If you have been working nights for the last week you probably did not see the incredible volatility and triple digit moves in the Dow on 4 of the last 5 days. Unfortunately our positions were alive and well and in the middle of those crazy 250 point swings.

We were stopped out on a lot of plays but the losses were not as bad as they could have been. I am also taking the opportunity to close a lot of March positions while they still have value. Several of our leftover calls and puts did rather well in the trend change and that helped offset the earlier stops on the short positions.

As I said last week I am tired of recommending something on Monday evening and having the market gap up/down 200 points at Tuesday's open. Rather than ask you to wait for a positive market I am adding entry triggers to each play to make sure the stock is going in our direction when the play is entered.

While every investor should look at the underlying security before placing the premium trades a lot of people don't have that ability. They are forced to enter their trades before the market opens and then leave for work. By using the entry triggers that allows you to place conditional trades and leave for work knowing that an unexpected gap at the open won't launch you into a losing position.

The market swings last week and today made it very difficult to find any potential plays. Almost every chart had alternating moves and was trendless. The stocks that did have decent trends had no premium in their options because there was no mystery. That always amazes me that a nice chart like the one below has no premium on the options. The chart is 100% directional so the puts have nearly zero premiums. You would think people would be buying puts to protect their gains. The other factor is that options for CGNX have $5 strikes and not $1 strikes. That means the closest put strike not in the money was $45 and the bid/ask was .15/.55. Not a lot you can do with that kind of premium.


I tried to mix it up with both call and put spreads and I think we could make some decent money if the market cooperates. This week is normally bullish, next week is normally weak and the first week of April is typically bullish. We are only three weeks away from the start of Q1 earnings and S&P IQ is projecting a -3% decline for Q1. The market does not appear to care that earnings are falling and economic reports other than the Nonfarm Payrolls are the worst since 2009. Eventually fundamentals will matter.

Jim Brown

Send Jim an email



Current Portfolio


The fourth column in the portfolio graphic is the earnings date. We will always exit a position before that date unless specifically mentioned otherwise in the play description. For the plays where we will not exit I added the No-X designation in the portfolio.

Current positions

Covered Calls


Current Position Changes


CREE - Cree Inc (Stopped)

Cree collapsed through support on the Intel earnings warning and stopped us out at $38.45 for a minor profit.

Closed March $40 put, entry $3.11, exit $1.97, +2.24 gain.



ACAT - Arctic Cat (Close)

Arctic Cat is moving sideways and today it touched short term support. I am recommending we close the short put to avoid a bigger loss. Retain the long put just in case until Thursday's close.

Close March $40 put, entry $2.15, currently $3.30, -1.15 loss
Retain long March $35 put, entry .50, currently .25, -.25 loss.



TASR - Taser Intl (stopped)

The short April $20 call was stopped at $23.25 and the long April $23 call remains open.

Closed April $20 call, entry $2.28, exit $3.50, -1.22 loss
Retain long April $23 call, entry .74, currently $1.45, +.71 gain



FIVE - Five Below (Stopped)

Shares of FIVE suddenly found buyers and the stock rebounded $2 over the last four days. We were stopped out of the short call at $29.65. The long call remains open.

Closed April $25 call, entry $4.70, exit $5.50, -.80 loss.
Retain the long April $30 call, entry $1.20, currently $1.90, +.70 gain.

We were also stopped on the older play using March options.

Closed March $30 call, entry $2.20, exit .35, +1.85 gain.
Retain long March $35 call, entry .35, currently zero, -.35 loss.



OVX - Oil Volatility index (Stopped)

We were stopped out of the OVX when it spiked over $58.15 on Monday. The new 6 year low on oil prices was too much to overcome. It had been moving in our direction but volatility returned. I am also closing the long call because I don't think it is going higher.

Closed Short mar $40 call, entry $10.98, exit $12.50, -1.52
Close the long March $60 call, entry $1.50, exit $1.00, -.50 loss



BHI - Baker Hughes (close call)

We have a covered call on Baker Hughes surrounding their acquisition by Halliburton. We have a short April $62.50 call that has been in the money but the decline in energy the last several days has reversed that situation. I wrote several weeks ago that i would like to buy that short call back ahead of the acquisition because the value of the stock in the acquisition was higher than our $62.50 strike.

Halliburton is paying 1.12 shares of HAL stock, currently $40.53, plus $19. That makes the value of the deal today at $64.39. If oil finds a bottom here and energy stocks rise that price will go up. Shareholders of both companies are voting on the deal on March 27th. It is expected to be approved. If for some reason it does not happen Halliburton has to pay a breakup fee of $3.5 billion to Baker Hughes.

I am recommending we close the short call and take our chances on the acquisition raising the stock price.

Because the deal is expected to close there is no premium on options past April so we can't sell a higher/farther strike.

Close April $62.50 call, entry $2.30, currently $1.00, +1.30 gain
Previously closed Jan $67.50 call, entry $2.65, exit .27, +2.38 gain.



RKT - Rock-Tenn (Stopped)

The leftover long put on RKT was stopped out at $65.45 on the 13th for a nice gain to rescue this losing position.

Closed long March $70 put, entry $1.34, exit $4.40, +3.06 gain.
Previously closed short March $75 put, entry $4.14, exit $6.30, -2.16 loss
Net gain .90 cents.



INTC - Intel (Close)

Intel shares appear to have found a bottom at $30.50 and I am recommending we close the leftover long put.

Close March $33 put, entry .40, currently 2.20, +1.80 gain.
Previously closed March $36 put, entry 1.88, exit 2.57, -.69 loss.
Net gain $1.11



MSFT - Microsoft (Close)

Microsoft has rebounded for the last two days after two weeks of declines. Close the long put.

Close long March $42 put, entry .32, currently .68, +.34 gain.
Previously closed short March $45 put, entry $1.57, exit $1.65, -.08 loss
Net gain 16 cents.



Cleanup and close leftovers on CSCO, CDW, DHI, INFA, FCX

Close CSCO Long March $29 put, entry .36, currently .78, +.42 gain.
Previously closed Short March $32 put, entry $2.49, exit $2.70, -.21 loss
Net gain 21 cents.

Close CDW Long March $35 put, entry .34, currently .25, -.09 loss
Previously closed Short Mar $40 put, entry $2.34, exit $2.90, -.56 loss
Net loss 65 cents.

Close DHI Long March $25 put, entry .52, currently .08, -.44 loss.
Previously closed Short march $28 put, entry $1.92, exit $1.56, +.36 gain.
Net loss 8 cents.

Close INFA Long March $40 put, entry 63 cents, currently .05, -.58 loss
Previously closed Short March $45 put, entry 2.83, exit $2.55, +.28 gain
Net loss 30 cents.

Close FCX Long March $16 put, entry .40, currently .05, -.35 loss.
Previously closed Short March $19 put, entry $1.50, exit .17, +1.33 gain
Net gain 98 cents.


VA - Virgin Airways (Add stop loss)

I am not closing the VA long put. I think Virgin has the potential for another drop. Retain the long put until Thrusday's close or we are stopped out at $34.45. It is in the money so any decline will be free money for us.

Long March $35 put, entry $1.30, currently $1.45. Stop $34.45



New Recommendations


SINA - Sina Corp (Call spread)

Sina missed on earnings last week and the stock is making new lows on a daily basis. The only question here appears to be when buyers will step in and at the rate it is falling it may not be soon.

The entry trigger on SINA is $32.20.

If SINA trades at $32.20:
Sell short April $30 call, currently $2.67, stop loss $34.25
Buy long April $32.50 call, currently $1.16, no stop.
Net credit $1.51.



TFM - Fresh Market (Put spread)

Fresh Market beat on earnings on the 5th and has been rising steadily. On Monday it closed just under $42, which is resistance. If the market continues to be positive I think TFM is going to break through that resistance and make a new 52-week high.

Earnings June 4th. I am putting a trigger to enter this play when it breaks through that resistance.

If TFM trades at $42.35:
Sell short April $45 put, currently $3.50, stop loss $40.85
Buy long April $40 put, currently .85, no stop loss.
Net credit $2.65.



CRTO - Criteo SA (Put spread)

Criteo has no recent news but it is in a solid but somewhat choppy uptrend. The choppy moves added some premium to the puts. Support appears to be just above $40 with a recent high at $46.50. I am going to recommend the $40/$45 put spread.

Earnings May 6th.

If CRTO trades at $43.15:
Sell short April $45 put, currently $3.50, stop loss $40.85
Buy long April $40 put, currently $1.30, no stop.
Net credit $2.20.



RGR - Sturm Ruger (Call Spread)

Ruger reported adjusted earnings of 53 cents compared to estimates for 42 cents but that was a dramatic decline from the $1.33 earned in the year ago quarter. A lack of significant product introductions and slowing demand impacted the results. On a GAAP basis the company lost -77 cents. Revenue of $122.6 million missed estimates of $160 million. Firearm sales declined -20.1% as the Obama gun ban bubble continues to fade.

Ruger spiked on the earnings beat but could not continue the rally. Support at $51 appears to be in danger and a breakdown there could retrace to $44.

Earnings May 27th.

If RGR trades at $50.65:
Sell short April $47.50 call, currently $4.10, stop loss $53.55
Buy long April $52.50 call, currently $1.55, no stop.
Net credit $2.55



New Covered Call Recommendations


None


None


New Aggressive Recommendations


None


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

BHI - Baker Hughes (Covered Call)

OVX - Oil Volatlity Index (Bearish call spread)

OVX - Oil Volatlity Index (Bearish call spread - part 2)

FCX - Freeport McMoran (Put Spread)

CSIQ - Canadian Solar (Covered Call)

DHI - DR Horton (Put Spread)

INFA - Informatica (Put Spread)

INTC - Intel (Put spread)

CREE - Cree Inc (Put spread)

ACAT - Arctic Cat (Put spread)

MSFT - Microsoft (Put spread)

RKT - Rock-Tenn (Put spread)

CSCO - Cisco Systems (Put spread)

VA - Virgin America (Put spread)

CDW - CDW Corp (Put spread)

FIVE - Five Below (Bear call spread)

SPWR - SunPower (Short put)

CSIQ - Canadian Solar (Covered Call)

HPQ - Hewlett Packard (Bear call spread)

TASR - Taser Intl (Bear call spread)

IM - Ingram Micro (Bear call spread)

FIVE - Five Below (Bear call spread)


Margin Requirements:

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.