Volatility is increasing as we near expiration and the end of the Sell in May cycle just one week from now.

For three consecutive weeks we have seen one day where a monster short squeeze lifted the Dow by more than 200 points. Each time that short squeeze was erased the very next day. This week it happened on Monday and sold off to 8-week lows on Tuesday. Today we saw the Dow trade in a 218 point range from +107 before the FOMC minutes to -111 after the minutes and then rebound to close down only -3 points.

This kind of volatility is masking to some extent the direction of the market. The short squeezes give the bulls hope and when the selling occurs, they are trying to buy the dips. There was $600 million in buy on close orders on the NYSE today.

Unfortunately, you cannot fight the charts. The Dow close was another 8-week low and critical support at 17,500 has been broken intraday for two consecutive days. Every break damages it more and eventually it will no longer provide support.


The same problem exists with the S&P. Critical support at 2,040 was broken intraday with a dip to 2,034 and a 26 point range on the S&P only to close fractionally positive when the smoke cleared. The buy on close orders lifted the index +13 points off its lows to close at 2,047 but it was still a lower high and lower low.


The biotech sector has had a lot to do with holding up the market. The ASCO conference begins on June 3rd and anticipation has been lifting the biotech stocks. Nobody knows what new and novel drug treatment will be discussed and who will startle the attendees with news. The $BTK has been up for 4 of the last 5 days and it is testing resistance at 3,050. They posted the abstracts that will be discussed after 5:PM on Wednesday so there could be a let down on Thursday.


Despite the volatility, the market is still not directional until support breaks. However, call premiums were nonexistent. Apparently, nobody expects stocks to rise but they are not yet convinced they are going to crash because put premiums were very small as well. Being expiration week the premiums have already shrunk for June. Many stocks do not yet have July strikes listed so I could not go longer term on everything.

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


PANW - Palo Alto Networks (Long Put - Closed)

The long put on PANW had appreciated in value and time was running out. I recommended we close the long put. Fortunately, PANW gapped down the next morning and we got out at a good price. The short put was previously stopped.

Closed May $135 long put, entry .59, exit $2.89, +2.30 gain
Previously closed May $145 short put, entry 1.83, exit $3.30, -1.47 loss.
Net gain 83 cents.



STZ - Constellation Brands (Put spread - Stopped)

Constellation has declined -$9 in the last two days on no news. Stocks with accumulated profits are being killed in the recent volatility. This will be a good stock to buy when the summer bottom appears. However, our short put was stopped out at the open this morning for a minor gain. We are definitely going to retain the long put in case support at $154.50 breaks.

Closed Jun $150 short put, entry $1.96, exit $1.91, +0.5 gain.
Retain Jun $135 long put, entry .35, currently .30.



WYNN - Wynn Resorts (Short Put - Close)

Wynn is breaking down in the weak market and is on the verge of breaking support. Close the short put. Retain the long put.

Close June $82.50 short put, entry $1.43, currently $2.17, -.74 loss.
Retain June $72.50 long put, entry .43, currently .43.



KS - Kapstone Paper (Covered Call - Closed)

Kapstone imploded on Tuesday on no news. Support at $14.50 finally broke and we were stopped out at $13.85.

Closed KS shares, entry $15.29, exit $13.85, -1.44 loss.
Closed Jun $15 call, entry $1.10, exit .80, +.30 gain.
Net loss $1.14.



Monthly Cash Machine Play Updates


XBI - Biotech ETF (June Put Spread - Closed)

The Biotech sector had rolled over and appeared to be headed back to support. I recommended we close the short put side of the position.

Closed June $43 short put, entry .68, exit .75, -.07 loss
Retain June $38 long put, entry .21, currently zero.



New Option Writer Recommendations


EGRX - Eagle Pharmaceuticals (June Put Spread)

Eagle posted a terrible earnings report on May 9th but their guidance was strong. Their lead drug hit 71% total market share and 77% market share among hospitals and clinics. They partnered with Teva on the drug and Teva is doing the marketing Teva feels confident it will hit 90%. They also entered into an agreement to sell diclofenac-misoprostsol to a third party for $1.75 million and a 25% royalty on the net profits. Shares are exploding higher.

Earnings Aug 11th.

Sell short June $35 put, currently $3.30, stop loss $39.25
Buy long June $25, currently $1.15, no stop loss.
Net credit $2.15.



MDVN - Medivation (June Put Spread)

Medivation is under attack by Sanofi. They are trying to buy the company for $52.50 despite the valuation being much higher. Medivation will not meet with Sanofi or open their books. Sanofi said they would raise the bid if Medivation would talk to them. Meanwhile Medivation is talking to Pfizer, Amgen and AstraZeneca about a possible white knight acquisition to save Medivation from Sanofi.

Sanofi is going to propose a slate of 8 directors to replace the entire Medivation board. Analysts claim a fair price would be in the $63 to $71 range.

Earnings August 4th.

Sell short June $55 put, currently $1.50, stop loss $58.50
Buy long June $45 put, currently .51, no stop loss.
Net credit 99 cents.



Other Potential Plays (June Spreads)

These are not official plays but a good place to start if you are looking for something else to trade.

Symbol, type, strikes, premium, net credit

RL - PS, $80/$70, .85/.20, $.65
PXD - CS, $175/$185, 2.05/.95, $1.10
DRII - PS, $17.5/$12.5, .95/.20, $.70
NTES - PS, $145/$135, 1.25/.60, $.65
AVGO - PS, $125/$110, 1.35/.35, $1.00
BMRN - PS, $75/$65, 1.50/.80, $.70
WYNN - CS, $100/$110, .85/.22, $.63


New Covered Call Recommendations


No New Covered Calls


New Monthly Cash Machine Recommendations


QQQ - Nasdaq 100 ETF (June Call Spread)

The market appears to be headed lower and on each of the recent short squeezes the QQQ has failed at $107. Support at $105 is likely to break before the week is out.

Sell short June $109 call, currently .49, stop loss $107.45 (three-week high)
Buy long June $112 call, currently .09, no stop loss.
Net credit 40 cents.



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

The S&P has made a series of lower highs and lower lows and broke critical support intraday today at 2,040. ($204). We are heading into the end of May and into the summer doldrums after Memorial Day. The S&P is likely to break that 2,040 level this week and move lower. The three week high on the SPY is just over $208. We had three monster short squeezes over the last three weeks and none of them lasted more than 1 day. The path of least resistance is down.

Sell short June $211 call, currently 58 cents, stop loss $208.50
Buy long June $215 call, currently .13, no stop loss.
Net credit 45 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.


CP - Canadian Pacific Railway (June Call Spread)

The Canadian railroad is going to be under a lot of pressure from the impact of the wildfire in Alberta. Lumber and oil shipments are going to be depressed. There will be delays and all manner of interruptions. It could be weeks before everything is back to normal. Earnings are going to suffer.

Earnings July 20th.

Sell short June $145 call, currently $2.20, stop loss $141.85
Buy long June $155 call, currently .65, no stop loss.
Net credit $1.55


ETE - Energy Transfer Equity (Covered Call)

ETE owns 19,800 miles of natural gas pipelines in the USA and three gas storage facilities in Texas. They sell gas to utility companies, power plants, local distribution companies and industrial end users.

Earnings Aug 3rd.

Buy write ETE June $13 call, currently $13-$1.20, stop loss $11.85
Gain if called $1.20.


FDX - FedEx (May Put Spread)

Shares are trading at a nine-month high after strong earnings in late March. The company said it was not worried about Amazon moving into the space because it would take tens of billions of dollars and years to achieve enough scale to be a threat. Fedex has 65,000 vehicles. Amazon has several hundred.

Earnings June 21st.

Sell short May $160 put, currently $1.13, stop loss $162.85
Buy long May $150 put, currently .35, no stop loss.
Net credit $.78


KS - Kapstone Paper (Covered Call)

Kapstone has been moving steadily higher despite the market weakness. The announced a 10 cent dividend today payable July 13th to holders on June 30th, after option expiration. Headquartered in Northbrook, IL, KapStone Paper and Packaging Corporation is the fifth largest producer of containerboard and corrugated packaging products and is the largest kraft paper producer in the United States. The Company has four paper mills, 21 converting plants and 65 distribution centers.

Earnings July 27th.

Buy write KS June $15 call, currently $15-$1.05, stop loss $13.85
Gain if called $1.05.


LNKD - Linkedin (June Put Spread)

Linkedin reported strong earnings, guidance and the internal components on users, page views, jobs, etc were also strong. Shares spiked on the news and then declined slightly in the weak market over the last two days. I believe they are going higher.

Earnings July 28th.

Sell short June $110 put, currently $1.38, stop loss $117.65
Buy long June $95 put, currently .28, no stop.
Net credit $1.10


N - Netsuite (June Put Spread)

Netsuite reported earnings that missed estimates but revenue was higher than expected. Shares retreated from their highs but found support at $75 after Credit Suisse put a buy rating on the stock.

Earnings July 28th.

Sell short June $70 put, currently $1.50, stop loss $73.85
Buy long June $60 put, currently .50, no stop loss.
Net credit $1.00.


NFLX - Netflix (May Put Spread)

Netflix can stream billions of hours of video but they cannot get the guidance right. They beat on earnings and guided higher on 4 of 5 metrics. That 5th metric caused a $14 crash in the stock price. After the gains going into the earnings cycle the stock was priced to perfection. Shares dipped to $93.14 at the open and was immediately bought to end the day at $96.77 on high volume.

I am recommending a May spread but you could also do the June spread. My only worry with a June date is that the broader market may (should) roll over before that expiration.

Earnings July 18th.

Sell short May $90 put, currently $1.61, stop loss $92.85
Buy long May $80 put, currently .38, no stop loss.
Net credit $1.23


NXPI - NXP Semiconductors (June Put Spread)

NXP Semiconductor provides high performance mixed signal and standard product solutions for radio frequency, analog and digital processing products worldwide. That means they make chips for cell phones and other communication devices.

The price target for NXPI was raised from $102 to $115 at Drexel Hamilton today after the company beat estimates for earnings. They posted earnings of 1.14 compared to estimates for $1.09 and revenue of $2.22 billion also beat.

Earnings July 25th.

Sell short June $80 put, currently $1.10, stop loss $83.85
Buy long June $65 put, currently .20, no stop loss
Net credit 90 cents.


PANW - Palo Alto Networks (May Put Spread)

Palo Alto provides enterprise level security to corporations, service providers and government entities worldwide. They offer advanced endpoint protection that prevents cyber attacks. Last 7 analyst ratings, either new or upgrades, have been to buy. Last week Morgan Stanley raised the price target from $171 to $185 with a buy rating.

Earnings May 26th.

Sell short May $145 put, currently $1.60, stop loss $148.85
Buy long May $135 put, currently .60, no stop loss.
Net credit $1.00.


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


STZ - Constellation Brands (June Put Spread)

Constellation blew out earnings in early April and spiked to $160. Since then they have traded in a $5 range with support at $155. Despite the weak market, shares have moved back up to $160 in the last week. I expect them to break out the next time the market turns positive.

Earnings June 30th.

Sell short June $150 put, currently $1.45, stop loss $153.85
Buy long June $135 put, currently .40, no stop loss.
Net credit $1.05.


WLL - Whiting Petroleum (Covered Call)

With the first decline in crude inventories for the summer demand season the energy stocks popped once again. Whiting has support at $10 and closed at $11. Crude prices should begin to move slowly higher as demand increases. May is the lightest month of the year and August the highest at 2.0 mbpd more than May. With the outage in Canada inventories should continue to decline.

Earnings July 27th.

Buy write WLL June $11 call, currently $11-$1.20, stop loss $9.75
Gain if called $1.20.


WYNN - Wynn Resorts (June Put Spread)

Wynn Resorts beat on earnings despite the continued weakness from Macau. However, the decline in revenue from Macau has slowed significantly and the outlook is improving.

Earnings August 4th.

Sell short June $82.50 put, currently $1.55, stop loss $86.50
Buy long June $72.50 put, currently .39, no stop loss.
Net credit $1.16


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.


DIA - Dow ETF (June Put Spread)

Expectations are for a declining market into June but the speed of the decline has slowed, except for today, and there is significant support at 17600, 17500, 17400. If it breaks those levels we could see 17,000. However, every dip continues to be bought. I am recommending a very low put spread and we will stop out well above our strikes if the market breaks those support levels.

Sell short June $165 put, currently .62, stop loss $169.50
Buy long June $159, currently .32, no stop loss.
Net credit 30 cents.


IWM - Russell 2000 ETF (May Put Spread)

It was tough finding a May spread that had any premium value. The steady move higher has evaporated all the put premiums but the call premiums are also flat because nobody expects the indexes to move over resistance.

The Russell moved over short-term resistance last week and is closing in on the 1,165 level which should be reasonably strong. If the big cap indexes can continue to move higher through resistance the Russell should do the same. The Russell has been one of the strongest gainers over the last six days.

This spread was as far away from the current price as I could get and still have a minimum 25-cent credit. I would NOT enter this position if the market is negative at the open on Thursday. I would wait until the Russell 2000 was positive before entering this spread.

Sell short May $107 put, currently 47 cents, stop loss $111.45
Buy long May $102 put, currently 18 cents, no stop loss.
Net credit 29 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.


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.


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.


XBI - Biotech ETF (June Put Spread)

While the biotech sector is in decline, the index is approaching very strong support. On the XBI that support is at the $48-$50 level. I am recommending a spread below the February lows so without a total market meltdown we should be ok.

Sell short June $43 put, currently .70, stop loss $46.85
Buy long June $38 put, currently .25, no stop loss.
Net credit 45 cents.


XLE - Energy ETF (June Put Spread)

Crude inventories should begin declining over the next couple weeks as refiners kick into high gear to fill up the system with summer blend gasoline for the driving season. Typically when that happens the price of oil rises along with energy stocks. The decline in oil prices over the last couple days has been related to a rebond in the dollar rather than oil fundamentals.

Sell short June $58 put, currently, .56, stop loss $61.85
Buy long June $53 put, currently .20, no stop loss
Net credit 36 cents.


XOP - Oil Exploration ETF (June Put Spread)

With oil prices likely to rise in the coming weeks due to inventory declines, I think it is safer to have two active spreads on the oil ETFs.

Sell June $29 put, currently .32, stop loss $31.85
Buy long June $25 put, currently .05, no stop loss
Net credit 27 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.