The VIX closed at 11.77 and the VXX at 11.15 and a record low close.

No volatility means no option premium. With the market moving sideways at new highs and Bank of America analysts calling for a 15% decline, there is plenty of uncertainty but no volatility until the market becomes directional again.

The Dow, S&P and Russell indexes have been moving sideways in a very narrow range for more than a week. The Q2 earnings cycle has begun but there have been very few disappointments or big surprises. Only the individual stocks are reacting and not the market.

We are moving into the heart of the Q2 cycle and the next three weeks will see 85% of the S&P report. So far the earnings have been mostly better than expected. Guidance has been good but it has not moved the market. The few stocks in the Dow that have reported have caused a little volatility there but the rest of the Dow stocks have blunted that movement.

We need to move farther into the earnings cycle and closer to the worst months of the year for the market in August/September so the volatility can increase.

The market is overbought and becoming more overbought every day. The slow creep higher is not fast enough to spike call premiums and the put premiums on ETFs like the SPY, IWM, etc are miniscule because nobody thinks the markets will decline.

We are trapped in the Twilight Zone of near zero volatility.



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 when 50% of the S&P will have reported. 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. We just need to wait for the market to pick a direction so we can move to the September options.

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


July Position Recap


July was not a good month for selling premium. With the Brexit volatility crashing the market from the 2,113 high on the S&P back to 1,991 at the low and then rebounding to 2,150, the volatility was huge. The volatility came from big moves in equities, currencies and commodities.

We were killed twice on Pioneer Natural Resources for about $435 in losses as the currency crash sent oil prices into a wild ride. Humana was another disaster. Rumors the FTC was going to deny the acquisition by Aetna caused another wild ride with HUM falling $17 in one day. Lastly a $3 stock with a covered call, received some bad news from the FDA and it fell to 60 cents and a net loss of $1.30.


The Option Writer portfolio only had two plays for the July cycle because selling index ETF premiums ahead of Brexit would have been suicide. Even after the initial Brexit drop we refrained from adding new positions because of the volatility and the low premiums at that point in the cycle. Only having two positions kept us from having big losses.




Current Option Writer Position Changes


VIX - Volatility Index (Closed)

We closed the short side on the VIX call spread last Thursday in order to lock in a large gain and avoid any unexpected rebound in volatility. I am leaving the long side open even through it would take a black swan event to push the VIX back to its highs over the next three weeks. You never know what will happen.

Closed Aug $25 short call, entry $3.00, exit .25, +2.75 gain.
Retain Aug $35 Long call, entry .94. No stop loss.



Monthly Cash Machine Play Updates


GLD - Gold ETF (Stopped)

The Gold ETF gapped lower by $2 last Thursday to stop us out of the short side on our put spread. The dollar soared and gold collapsed after setting a new 52-week high the prior week.

Closed Aug $121 short put, entry .45, exit .69, -.24 loss.
Retain Aug $117 long put, entry .14, currently .20.



New Option Writer Recommendations


PANW - Palo Alto Networks (August Put Spread)

Palo Alto is a cyber security vendor that offers leading edge products to keep your data safe from the global hacker network. The consensus price target is $185 and shares closed at a 4-week high on Wednesday at $129.

Earnings August 30th.

Sell short August $120 put, currently $1.45, stop loss $124.75
Buy long August $110 put, currently .50, no stop loss.
Net credit 95 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

The indexes have gone almost perfectly sideways for the last week and all the option premiums have evaporated. Nobody knows which direction the market is headed and volume is very light. The intraday ranges have been very small and you have to sell within 2-3 strikes away from the money to see any premium. The S&P can move 20 or more points a day. Selling a 220 call or a 214 put is simply asking for trouble. Options any farther away from the money have no premium because of the low volatility.

The VIX closed at 11.77 and very close to a 52-week low.

It simply makes no sense to try and sell premium into this environment. We could explode higher at any time or roll over into a crash. Bank of America expects a 15% decline in Aug/Sept. We are better off to wait for a directional move other than sideways to launch new plays.




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.


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.


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.