We do not get many weeks where the Dow drops 900 points and regains those points in a span of five days.

That would be the definition of volatility. The big question is what do we do for an encore? After that kind of volatility and a four-day rally you would expect some profit taking. Right on cue the Dow dropped -108 points on Tuesday and then another -127 at the open on Wednesday. The rebound from the opening dip was immediate and the S&P closed right back at 2,100 after hitting 2,074 intraday. That volatility is still with us.

The Dow is still about 82 points from resistance at 18,000 that corresponds with the 2,100 level on the S&P. The Nasdaq is 41 points below 4,900 and its corresponding level.

About the only thing we can count on for the rest of the week is continued volatility. We cannot count on direction. The resistance has held since June of last year and it "should" hold again but with the payroll reports on Thr/Fri there could be a headline surprise that triggers a short squeeze. While I cannot imagine what that would be, it is always possible.

July is typically a weak month because of the summer doldrums. In election years, it is weaker because of the political conventions late July. The uncertainty bubbles over and contaminates the equity markets. Once we get out of July, the August and September months are historically the weakest of the entire year.

We should plan on market weakness in the weeks ahead but I would not bet the farm on the outcome.

The Q2 earnings cycle begins next week and it could be a disappointment with a lot of guidance warnings because of Brexit and the drop in European currencies.

If the S&P weakens, I would expect it to eventually test 2,040 and the lower end of the congestion range since early April. The Dow could go back to 17,400. Any further declines on those indexes could change market sentiment from normal profit taking to fears of a correction.



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. Many individual stock charts are still 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


NXPI - NXP Semiconducor (Closed)

We closed the long put on the NXPI July put spread last Thursday at the open. Shares had fallen sharply and stopped us out on the short side the prior week.

Closed July $77.50 long put, entry .44, exit $1.95, +1.51 gain.
Previously closed July $87.5 short put,entry $1.49, exit $2.45, -.96 loss.
Net gain 55 cents.



CELG - Celgene (July Call Spread - Stopped)

Shares of Celgene finally found a bottom at $95 and rocketed higher to stop us out at $101.50.

Closed July $105 short call, entry $1.75, exit .70, +1.05 gain.
Retain July $115 long call, entry $1.00, currently .10.



HUM - Humana (July Naked Put - Reload)

Humana shares crashed on Monday when Aetna said they were putting some assets up for sale to try and ease regulator concerns over the acquisition of Humana. Aetna shares plunged and took Humana with them. Also, in a campaign speech Elizabeth Warren called on regulators to look especially hard at the merger as anticompetitive. That also pressured the shares.

Since then both companies have rebounded. I am recommending we reload the July short put using the $165 strike with only 7 days until expiration.

Closed July $160 short put, entry $1.65, exit $2.95, -1.30 loss.

Sell short July $165 put, currently $1.60, stop loss $170.00.



Monthly Cash Machine Play Updates


XBI - Biotech ETF (Stopped)

The biotech sector rallied over the last five days to stop out our call spread. It was due for a rebound and it never does anything slow.

Closed Aug $65 short call, entry .95, exit .19, +.76 gain.
Retain Aug $70 long call, entry .25, currently .02.



New Option Writer Recommendations


PVH - PVH Corp (Aug Put Spread)

PVH was at a 10-month high the Thursday before the Brexit results were announced. Because it had built up so much profit for traders it was crushed in the Brexit crash. It has rallied every day except one since that low and that was the Tuesday market drop. It was up $12 from the low so there were profits to be captured. It has very good relative strength.

Earnings 8/25.

Sell short Aug $85 put, currently $1.10, stop loss $89.50
Buy long Aug $75 put, currently .55, no stop loss.
Net credit 55 cents.



ULTA - ULTA Salon (August Put Spread)

This is a high dollar stock that refuses to go down. This is a monster but the options are too expensive to play it on the long side. That gives us a short side opportunity well out of the money.

Earnings 8/25.

Sell short Aug $230 Put, currently $2.25, stop loss $239.50
Buy long Aug $210 put, currently .85, no stop loss.
Net credit $1.40.



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


New Monthly Cash Machine Recommendations


XBI - Biotech ETF (Put Spread)

Now that the XBI is moving up strongly we can switch from a call spread to a put spread. The $50 level was support on both of the last two dips and should be support if another dip appears. I looked at a lot of individual biotech stocks this week and the vast majority are recovering from the post ASCO crash. Let's hope this continues.

Sell short August $50 put, currently 70 cents, stop loss $52.85
Buy long August $45 put, currently .27, no stop loss.
Net credit 43 cents.



GLD - Gold ETF (Put Spread)

The Brexit vote has powered gold to a new high for this cycle and with European currencies dropping like a rock and money flowing to the USA in search of safety, several brokers believe it is going over $1,400. Currently there are 285,000 long contracts in the gold futures and only 25,000 short contracts. That suggests we could have a monster decline but there is nothing on the horizon to reverse the course of the European currencies because of Brexit.

Sell short Aug $121 put, currently 51 cents, stop loss $124.85
Buy long Aug $117 put, currently .19, no stop.
Net credit 32 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


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.


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.


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


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.


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.


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.


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.


$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.