You could not tell it by looking at the indexes on Friday but it was a tough week. The +190 point rebound on the Dow means it only lost -225 points for the week. At its lows on Friday the Dow was down nearly -500 points for the week.
We were stopped out of several more positions by the market declining to a five-week low as represented by the Dow. The Nasdaq 100 fell to a three-month low before rebounding. Since selling put premium is a strategy for bullish markets it is not surprising that we had a bad week.
Finding plays for next week was very difficult. The charts are very choppy with alternating gains/losses and then a moon shot on Friday as all the shorts covered. I am anticipating some continued weakness in the market and definitely some increased volatility around the ECB decision on Thursday.
I am also expecting the increased earnings activity to produce more negative surprises. Last January the market dropped -6% starting the week after option expiration with the low on February 3rd. While I am not predicting a repeat I do believe we will have continued volatility as those vents above play out.
I picked several bear call spreads as the safest plays in what could be a down market. Please don't play anything if you are concerned about the volatility. The last couple weeks have been painful and there is no harm in watching from the sidelines until the market picks a post ECB direction.
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
LNG - Feb 20th, exit 19th
GILD - Feb 3rd
INSY - Mar 4th
FEYE - Feb 11th
FIVE - Mar 25th
CGNX - Feb 12th
NPSP - Feb 18th, no exit
GWPH - Feb 5th
GOGO - Mar 12th
SODA - Feb 25th
FUEL - Feb 19th, exit 18th.
NGVC - Natural Grocers (Closed)
The January positions on NGVC expired or were closed on Friday. The short Jan $30 put was in the money so everyone should have closed that rather than be put the stock. The long Jan $25 put expired worthless.
Short Jan $30 put, entry $5.90, exit $3.10, +2.80 gain.
Long Jan $25 put, entry $1.40, expired, -1.40 loss.
Net gain $1.40.
HLF - Herbalife (Closed)
I recommended we close the HLF short $35 call last Tuesday. The long Jan $40 call expired worthless.
Short Jan $35 call, entry $4.10, exit .50, +3.60 gain.
Long Jan $40 call, entry $2.05, expired, -2.05 loss.
Net gain $1.55
SFM - Sprouts Farmers Market (Closed)
The short Jan $35 put was closed at expiration.
Closed Short Jan $35 put, entry $2.00, exit $1.10, +.90 gain
ANET - Arista Networks (Closed)
We were stopped out of the short Jan $60 call on Jan 8th and I recommended we close the long call last week.
Short Jan $60 call, entry $3.35, exit $7.00, -3.65 loss.
Long Jan $65 call, entry $1.25, exit $1.55, +.30 gain
Net loss 3.35.
FEYE - FireEye (Stopped)
The market drop last week knocked us out of the new FEYE put.
Short Feb $34 Put, entry $2.25, exit $3.30, -1.05 loss
INSY- Insys Therapeutics (Stopped)
The market drop last week knocked us out of the new INSY put. I probably had the stop too tight but I am trying to prevent large losses like we had in the ANET position.
Short Feb $44 Put, entry $2.25, exit $3.10, -.85 loss
SRPT - Sarepta Therapeutics (Expired/write)
SRPT declined last week and the Jan $15 call expired worthless. There was no follow through on the big Monday drop. I am recommending we write a new call using the February $13 strike.
Short Jan $15 Call, entry $.88, expired, +.88 gain.
Sell short Feb $13 call, currently .80, no stop.
NPSP - NPS Pharma (Called)
Shire PLC made an offer for $46 cash for NPSP. That ensured we were called away on this position.
NPSP shares, entry $36.72, called @ $38, +1.28 gain.
Short Jan $38 call, entry $1.38, called, +1.38 gain.
Net gain +2.66
SODA - Soda Stream (Expired)
We were stopped out on the short $17.50 call back in December. We retained the long $22.5 call because it had no value and was not worth closing. It finally expired on Friday.
Short Jan $17.50 call, stopped 12/23, -1.50 loss.
Long Jan $22.50 call, entry .80, expired, -.80 loss.
Net loss - $2.30
CLVS - Clovis Oncology (Called)
Our long term covered call on Clovis finally came to an end. I said last week I hoped we could buy back the January $55 call but Clovis did not cooperate with a $10 gain for the week. This play has been running since January when Clovis dropped sharply to put us significantly underwater. We recovered $18 in premium but still ended up with a $7 loss.
CLVS shares, entry $77.93, exit $55.00, -22.93 loss.
Short July $75 call, entry $16.20, exit $2,00, +14.20 gain.
Short Oct $40 put, entry $6.14, exit $5.60, +.54 gain.
Long Oct $45 call, entry $6.40, exit $3.65, -2.75 loss.
Short Jan $55 call, entry $3.80, called, +3.80 gain.
Net loss -$7.14.
LNG - Cheniere Energy (Short Put)
Cheniere is building two massive LNG export facilities in Louisiana and Texas. The first will not be operational until early 2016. The oil crash really has no impact on Cheniere. It has caused some volatility in the stock but it is holding right at 4 month highs. Cheaper natural gas is actually good for Cheniere since it makes their LNG cheaper and more attractive than that from places like Australia or Qatar.
Cheniere has already presold $5 billion a year in LNG for the next 20 years. These are long term contracts where the buyer has to take or pay. If they no longer want the gas they still have to pay.
Earnings are Feb 20th but they don't matter since Cheniere is not yet operating.
Sell short Feb $65 put, currently $2.00. Stop loss $70.35.
GOGO - GoGo Inc (call spread)
Gogo is getting a lot of positive news but the stock is heading lower. Friday's close was a eight-month low. The next support is the $12 low from May. Despite Gogo's success the competitors are increasing.
Earnings are not until March 12th.
Sell short Feb $12 call, currently $2.15, stop loss $15.15.
Buy long Feb $15 call, currently .65, no stop.
Net credit $1.50
SODA - Sodastream (call spread)
We were unlucky on that last SODA position. The stock had one good day to stop us out and then continued to move lower. With SODA closing at a new low on Friday I am going to try this play again.
Earnings Feb 25th.
Sell short Feb $15 call, currently $2.95, stop loss 18.65
Buy long Feb $19 call, currently .80, no stop.
Net credit $2.15
FUEL - Rocket Fuel (call spread)
Rocket Fuel has run out of fuel. The stock closed at a new low on Friday. The artificial intelligence digital advertising company seems to have developed brain fade. Despite a continuous stream of headlines the stock continues to fall.
Earnings Feb 19th. Expiration Feb 20th, exit before earnings.
Sell short Feb $11 call, currently $2.40, stop loss $14.45
Buy long Feb $15 call, currently .80, no stop.
Net credit $1.60.
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)
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)
INSY - Insys Therapeutics (Short Put)
CGNX - Cognex (Call Spread)
FIVE - Five Below (Call Spread)
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.