The Volatility Index may be heading back to the lows but market volatility has kicked into high gear.

The VIX almost hit $27 on Monday when the Dow was down nearly 1,000 points from the Thursday close a 18,011. The Dow dropped to 17,063 at the Thursday low. The S&P hit 1,991 twice, several hours apart on Monday before rebounding. The Dow has recovered +630 points of that 948-point drop with 200+ point gains per day.

However, once June is over and the quarter end window dressing has ended we could be looking at a completely different market. I would not bet on breaking out to new highs. I would actually bet on another failure at 2,115 or 18,000 next week. We could hit a new high but that would be another sell signal given the poor earnings and the uncertainty over the UK exit.

We are headed into the summer doldrums that start on July 5th and last until Labor Day. Volume is going to slow significantly and the political conventions are going to take over the headlines.

The Q2 earnings start in two weeks and they are expected to decline -5.1% for the fifth consecutive quarterly decline. With the dollar up and pound down the international companies will all have earnings warnings. It could be a volatile environment.

The S&P still has strong resistance from 2100-2115. Breaking through that in the first week of July should be next to impossible and only get worse from there.


The Dow has failed at that 18000-18165 resistance level on every attempt for the last year. With the uncertainty in Europe, weak earnings, weak economy, strong dollar, weak pound, etc, it would be a real surprise to see it break out now.


We are at that point in the earnings cycle when 85% of companies report earnings over the next five weeks. That means 85% of companies are not available for plays because they report before the August expirations. As we get deeper into the cycle there will be more companies that have already reported that we can use but today it is slim pickings. It is especially difficult this week because nearly every stock chart is broken because of the Brexit crash.

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


The Brexit crash eliminated nearly all of our existing portfolio with the 5% market drop in only two days. Despite that damage we are still positive for the month.

WYNN - Wynn Resorts (Stopped)

The Brexit crash caused a $16 drop in Wynn shares. We were stopped out at the beginning of that drop at $97.65.

Closed July $85 short put, entry $1.23, exit $1.15, +.08 gain.
Retain July $75 long put, entry .38, currently .16.



PXD - Pioneer Natural Resources (Reload)

We are cursed on Pioneer. The prior week we were stopped out and we tried to reload the position but their secondary announcement caused a gap lower and the position was not opened. Last week I recommended we reload the position using the July $150 put and we were stopped out by the brexit crash that knocked $14 off the stock price. Now we need to hope for another decline in PXD so our long put makes up for the short put losses.

Closed July $150 short put, entry $1.50, exit $3.90, -1.40 loss

Retain July $140 long put, entry 2.01, currently 1.50

Previously closed: July $155 short put, entry $3.10, exit $4.10, -.94 loss.



TSLA - Tesla Motors (July - Closed)

Tesla shares dropped like a rock on Wednesday after Elon Musk made a $2.8 billion offer for Tesla to by SolarCity (SCTY). The street did not like the deal. Shares fell -$22.95 and greatly increased the value of our long put. I recommended we close it.

Closed July $190 long put, entry .95, exit 6.30, +$5.35 gain.

Previously closed July $205 short put, entry $2.16, exit $5.90, -3.74 loss.



TSLA - Tesla Motors (July - Stopped/Reload)

We tried to add a new Tesla put spread last week but the Brexit crash added to the SolarCity weakness to knock us out of this position as well. I am going to try and reload this position using a higher put now that Tesla is moving higher again.

Closed July $175 short put, entry 2.29, exit 2.29, breakeven.

Sell short July $190 put, currently $1.91, stop loss $199.00

Retain July $160 long put, entry .90, currently .19.



AET - Aetna (July Put Spread - Stopped)

We had a July $110/100 put spread on Aetna. The Brexit crash knocked us out of the short put for a minor gain.

Closed July $110 short put, entry $1.42, exit .91, +.51 gain
Retain July $100 long put, entry .35, currently .02.



Monthly Cash Machine Play Updates


$OEX - S&P-100 Call Spread (Stopped)

On the Thursday before the Brexit crash the markets rallied on the false rumors there would be no exit. The OEX spiked to a three week high and stopped us out of the short call. If the market keeps rallying our long call could rise in value.

Closed July $965 short call, entry $1.10, exit .75, +.35 gain.
Retain July $980 long call, entry .30, currently zero.



New Option Writer Recommendations


AVGO - Broadcom Ltd (Aug Put Spread)

Broadcom shares dipped to $142.50 on the Brexit crash. There is strong support at $140. I am picking the strike price just under that support at $135 for an August spread.

Earnings August 25th.

Sell short Aug $135 put, currently $1.30, stop loss $146.25
Buy long Aug $120 put, currently .45, no stop loss.
Net credit 85 cents.



HUM - Humana (July Naked Put)

Humana shares are bouncing around in the $180-$190 range post Brexit. The July $160 put still has an unusually high premium for only two weeks of time remaining.

Earnings August 3rd.

Sell short July $160 put, currently $1.75, stop loss $175.75



Other Potential Plays (August Spreads)

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

Warning Mid July begins the earnings cycle and 85% of stocks report earnings between July 15th and August 15th. That means some of these stocks will report earnings before the August expiration. If you enter those spreads be sure to exit before the earnings report.

Expiration is August 19th.



New Covered Call Recommendations


No New Covered Calls

If you feel like living dangerously, the Sarepta (SRPT) August $19 call is $5.80 because they expect the FDA to approve their MS drug over the next 30 days. Analysts believe the stock will be either $10 or $50 the day after the FDA announcement. Recent events suggest the FDA is going to approve it but there is always the possibility they will not. THIS IS NOT AN OFFICIAL RECOMMENDATION.



New Monthly Cash Machine Recommendations


MDY - S&P-400 Midcap Index

The MDY dipped from the Thursday high at $276 to the Monday low at $256 in the Brexit crash. It has already rebounded to $267. The midcap stocks had been the strongest sector of the market before the crash and came within only 7 points of making a new high.

Sell short Aug $240 put, currently $1.15, stop loss $258.50
Buy long Aug $210 put, currently .45, no stop loss.
Net credit 70 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.


AET - Aetna (July Put Spread)

Aetna is an insurance company and shares are very close to breaking out to a new 8-month high. They caught fire on Wednesday and moved out of a consolidation phase.

Earnings Aug 2nd.

Sell short July $110 put, currently $1.59, stop loss $112.45
Buy long July $100 put, currently .44, no stop loss.
Net credit $1.15


BMRN - Biomarin (July Call Spread)

Biomarin has been chopping around between $80-$90 for three months. I had to look at the option montage several times to confirm the premiums for this far out of the money for a July option.

Earnings July 28th.

Sell short July $100 Call, currently $1.85, stop loss $93.65
Buy long July $115 Call, currently .95, no stop loss.
Net credit .90


CELG - Celgene Corp (July Call Spread)

The company announced a new $3 billion buyback authorization today and the stock lost $1 and is in danger of breaking support at $99. Definitely no buying here.

Earnings July 21st.

Sell short July $105 call, currently $1.46, stop loss $102.35 over today's high.
Buy long July $120 call, currently .07, no stop loss.
Net credit $1.39.


CYTR - CytRx Corp (Covered Call)

It is going to be very hard to lose money on this position. It is possible but not likely.

CytRx is a biopharmaceutical research and development company specializing in cancer drugs. They will be presenting three abstracts this weekend at the ASCO cancer conference. Shares have been jumping around between $2 and $3.50 since March. With the conference this weekend the options are high.

Earnings August 3rd.

Buy-write CYTR July $3 call, currently $2.93-$1.00. No stop loss.


DRII - Diamond Resorts Intl (July Covered Call)

We have played Diamond before with mixed results. Sometimes they were very profitable and once back in March there was an unexpected decline. With premiums this high we need to try it again.

Earnings July 27th.

Buy-write July $25 call, currently $25.07-$2.90, stop loss $22.50
Gain if called $2.83.


NXPI - NXP Semiconductor (July Put Spread)

NXPI is a semiconductor company and the stock is on fire. Shares closed at a new six-month high on Wednesday.

Earnings July 27th.

Sell short July $87.50 put, currently $1.35, stop loss $90.25
Buy long July $77.50 put, currently .35, no stop loss.
Net credit $1.00.


PXD - Pioneer Resources (July Put Spread)

Pioneer is an oil producer that is very active in the Permian Basin. They recently said their production costs averaged $31.50 (all in) last quarter. They are the least cost shale producer. They have said if prices remain over $50, they will reactivate 5-10 rigs. They are the only producer that is consistently profitable at low oil prices.

Earnings July 27th.

Sell short July $155 put, currently $2.10, stop loss $159.75
Buy long July $145 put, currently $1.00, no stop loss.
Net credit $1.10.


RLYP - Relypsa (Covered Call)

Relypsa is a biopharmaceutical company, focuses on the discovery, development, and commercialization of polymeric medicines for patients with conditions that are overlooked and undertreated and can be addressed in the gastrointestinal tract primarily in the United States.

On Friday a competing drug from AstraZeneca was rejected by the FDA and RLYP shares soared. The drug treats high potassium levels in the blood, which can be fatal. RLYP's drug Veltassa was approved last October so the rejection of AstraZeneca is a very big deal for RLYP.

Today Mizuho upgraded RLYP from underperform to neutral saying there was a good chance RLYP could be acquired. Shares rose another 4%.

Earnings August 4th.

Buy-write RLYP July $20 call, currently $19.86-$2.90, stop loss $15.45.


TSLA - Tesla Motors (July Put Spread)

I am going to double dip again on Tesla because the stock shot up $20 on Tue/Wed after Baron Capital said they could be the largest stock in the U.S. or even the world in the coming years. They have a $300 million position in Tesla and said you could buy it and hold it for 10 years and make an obscene amount of money. Obviously that is one person's opinion but they really spiked the option premiums.

Earnings August 3rd.

Sell short July $205 put, currently $2.02, stop loss $215
Buy long July $190 put, currently .88, no stop loss.
Net credit $1.14.


TSLA - Tesla Motors (July Put Spread)

The same $22 drop on Wednesday that gave us a gain in the prior July position also inflated the puts at lower strikes. I am recommending we enter a new play on TSLA to capitalize on this inflated premium. Shares were moving higher after the close and I expect it to recover to the $200 level in a positive market.

Earnings 8/3.

Sell short July $175 put, currently $2.27, stop loss $192.25.
Buy long July $160 put, currently .93, no stop loss.
Net credit $1.34.


VIX - Volatility Index (July Call Spread)

The odds are very good we are going to have some high volatility over the next several days as a result of the Brexit vote. The VIX spiked to $22 last Thursday and closed at $21 today. If we get a spike to $25 I want to launch a VIX call spread using the August strikes. There are only 3 weeks left in the July strikes and I do not want to get trapped in a July position if the volatility remains high but that is a very rare occurrence.

With a VIX trade at $25

Sell short August $25 call, estimated price $3.00, no stop loss.
Buy long August $35 call, estimated price $1.00, no stop loss.
Estimated credit $2.00.


WYNN - Wynn Resorts (July Put Spread)

I hate to keep playing WYNN over and over again but they have great premiums and there is no reason not to double dip. We have a June position and this will be a new one for July.

Earnings Aug 4th.

Sell short July $85 put, currently $1.48, stop loss $90.85
Buy long July $75 put, currently .42, no stop loss
Net credit $1.06.


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.


IYT - Dow Transport ETF (July Put Spread)

The transports have rebounded strongly now that travel season is here. The railroads are also rebounding but I fail to understand the reason. Supposedly the rising price of oil will cause drillers to begin shipping pipe and sand again as well as larger amounts of crude oil. While I doubt that will happen in the coming weeks we could see it months from now.

Sell short July $135 put, currently $.75, stop loss $139.25
Buy long July $129 put, currently .45, no stop loss.
Net credit 30 cents.


$OEX - S&P-100 (July Call Spread)

June is typically a bad month for the markets. Historically it is flat to down in the first half, peaking at option expiration then down sharply in the last half of the month. July is also historically weak. The S&P-100 has been struggling to move over $940 for more than a year. The odds are slim that it will accomplish this feat in June or early July. I am proposing a call spread from $965 to $980 for a 45-cent credit. In order for the $OEX to move to $960 that would be the equivalent of 2,175 on the S&P-500.

Sell short July $965 call, currently .95, stop loss $946.
Buy long July $980 call, currently .45, no stop loss.
Net credit 45 cents.


XBI - Biotech ETF (Aug Call Spread)

The biotech sector rallied 16% in three weeks ahead of the ASCO cancer conference. Now that the conference is over those same stocks are starting to fade. The XBI hit strong resistance at $60 and is likely to decline over the coming weeks unless the broader market breaks out and overcomes the post ASCO depression.

Sell short Aug $65 call, currently $1.05, stop loss $61.50
Buy long Aug $70 call, currently .35, no stop loss.
Net credit 70 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.