30, no stop.
KORS - Michael Kors (Put Spread)
KORS was also knocked for a loss after earnings on Nov 4th. There was some follow on selling but starting on the 12th the rebound has been steady. The news on the 12th was that consumers appear to be moving towards the big ticket items for their holiday shopping. Another analyst said Coach had been mass producing its bags so cheaply that everyone was moving from Coach to Kors. For whatever reason the stock is rebounding.
Buy long Dec $75 put, currently $1.90, no stop.
Sell short Dec $80 put, currently $4.90, no stop.
VJET - Voxeljet (Bearish Call Spread)
VJET is not getting any of the love that DDD and XONE are experiencing. The stock is down and out and closed right above a 52-week low today despite the M&A rumors on DDD. I expect it to fall into the single digits.
Buy Long Dec $12 call, currently 55 cents, no stop.
Sell Short Dec $10 call, currently $1.50, no stop.
These are some additional possibilities if you are looking for something else to trade. These are not official recommendations and will not be followed in the newsletter but if you want more trades I would start here.
SCTY - SolarCity $56.30
Long Dec $55 put, currently $2.50
Short Dec $60 put, currently $5.00
FSLR - First Solar $50.66
Long Dec $48.50 put, currently $1.20
Short Dec $52.50 put, currently $3.05
BABA - Alibaba $113.92
Long Dec $110, currently $2.40
Short Dec $115, currently $4.60
Long Dec $110, currently $2.40
Short Dec $120, currently $7.90
AMBA - Ambarella $51.51
Long Dec $47.50, currently $1.95
Short Dec $52.50, currently $3.50
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)
AMBA - Ambarella (Put Spread)
UAL - United Continental (Short Put)
UPS - United Parcel (Short Put)
FEYE - FireEye (Put spread)
HD - Home Depot (Put spread)
DAL - Delta Airlines (Put spread)
HOG - Harley Davidson (Put spread)
HPQ - Hewlett Packard (Put spread)
CSC - Computer Sciences (Put spread)
UNG - Natural Gas ETF (Put spread)
CLDX - Celdex (Call spread)
GPRO - GoPro (Short Put)
ACHC - Acadia Healthcare (Put spread)
BHI - Baker Hughes (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.