There is a saying in the market. "As January goes, so goes the year." So far we are not off to a good start and I certainly hope the next two weeks are going to reverse the opening trend.
Unfortunately the outlook is not good. With major earnings warnings, analysts slashing estimates, crude prices headed to financial crisis levels at $40 and the global economy falling into recession the market outlook is darkening.
Obviously the market has overlooked a lot of bad news in the past. Crude prices began falling in June and the global economy was falling all of 2014. The markets still ended close to the high for the year. That may be our current problem. Fund managers were hanging on to stocks to get that year end print and the 2014 gains before heading for the sidelines. Now that we are in the new tax year with oil prices are headed for $40 and earnings estimates getting slashed daily they are not interested in buying the dip.
We have several positions expiring on Friday so you need to decide if you want the options to expire or if you will close them on Friday. Personally I like to close them just to avoid any unexpected surprises. I know traders that had options exercised that should have expired worthless but the party on the other side did not know what they were doing.
Unless the market implodes over the next four days we are going to be called away on the Clovis Oncology position. It is only $2.95 in the money so anything is possible. I would love to see it drop back to $54 so we can write another call on the stock. We are still slightly underwater on the position by about $4. If it gets close to the $55 strike I may send an email recommending closing the short call and writing a new one. The trend is up so I think we could write something higher for a profit. Stay tuned.
The market drop early last week knocked us out of several positions. It is really tough to make money selling premium in a bearish market. We need to see a bullish trend develop before we start loading up the portfolio again. Keep your plays to a minimum. You don't have add everything I am recommending.
Send Jim an email
Long Term Positions
Current Position Changes
Here are the earnings dates for our current positions for those with expiration dates after earnings. 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.
BHI - Jan 20th, no exit
GILD - Feb 3rd
INSY - Mar 4th
FEYE - Feb 11th
NPSP - Feb 18th
GWPH - Feb 5th
ANET - Arista Networks (Stopped)
Arista was a bearish call spread and the stock found a bottom and rebounded. The short Jan $60 call was stopped out at $66.25. The long $65 call is still open and I am recommending we close it at the open on Tuesday. The stock has stalled at the $66 level and I want to close the call while it still has some premium left.
Closed Short Jan $60 call, entry $3.35, exit $7.00, -3.65 loss
Close Long Jan $65 call, entry $1.25, currently $1.95, +.70 gain
Net loss -$2.85
FEYE - FireEye (Stopped)
The short Feb $30 put was stopped out on the big market decline last Tuesday. The stock has rebounded more than $5 since that Tuesday stop. You can't fight a negative market.
Closed Feb $30 put, entry $1.93, exit $2.25, -.32 loss
ONVO - Organovo (Stopped)
The Tuesday market drop also knocked us out of the Organovo covered call for a minor loss.
Close ONVO shares, entry $7.10, exit $6.65, -.45 loss.
Closed short $8 call, entry .36, exit .22, -.14 gain.
Net loss .31 cents.
HLF - Herbalife (Close)
Herbalife rebounded from the big decline last week to fail at the $34 level. We currently have a bear call spread and the Jan $35 call has declined from $4.10 to .65 cents. Rather than take the chance of HLF suddenly spiking again I am recommending we close the position. I would leave the long call open just in case there is a surprise spike.
Close short Jan $35 call, entry $4.10, currently .65, +3.45 gain.
Retain long Jan $40 call, entry $2.05, currently .14, -1.91 loss.
Net gain +1.54.
FEYE - FireEye (Short Put)
Because of the rebound by FEYE over the last 4 days I am going to reload the short put play on this stock. It broke out to a three month high on Monday after the Pentagon's Twitter and YouTube accounts were hacked by ISIS. FireEye and Palo Alto Networks are the two technology leaders in the cyber security segment today.
Sell short Feb $34 put, currently $2.25, stop loss $32.45.
INSY - Insys Therapeutics (Short Put)
Insys has broken out to a new 44-week high and does not appear to be fading. There was a strong +6% gain today on the breakout. Earnings are not until March so we can let this play run to expiration.
I am playing this as close to the stock price as I can using the $44 strike. Given the current velocity you could use the $45 or $46 strike if you can stand a little volatility.
Sell short Feb $44 put, currently $1.90, stop loss $45.25
CGNX - Cognex Corp (Bear call Spread)
Cognex is heading down at a high rate of speed. The weak market is not helping. Support should be in the $35 area but the speed of the decline suggests it may not hold.
Earnings are Feb 12th.
Sell short Feb $35 call, currently $2.95, stop $38.45
Buy long Feb $40 call, currently .85, no stop.
FIVE - Five Below (Bear call Spread)
The teenage specialty store where everything it $5 or less warned on earnings and sales last week and it was a pile on with a number of brokers cutting estimates and ratings on the retailer. With more than 20 retailers already posting weaker than expected comps or warning about Q4 the retail earnings parade is likely to be dismal.
Earnings March 25th.
Sell short Feb $30 call, currently $4.80, No stop.
Buy long Feb $35 call, currently $1.90, no stop.
Net credit $2.90.
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)
BHI - Baker Hughes (Covered Call)
NGVC - Natural Grocers VC (Put spread)
SODA - Sodastream (Bearish Call Spread)
VIX - Volatlity Index (Bearish call spread)
OVX - Oil Volatlity Index (Bearish call spread)
HLF - Herbalife (Bear Call Spread)
GILD - Gilead Sciences (Short Put)
ONVO - Organovo Holdings (Covered Call)
SFM - Sprouts Farmers Market (Short Put)
ANET - Arista Networks (Bear Call spread)
SRPT - Sarepta Therapeutics (Covered Call)
NPSP - NPS Pharma (Covered Call)
NPSP - NPS Pharma (Covered Call)
GWPH - GW Pharma (Short Put)
FEYE - FireEye (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.