The week before the earnings cycle kicks into high gear is the worst week of the quarter for selling premium.

April options are expiring on Friday and May options have already lost their premium. More than 75% of corporations report earnings before the May expiration. That means to get any high premiums you have to move out to June and pick through the 25% of late reporters that announce after the June expiration. The vast majority of the late June reporters are really small stocks with limited premiums to start with. This makes this week the worst of the quarter for finding options.

Now add in the recent market volatility to the downside and the two days of short squeezes that followed and the charts are a mess. The indexes are at resistance and likely to fail in the next few days unless there is a very large group of earnings beats next week.

The uncertainty makes it difficult to pick plays because market direction is so unpredictable for the next 10 days.

I pick plays for six newsletters a week. In a directional market, I like this one the best because I love naked puts and put spreads. This period in the quarter, and in this kind of volatile market, I hate researching plays for this newsletter. I scanned over 1,000 stocks, looked at countless option montages and earnings calendars. Because of the recent volatility in both directions, the option spreads were wide enough to drive a truck through. I read hundreds of news headlines and I could only find one realistic option play and two indexes. It is really frustrating. I know readers get tired of my whining every quarter but I just do not want to recommend anything that I would not play with my own money. Today there was only one stock and I am a type A trader. I just could not find anything that I was willing to leave open and at risk for an entire month in this market.

We should never be trading just to be trading. If the setup is not right, we should pass.

We also have the OPEC meeting on Sunday. The odds are good they are not going to agree to a production freeze and oil prices are going to come tumbling down and bring the market with them.

On Wednesday, a deep pocket investor made a $13 million bet that the market was going to roll over before June and decline sharply. He purchased 90,000 contracts of the 108/98 put spread on the Russell 2000 ETF (IWM) for a net of $1.50 ($150 per contract). He stands to make up to $75 million if the IWM closes near that $98 level and lose $13 million if it remains over $108. The IWM closed at $112.31 today. While that could be a hedge against a large portfolio it is still a strong bet that stocks could be weak over the next six weeks.

The Dow blasted through its first band of resistance on Wednesday and could complete the move into the next band on Thursday if Bank of America and Wells Fargo earnings are as good as JP Morgan reported today. If not then a failure at this resistance is a real possibility.



I had a reader email me this week saying he could not get anywhere close to the option prices I listed in the recommendations. After a little research I figured out that he was looking at the recommendation archives at the bottom of the newsletter for plays that were launched earlier in the cycle. Those are NOT recommendations to be acted upon. Those are for reference for when the current positions were first launched. I have changed the headers on that section to avoid future confusion.

Anyone receiving this newsletter can use any of the recommendations. Just because you may be a Cash Machine subscriber does not mean you cannot use the Option Writer plays. You have a lot more options in this newsletter format.

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.

Lines in blue were previously closed.

Current positions

Covered Calls

Monthly Cash Machine



Current Option Writer Position Changes


HLF - Herbalife (Put Spread - Stopped)

On Tuesday Herbalife fell out of its recent range to stop us out at $59.85. Since it was an April option the premium had already evaporated.

Closed April $50 short put, entry $.78, exit .07, +.71 gain.
Expiring April $40, entry .15, exit zero, -.15 loss.
Net gain 56 cents.



VRX - Valeant (Naked Put - Close)

I thought the worst was over for Valeant but the negative headlines just keep coming. The bond holders are going to declare a technical default even though they had previously agreed not to default. This weekend Fortune is going to run a very negative article on the CEO and the company. I am recommending we exit this position before some new headline craters the stock again.

Close May $25 short put, entry $1.77, currently $1.76, breakeven.



DRII - Diamond Resorts (Covered Call - Close Monday)

Diamond has quit going up and while it may recover, I am recommending we close it at the open. The short call was the April $25 and the stock closed today at $22.74. The call is worth 5 cents. If we close both positions on Thursday we have a gain of $1.60 and our risk is ended. DRII traded as low as $21.50 on Thursday.

Closed DRII shares, entry $23.42, currently $22.74, -.68 loss
Close Apr $25 short call, entry $2.30, currently .05, +2.25 gain.



Monthly Cash Machine Play Updates


SPY - S&P-500 ETF (April Put Spread)

The short side of the IWM put spread was stopped out with a trade at $203.45 on Thursday. The long side will expire on Friday.

Closed April $190 short put, entry .65, exit .06, +.59 gain
April $184 long put, entry .29, currently zero, will expire Friday, -.29 loss.
Net gain 30 cents.



QQQ - Nasdaq 100 ETF (April Put Spread)

The short side of the QQQ put spread was stopped out on the market drop on Tuesday morning.

Closed April $100 short put, entry .45, exit .01, +.44 gain
April $93 long put, entry .10, will expire on Friday, -.10 loss.
Net gain 34 cents.



New Option Writer Recommendations


AMBA - Ambarella (May - Naked Put/Put Spread)

Ambarella rebounded from a one day dip on Wednesday to return to the top of its recent range. If the positive market is going to continue we could see shares move higher from here. GoPro has been the biggest drag on Ambarella and GPRO rallied 19% on Friday on acquisition rumors and short covering.

Ambarella shares moved sideways through all the market volatility over the last two weeks with the exception of Tuesday. That is good relative strength.

Earnings June 2nd.

Sell short May $40 put, currently $1.20, stop loss $42.50

You could do a May put spread as an alternate strategy.

Sell short May $40 put, currently $1.20, stop loss $42.50
Buy long May $35 put, currently .40, no stop loss.
Net credit 80 cents.



New Covered Call Recommendations


No New Covered Calls


New Monthly Cash Machine Recommendations


SPY - S&P 500 ETF (May Put Spread)

With the breakout to $208 on the SPY it shrank the premiums on the puts below the recent congestion band. We will have to be content with a 50 cent play. We do have support at $204 but plenty of resistance at $211.

Sell short May $199 put, currently $1.08, stop loss $203.50
Buy long May $192 put, currently .51, no stop loss.
Net credit 57 cents.



IYT - Dow Transport ETF (May Put Spread)

Wednesday's short squeeze may have erased the negativity in the transports. The index had moved sideways for the prior week after a week of declines. This spike probably cleared out the remaining shorts.

Sell short May $133 put, currently .70, stop loss $136.45
Buy long May $124 put, currently .35, no stop loss.
Net credit 35 cents.



Existing Option Writer Positions (Alpha by Symbol)

THESE ARE NOT CURRENT RECOMMENDATIONS. These are prior recommendations that are still active in the portfolio. Do NOT act on the plays described in this section. This is the archive of prior recommendations in the current portfolio.


AVGO - Broadcom Ltd (May - Put Spread)

Avago acquired Broadcom and changed the name to Broadcom but kept the AVGO symbol. This company now has a broad spectrum of offerings and wide customer base. Shares are breaking out to new highs and nobody can say anything negative about them. This is a put spread $20 OTM so even though this is a high dollar stock we will be able to stop out well before trouble can cause any damage.

Earnings may 26th.

Sell short May $135 Put, currently $1.00, stop loss $146.50
Buy long $115 put, currently .25, no stop loss.
Net credit 75 cents.


BHI - Baker Hughes (July - Naked Put)

Baker Hughes is being acquired by Halliburton. They have received all the regulatory approvals except for the U.S. and EU. The EU regulators had set a date of not later than July 11th for a decision. However, they stopped the clock again on Monday because of some missing data needed from Halliburton. Halliburton is submitting a package of divestitures to satisfy their requirements and gain approval. Once Halliburton submits the data the clock will restart. The date expands by one day every day the data is not complete so today the date is July 15th and counting. If HAL cannot gain approval there is a $3.5 billion breakup fee due to Baker Hughes.

The price HAL is paying for BHI is 1.2 Halliburton shares plus $19. Based on today's prices that is $58.23 and BHI closed at $44.96. In other words, if the EU approved the deal tomorrow, BHI shares would rocket to something close to $58.

If the EU fails to approve the deal as presented Halliburton has an extreme incentive in the $3.5 billion breakup fee to make the changes needed to get the deal done. The U.S. is pressuring Halliburton to sell more assets. HAL/BHI have offered to sell $7.5 billion in noncore assets. Once the EU approves the deal I would expect HAL to cough up some more assets and the U.S. approval could be acquired quickly.

This is going to be a long-term play. I originally planned it for the July strikes. After the events this week I am going to make it a May position and as we get closer to May we can also sell a July position and double dip. While no position is foolproof, this one should be relatively safe. Annual revenue for BHI was $15 billion in 2015 and it was a bad year. They have already written off all their nonperforming assets and made massive layoffs. Receiving a $3.5 billion beak up fee with oil prices rising would be a major lift for the company. Either completing the merger or not completing the merger the share price should move higher.

The $38 strike would be a four-year low. Earnings are April 21st but should not matter.

Update 4/6/16: The U.S. sued BHI/HAL to block the transaction and the companies said they were going to fight it. I do not see this transaction completing based on the latest information. HAL is going to be forced to pay the $3.5 billion breakup fee but it would be months into the future. Be patient.

Sell short May $38 put, currently $2.10, no initial stop loss.


CVX - Chevron (April - Put Spread)

Chevron exploded out of the starting gate on Wednesday with a $4 gain after the company said they were slashing capital expenses, raising production and the dividend was secure through 2017. Having crude prices rise to a 2016 high at $38 did not hurt either.

Earnings Apr 29th.

Sell short April $85 put, currently $1.04, stop loss $86.85
Buy long April $75.00 put, currently .21, no stop loss.
Net credit 83 cents.


DIS - Disney (April - Put Spread)

Disney's new movie Zootopia is smashing records at the box office and several more movies will be out in the next couple months. Shanghai Disney will also open in the spring to as many as 100 million visitors in the first year. Profits are guaranteed for the mouse house.

Earnings May 3rd.

Sell short April $92.50 put, currently .96, stop loss $94.85
Buy long April $85 put, currently .26, no stop loss
Net credit 70 cents.


DRII - Diamond Resorts (Covered Call)

Diamond Resorts is rumored to be planning to take itself private in a leveraged buyout as the result of a previously announced strategic review. Analysts are expecting a deal price in the $32-$35 range. The company has a network of 375 vacation destinations in 35 countries. The firm hired Centerview Partners to evaluate all strategic alternatives after two major shareholders requested the board take action including an outright sale. Marriott Vacations Worldwide and Wyndham Worldwide could be suitors. More than 23% of DRII shares are sold short.

Earnings May 25th.

Buy-write DRII April $25 call, currently $23.42-$1.90, no initial stop loss.
Net debit $21.52, gain if called $3.48 or 16%.


HLF - Herbalife (April - Put Spread)

After the company beat earnings on the 23rd and said they were discussing a settlement with the government the stock has been climbing. Even a database error several days later that misstated the number of new members failed to hold it back for more than one day. Shares are poised to break out to a new 52-week high.

Earnings May 5th.

Sell short April $50 put, currently .79, stop loss $53.55
Buy long April $40 put, currently .29, no stop
Net credit 50 cents.


NFLX - Netflix (April - Put Spread)

We already have to put spreads on Netflix for March but there is nothing stopping us from repeating the plays using April strikes. Netflix consistently has higher option premiums than 95% of the stock with options. As long as it maintains a choppy upward bias that should continue.

Earnings April 21st.

Sell short April $80 put, currently $1.81, stop loss $86.50
Buy long April $65 put, currently .46, no stop.
Net credit $1.35


PII - Polaris Industries (April - Put Spread)

Polaris has been moving steadily higher until today when traders took some profits in a weak market. I believe the trend will resume once the market recovers. They made an excellent acquisition a couple weeks ago that will be very beneficial for vehicles in the business space.

Earnings are April 21st.

Sell short April $90 put, currently .85, stop loss $93.85
Buy long April $80 put, currently .20, no stop loss
Net credit 65 cents.


SM - SM Energy (Covered Call)

SM is the same story as WLL. Strong short squeeze on rising oil prices. When oil prices faded last week the equity prices barely dipped.

Earnings May 24th.

Buy-Write SM April $20 cov call, currently $18.95-$1.75, stop loss $14.15
Gain if called $2.80


SNA - Snap On Inc (April - Put Spread)

Snap On is rebounding strongly from the February dip with support from last week at $150. They posted earnings of $2.22 compared to estimates for $2.16 and declared a quarterly dividend of 61 cents. Shares took off and have gained $20 since the event.

Earnings April 21st.

Sell April $145 put, currently $1.00, stop loss $149.45
Buy long April $130 put, currently .40, no stop
Net credit 60 cents.


SRPT - Sarepta Therapeutics (April Covered Call)

Thirty-six experts in the field of Duchenne muscular dystrophy signed a letter to the FDA recommending approval of Sarepta's drug for DMD. There is already a large confirmatory study already underway to confirm the positive results in the initial studies. The head of the Jett Foundation is also urging accelerated approval of the drug. "Convincing 36 experts to sign a product specific letter was an incredible achievement by Sarepta." Earnings May 26th.

Buy-write April $20 call, currently $19.27-$1.25, initial stop loss $17.35.
Gain if called $1.98


SRPT - Sarepta Therapeutics (May Covered Call)

We already have an April covered call on SRPT but the premiums are so high today we need to write another one. Shares rallied 20% today alone. Oppenheimer raised the price target from $45 to $60.

Previously: Thirty-six experts in the field of Duchenne muscular dystrophy signed a letter to the FDA recommending approval of Sarepta's drug for DMD. There is already a large confirmatory study already underway to confirm the positive results in the initial studies. The head of the Jett Foundation is also urging accelerated approval of the drug. "Convincing 36 experts to sign a product specific letter was an incredible achievement by Sarepta."

Earnings May 26th.

Buy-write May $23 call, currently $23.30-$6.80, initial stop loss $17.85.
Gain if called $6.50


SRPT - Sarepta (May - Naked Put)

We already have an April covered call on SRPT but the premiums are so high today I recommended we write another one. However, many readers do not like to own the stock because of the expense. I am also recommending this as a short put.

Shares rallied 20% today alone. Oppenheimer raised the price target from $45 to $60.

Previously: Thirty-six experts in the field of Duchenne muscular dystrophy signed a letter to the FDA recommending approval of Sarepta's drug for DMD. There is already a large confirmatory study already underway to confirm the positive results in the initial studies. The head of the Jett Foundation is also urging accelerated approval of the drug. "Convincing 36 experts to sign a product specific letter was an incredible achievement by Sarepta."

Earnings may 26th.

Sell short May $14 Put, currently $2.20, initial stop loss $17.85.


STMP - Stamps.com (May - Call Spread)

Stamps blew out earnings on February 26th and shares rallied from $96 to $120 on a monster short squeeze. Since early March shares have been sliding lower because traders understand that the next move will be at the May 26th earnings. They have gapped up after earnings for the last five quarters and then traded sideways or down for the rest of the quarter.

Earnings May 26th.

Sell short May $125 call, currently $2.10, initial stop loss $117.85
Buy long May $140 call, currently 65 cents. No stop loss.
Net credit $1.45


VRX - Valeant Pharmaceuticals (May - Naked Put)

Valeant has been beaten nearly to death but it is starting to show signs of as pulse. Bill Ackman reported his largest loss ever on Wednesday because of the decline in Valeant. However, he is now on the board along with several other activist hedge fund allies and they will turn the company around. It was even mentioned as a possible takeover candidate for Allergan. I believe the worst is over and shares will continue to crawl slowly higher. The Allergan CEO said he would love to buy the Bausch & Lomb brand from Valeant and that would be a way for Valeant to raise some quick cash.

Shares have rallied from $25 to $35 in two days and this could be the start of a major rebound. The stock fell from $263 to $25 in seven months. There is huge buying interest at $25. Every time it dips near that level the volume explodes higher.

Earnings June 14th.

Sell short May $25 put, currently $2.01. No initial stop loss. If it crashes again we will take the stock and write calls on it. I seriously doubt it is going to fail with Ackman on the board.


WLL - Whiting Petroleum (Covered Call)

Whiting shares spiked on the rising price of oil and news that the company would present at the Raymond James Investor Conference on March 8th. This is strictly an oversold bounce play and capitalizing on the spike in the option price. At 80 cents it is 20% of the stock price and should give us some downside protection.

Earnings May 25th.

Buy write WLL Apr $5 call, currently $5.21-.80, no initial stop loss.
Net debit $4.41.


WYNN - Wynn Resorts (April - Put Spread)

Wynn has been surging higher after Steven Wynn bought 2 million shares in the open market ahead of the data for February out of Macau. Gambling revenue declined only -0.1% in February. That was the least in 21 months and much better than the -21.4% drop in January. The lunar new year had a lot to do with it but fortunes are improving.

Earnings April 28th.

Sell short April $70 put, currently $1.09, stop loss $74.85
Buy long April $55 put, currently .18, no stop loss
Net credit 91 cents.


Existing Monthly Cash Machine Positions

THESE ARE NOT CURRENT RECOMMENDATIONS. These are prior recommendations that are still active in the portfolio. Do NOT act on the plays described in this section. This is the archive of prior recommendations in the current portfolio.


DIA - Dow ETF (May - Put Spread)

The Dow has rebounded from 15,500 to 17,500 over the last five weeks. The index is facing significant resistance over that level but is showing no indications of a decline. I do expect some choppy trading in the 17,500-18,000 range and the eventual failure as we head into summer.

I am recommending a 162-155 put spread on the DIA because I do not expect the Dow to decline that far in the next six weeks. If it only remains in the 175-180 range for 3-4 weeks we will be able to close the spread for a profit long before the May expiration.

Sell short May $162 put, currently $1.08, stop loss $167.50
Buy long May $155 put, currently 63 cents, no stop.
Net credit 45 cents.


IWM - Russell 2000 ETF (April Put Spread)

The Russell has dipped twice to the 950 level and the last rebound was stronger than the other indexes. The buyers appear to be coming back to the small caps. If the Russell 2000 breaks over 1,040 it should be a race to the 1,150 range.

The IWM low on the 11th was $93.64.

I had to go out to April to find any premium that was not close to the money on the IWM.

Sell short April $90 put, currently 71 cents, stop loss $93.75
Buy long April $80 put, currently 18 cents, no stop.
Net debit 53 cents.


IYT - Dow Transports ETF (April - Put Spread)

The Dow Transports continue to climb after a year of steep losses. The economy appears to be edging away from a potential recession and the transports are celebrating. We already have a March put spread and I am adding an April spread to capitalize on the move.

Sell short April $125 put, currently $1.20, stop loss $129.35
Buy long April $115 put, currently .50, no stop loss
Net credit 70 cents.


QQQ - Nasdaq 100 ETF (April - Put Spread)

The Nasdaq accelerated higher on Wednesday and closed at the high for 2016. Nasdaq futures are up +13 overnight and tech stocks appear to be the favorite post Fed fare. I looked at a lot of charts today and they were up the strongest.

Sell short April $100 put, currently .43, stop loss $103.35
Buy long April $93 put, currently 11 cents. No stop.
Net credit 31 cents.


SPY - S&P-500 ETF (April - Put Spread)

We had an expiring March put spread on the SPY. With the market moving higher and breaking through resistance level we can put on a new April SPY spread to replace the one that is expiring this week.

Sell short April $190 put, currently $.61, stop loss $195.65
Buy long April $184 put, currently $.31, no stop.
Net credit 30 cents.


VXX - VIX Futures (Call Spread)

The VXX short-term futures have risen to $30 twice in the last six months. They traded at $18 for two months in the middle. The VIX has been elevated since mid January and the volatility should be about over unless the market rolls over soon and heads to new lows. The internals and the market action suggest there are buyers starting to show up in greater volume. The Russell 2000 is the market sentiment indicator and it appears about ready to break out of its recent range. I don't think we are going back to 30 for any appreciable amount of time.

I am recommending the April call spread. That way we do not have to worry about a sudden pop over the next three weeks. We do not have to wait until the spread expires. If the VXX returns to 18 the premiums will evaporate and we will close it early.

We do not need a stop loss because there is almost zero chance of a spike in volatility over 30 on the VXX that lasts for two months. Even if the market is declining or choppy the volatility can decline. It is only the 250 point gap down opens that really juice the VXX.

Sell short April $30 call, currently 99 cents. No stop loss.
Buy long April $40 call, currently 26 cents. No stop loss.
Net credit 73 cents.


XBI - S&P Biotech ETF (April - Put Spread)

The biotech sector appears to be healing after a low in early February and a higher los last week. The close on the ETF on Wednesday was a six-week high. With the market in rally mode the biotechs have been providing support.

Sell short April $45 put, currently 90 cents, stop loss $47.65
Buy long April $37 put, currently 40 cents, no stop loss
Net credit 50 cents.

XBI - Biotech ETF (May Put Spread)

The biotech sector exploded higher this week after consolidating for two months. The cancellation of the Pfizer/Allergan deal left Allergan with $34 billion in cash and looking for acquisition candidates. The majority of stocks posted strong gains. The XBI blew through resistance at $54 and never looked back.

Sell short May $49 put, currently .80, stop loss $51.15
Buy long May $43 put, currently .30, no stop loss.
Net credit 50 cents.


XLE - S&P SPDR Energy ETF (April - Put Spread)

The rise in oil prices have caused a massive short squeeze in most energy stocks. The energy ETFs are on fire. With inventory build season ending in three weeks the price of oil is likely to dip some but remain relatively firm. Energy equities should also remain firm with only a little profit taking. OPEC members and Russia are meeting in Moscow on March 20th to formerly agree on a production freeze.

Sell short April $53 Put, currently .42, stop loss $56.35
Buy long April $48 put, currently .16, no stop loss.
Net credit 26 cents.


XLV - S&P Healthcare ETF (April - Put Spread)

The Healthcare sector has rebounded from the January lows because the boomer generation is getting older and requiring more healthcare. The political winds may be blowing but senior healthcare is going to be another third rail of election politics. Don't threaten it or we will not vote for you.

Sell short April $63 put, currently .42, stop loss $65.85
Buy long April $58 put, currently .12, no stop loss
Net credit 30 cents.


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.