Monday was the first real dip we have had since late September. After six weeks of gains we were due and this should be a buying opportunity.

There were a lot of stocks in negative territory today but there were also a lot in the green. With the Dow down nearly -250 intraday you would have thought the majority of stocks would have corrected.

The biggest strength was in the biotech sector with the $BTK up over 1.1% on a bad day in the broader market.

After the close the majority of the earnings reports were negative and stock that reported were crushed. However, after a couple hours of volatility, the S&P futures are up strongly and that suggests investors are going to buy the dip.

The historical trend is for November and December to be the two best months of the year. However, the second week of November is typically weak. Once that weakness passes we normally rally into Thanksgiving.

I hope the historical norms hold true because I picked bullish plays to add today. I did not want to go against the trend with more than five weeks until expiration. 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


UA - Under Armour (Stopped)

Under Armour dropped -$2.50 today to stop us out at $93.25 and 12 cents above the low for the day. There was no news specific to UA but the retail sector was downgraded and they were seen as guilty by association. We still exited with a gain.

Closed Nov $87.50 put, entry $1.10, exit .60, +.50 gain



RH - Restoration Hardware (Closed)

We closed the short put on RH at the open last Tuesday. We had little chance of seeing our put fall back into the money but RH did decline -$5 for the week.

Closed Nov $85 short put, entry $1.28, exit .05, +$1.23 gain.



ATI - Allegheny Tech (Stopped)

Shares of ATI declined for the last 4 days after their week long rebound halted at $16. We were stopped out when ATI traded at $13.85.

Closed ATI shares, entry $15.18, exit $13.85, -1.33 loss
Closed Nov $15 short call, entry $1.15, exit .20, +.95 gain
Net loss 38 cents.



New Recommendations


QRVO - Qorvo Inv (Short Put)

Apple supplier Qorvo beat on earnings and guided higher despite analyst worries that slowing Apple sales would depress the stock. They also authorized a $1 billion stock buyback or 15% of the outstanding shares. The stock gained $10 on the news on Friday.

Earnings Feb 4th.

Sell short Dec $45 put, currently .70, stop loss $50.75



LRCX - Lam Research (Short Put)

Lam announced in late October it was acquiring KLA-Tencor (KLAC) and analysts went wild. The stock shot up to $74 and never looked back. This is supposedly a deal made in heaven if you believe all the positive press.

Earnings Jan 27th.

Sell short Dec $70 put, currently $1.15, stop loss $73.75



New Covered Call Recommendations


CEMP - Cempra (Covered Call)

Cempra is nearing completion of a new drug application for solithromycin, which treats the most common form of bacterial pneumonia. That is the number 1 cause of death from an infection in young and old patients. This drug would be a new treatment for antibiotic resistant forms of pneumonia. After the company presented on the drug at the CHEST conference in late October the chart has gone vertical.

Earnings Feb 24th

Buy write Dec $30 call, currently $28.90-$2.45, stop loss $25.25
Gain if called $3.55



Unofficial Suggestions


Looking for More Plays?

I did not use these plays today but they will make a good starting place if you are looking for something else to trade.

Short Put

Symbol Price Strike Credit Earnings

SYNA $92.96 - Dec $85 - $1.95 - Jan 28th.

Put Spread

Symbol Price Strike Credit Earnings

XBI $71.33 - 65/60 - .70 - no earnings
GPRO $25.93 - 23/20 - .58 - Feb 4th


New Aggressive Recommendations


None


New Long Term Recommendations


None


Existing Play Recommendations


Links to original play recommendation

BHI - Baker Hughes (Covered Call)

RH - Restoration Hardware (Short Put)

DRI - Darden Restaurants (Bear call Spread)

QUNR - Qunar Cayman (Covered Call)

DAL - Delta Airlines (Covered Call)

QIHU - Qihoo Technology (Short Put)

NFLX - Netflix (Short Put)

UA - Under Armour (Short Put)

AAL - American Airlines (Covered Call)

QIHU - Qihoo Technologies (Covered Call)

ABMD - Abiomed (Short Put)

URI - United Rentals (Short Put)

ATI - Allegheny Tech (Covered Call)


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.