The volatile market and the impending earnings cycle significantly complicate the task of finding profitable positions.

The Dow has rallied 1,300 points in the last two weeks and the S&P gained +161. That was after a -900 point drop in the Dow and a -122 point drop in the S&P in the two days prior. The charts are broken. There is no trend in the individual stocks and everything appears ready to roll over.

The option premiums either have spreads so wide you could drive a truck through them or there is no premium at all unless you are right next to the stock price. Traders do not know which way the market is going and the premiums reflect this indecision.

This is also expiration week for the July options so the premiums for August have already collapsed.

The Q2 earnings cycle has started and over the next four weeks, 85% of the S&P will report earnings. That takes them out of contention for new plays. However, with the sharp spikes in most stocks over the last 8 days the charts are broken. Will they continue higher after an 8 day run or will they suffer some profit taking to reverse the trend.

Sometimes play setups just do not work. Rather than force a couple trades with high risk it is better to just step aside and watch the parade instead of trying to walk behind the horses without making a misstep.

The S&P has stalled at 2,150 and there is significant event risk over the next five trading days. The Republican convention begins on Monday but the riots, protests and demonstrations should start this weekend. Any significant violence could put a cloud over the already over extended market.

Because of the rally out of the Brexit dip the market is over extended and is due for some significant profit taking. The closer we get to the weekend the more likely that profit taking becomes.

The S&P has exploded over three significant levels of resistance and in any market a +161 point sprint should leave the index winded with a serious need to pause for a breath. The index has been stuck under that 2,100 resistance for 18 months and it is positive for it to breakout and keep running but the headline risk is extreme.

If the S&P would pull back and use that 2,100 level for support over the weekend it would provide a great launching pad for a continued move higher late next week.


As we get deeper into the earnings cycle there will be more companies that have already reported that will be good candidates for plays. The market should settle down into some kind of trend after next week's earnings and events. Since Aug/Sep are the two weakest months of the year, that trend has a good chance of being bearish. There is no guarantee for either direction and the first full week of earnings should generate the market bias for August.

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


BMRN - Biomarin (Stopped)

Shares of BMRN spiked up on the 7th to eventually hit $92 after tradign around $80 for two weeks. The spike stopped us out at $84.50. Obviously, after seeing the chart we could have rode the position out for the rest of July. That is why we have stop losses to prevent bad things from happening. The spike did not have to stop at $92.

Closed July $100 short call, entry $1.75, exit .85, +.90 gain
Expiring July $115 long call, entry $1.00, currently zero, -1.00 loss.
Net loss 10 cents.



HUM - Humana (Stopped)

The bottom fell out of Humana stock last Thursday when it appeared the FTC would halt the acquisition by Aetna. Shares fell from $180 to $158 and we were stopped out of the short put position for a big loss, again. We were cursed on Humana and sometimes that happens.

Closed July $165 short put, entry $3.00, exit $4.36, -1.36 loss.
Previously closed July $160 short put, entry $1.65, exit $2.95, -1.30 loss.
Net loss on two attempts $2.66.



Monthly Cash Machine Play Updates


IYT - Dow Transport ETF (Stopped)

We had a July put spread on the IYT and the short side had been stopped out the prior week. Last week the long put, which had value, was stopped out when the IYT rallied to $134.25.

Closed July $129 long put, entry .45, exit .90, +.45 gain.
Previously closed July $135 short put, entry $1.10, exit $1.90, -.80 loss.
Net loss 35 cents.



New Option Writer Recommendations


SIG - Signet Jewelers Ltd (August Put Spread)

Signet was crushed in late May and early June by news headlines about potential misdealing with customer goods in the store for repair. Several customers claimed their diamonds had been swapped out for lesser stones. The company waged a vigorous disclaimer campaign and shares are finally rebounding after putting in a bottom at $80.

Earnings August 25th.

Sell short Aug $80 put, currently $1.55, stop loss $84.65
Buy long Aug $70 put, currently .85, no stop loss.
Net credit 70 cents.



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.

Unfortunately, there are almost no potential candidates. Between broken charts and pending earnings dates the available choices are very few.

Expiration is August 19th.



New Covered Call Recommendations


No New Covered Calls


New Monthly Cash Machine Recommendations


No new plays

Nothing works today. I looked at every index and ETF with enough volume to have options and there was nothing that worked. The spreads are either too wide because of the volatility or the premiums were too small for any strike that was not close to the money. The combination of the market volatility and the earnings cycle has made it impossible to find a safe play this week.


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


Update: 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.


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.


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.


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.


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.


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.


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.


XBI - Biotech ETF (August 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.


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.