The VIX is holding at 12 and the VXX at 10.75 and a record low close.

Just like last week no volatility means no option premium. The market is still moving sideways at new highs with only the Nasdaq actually making any forward progress.

The stocks that have reported earnings are showing some option volatility but it is too soon for most to pick a direction. Even if they had good reports there is normally a period of post earnings depression after the initial spike wears off. Those that are reporting disappointing earnings are being crushed but some, Netflix is an example, are rebounding just as quickly and I am attempting to play a couple of those this week.


The S&P has been trading sideways for the last two weeks and the range is actually narrowing rather than widening. The markets are either consolidating for a new move higher, or we are seeing a distribution phase before a new move lower. We will not know which until it happens.


The Dow appears to be weakening with some penetrations below its recent range. If the Dow breaks below 18,400 it could begin a selling avalanche.


The Dow Transports are weakening as well despite the falling oil prices. Oil closed under $42 today and the Transports lost nearly 120 points. This suggests the recent rally is losing traction and a drop below 7,850 could trigger an entirely new round of selling.


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 Thursday's earnings cycle peak when 70% 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.

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


AVGO - Broadcom (Stopped)

AVGO dropped at the open on the 22nd to stop us out of the short put at $157.65 for a nice gain. The long put has no value but I am leaving it open in case disaster strikes.

Closed Aug $135 short put, entry $1.39, exit .22, +1.17 gain
Retain Aug $120 long put, entry .65, currently zero.



SIG - Signet Jewelers (Stopped)

Signet dropped on the 21st at the open to stop us out of the short put at $87.45. The long put is still open and has a slim chance of recovering our premium but lightning can strike.

Stopped Aug $80 short put, entry $1.37, exit $1.10, +.27 gain
Retain Aug $70 long put, entry .67, currently .05.



Monthly Cash Machine Play Updates


No Changes to Current Positions


New Option Writer Recommendations


NFLX - Netflix (September Put Spread)

Netflix crashed and burned after they reported earnings with a $15 drop. They have already rebounded $7 and analysts are starting to talk positively again in only 8 days.

Sell short Sept $85 put, currently $1.71, stop loss $88.
Buy long Sept $70 put, currently .20, no stop loss.
Net credit $1.51.



GILD - Gilead Sciences (September Put Spread)

Gilead disappointed on earnings and reduced guidance but they are still making a tone of money. Their PE is 7 and they have more than $20 billion in cash. Shares fell -10% to $80 and have begun to rebound. Part of the problem was a transition from older Hep-C drugs to their newer drug with less side effects. Patients were waiting for the new drug that was just approved in June. That means the new drug will have huge sales in Q3 and offset the decline in the older drugs. The $81-$82 level has been support since January.

Sell short Sept $77.50 put, currently $1.30, stop loss $80.25
Buy long Sept $70.00 put, currently .30, no stop loss.
Net credit $1.00



Other Potential Plays (September 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 September 16th.



New Covered Call Recommendations


CNX - Consol Energy

Consol Energy reported a big loss on Q2 earnings but investors are buying the stock with both hands. Along with earnings the company said it had sold its last remaining coal mines and is now out of the coal business. It also is finally putting drilling rigs back to work after having shut down drilling completely in 2015. This is positive on two fronts. They will have to pay $44 million to dump the coal mines off to someone else but they also lose $103 million in liabilities related to the mines.

Someone felt so positive about the future for CNX they bought 5,500 of the January $22 calls for $1.75 each or roughly $1 million in premium. I actually considered selling those as a covered call. If you bought the stock today at $19 and sold the $22 call for $1.75 that is a $4.75 gain if you are called in January or roughly 25% of the stock price today. That would be a great deal. I am going to be a little more short-term in the call I am recommending.

Buy-write Sept $20 call, currently $18.89-$1.07, stop loss $16.50
Return if called $2.18.



New Monthly Cash Machine Recommendations


QQQ - Nasdaq 100 ETF

Despite the various movements in the indexes the index ETFs are not reflecting the moves. The SPY has traded in a very narrow two-point range for the last ten days. The market is either consolidating, coiling for a breakout or passing time before it crashes into the seasonal weakness in Aug/Sep. There are almost no option premiums. Fortunately, the Nasdaq has seen some gains in the last couple days so I am going to profile a QQQ trade.


The Nasdaq is in a positive trend compared to the other indexes. I am going to attempt to squeeze a put spread on the QQQ into the play list. Bear in mind that Amazon, Google and Baidu report earnings on Thursday after the close and they could change the direction very easily OR put the rally into overdrive.

Sell short Sept $108 put, currently .78, stop loss $111
Buy long Sept $100 put, currently .27, no stop loss.
Net credit 51 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 (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.


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.


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.


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.


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 (August 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.

Update 7/20/16: 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.


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.


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.


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.