After Tuesday's drop, the market had a good chance to continue its decline but squeezed out a rally instead.

The Dow posted losses for seven consecutive days but closed positive on Wednesday to prevent an 8-day streak that has not happened in more than 5 years. A positive close on Wednesday does not mean it will not start a new streak on Thursday but today's gain energized the dip buyers.

The pressure is off and the S&P rebounded back into its three-week range. Initial support at 2,150 held and traders are probably dreaming of dollar signs on Wednesday night. That dream could easily turn into a nightmare if the sellers return but there are no indications of that today. Tuesday was a three week low and a failure to return to the 2,175 level would be a lower high and that could set off a new bout of selling.


The small caps failed to dip below support at 1,200 and rebounded into the upper half of their recent range. This is bullish for market sentiment. Add in the continued rally in the biotechs and the Nasdaq is also threatening to set a new high.


The Nasdaq fell out of its bullish three week channel but found support exactly where it should have been and is back within 60 points of a new high.


The earnings cycle peaked last Thursday and the quality and quantity of earnings reports will decline from here. There were more potential plays this week but the low volatility is still playing havoc with the option premiums.

I had a reader email and ask for some naked puts after seeing mostly spreads for the last few weeks. I included some in the generic play list today. You can also turn any recommended spread into a naked put simply by not buying the long side of the spread.

Another reader was looking to sell some LEAPS puts. I looked for some to recommend but the premiums were too low because of the lack of volatility. Also, with Aug/Sep the two weakest months of the year for the market, I think we will have an excellent long-term put shorting opportunity over the next two months. We just need to be patient.

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


PVH - PVH Corp (Closed)

We closed the short side of the PVH put spread last Thursday at the open and it was a good thing we did. Shares plunged from $101 starting on Monday to $93 at the low. That would have ruined a nice play.

Closed Aug $85 short put, entry $1.07, exit .05, +$1.02 gain
Retain Aug $75 long put, entry .30, currently zero.



ULTA - Ulta Salon (Closed, Reload)

We exited the short side of the ULTA put spread at the open on Thursday for a nice gain.

Because the long put was so expensive I am recommending we sell a new put to reduce that premium expense. ULTA is at $258 and the $245 put is 50 cents with two weeks until expiration. We already have the long put so let's put it to some use.

Earnings August 25th.

Closed Aug $230 short put, entry $2.25, exit .12, +$2.14 gain.
Retain Aug $210 long put, entry .67, currently zero.

Sell short Aug $245 put, currently 50 cents, stop loss $254.



PANW - Palo Alto Networks (Stopped, Reload)

Palo Alto dropped sharply on Mon/Tue to stop us out at $127.75 on the break of support. This was caused by the earnings miss by INFN. Shares are rebounding and I am recommending we reload the $120 short put.

Closed Aug $120 short put, entry $1.70, exit $1.25, +.45 gain.
Retain Aug $110 long put, entry .40, currently .10.

Sell short Aug $120 put, currently .75, stop loss $125.75.



GILD - Gilead Sciences (Stopped)

The attempted post earnings rebound failed and GILD has declined to $79. I considered reloading the short put but there are no indications the stock has stopped moving lower. Our long put is rising in value and we still have 6 weeks on this position. If GILD decides to rally over the next couple of weeks I will reload the short put. If it continues lower we will profit from the long put.

Closed Sept $77.50 short put, entry $1.30, exit $1.58, -.28 loss
Retain Sept $70.00 long put, entry .32, currently .33.



Monthly Cash Machine Play Updates


MDY - S&P Midcap 400 ETF (Put Spread Closed)

We closed the short $240 put last Thursday at the open for a nice gain. The MDY refuses to decline but I am suspicious this sideways pattern is going to collapse.

Closed Aug $240 short put, entry .95, exit .02, +.93 gain.
Retain Aug $210 long put, entry .35, currently zero.



XBI - Biotech ETF (Put Spread Closed)

The XBI has taken flight and closed at a new 6-month high. We closed the short side last Thursday at the open for a nice gain. I looked at adding a higher strike short put but there are no premiums.

Closed Aug $50 short put, entry .70, exit .05, +.65 gain
Retain Aug $45 long put, entry .20, currently zero.



New Option Writer Recommendations


TREE - Lending Tree (Sept Short Put)

Lending Tree reported earnings of 92 cents that easily beat estimates for 70 cents. Revenue of $94.3 million fell short of estimates for $94.5 million but the big earnings beat caused that to be ignored. Shaes spiked from $94 to $105 on the news and are hlding in the $100-$105 range.

Earnings Oct 27th.

Sell short Sept $90 put, currently $2.45, stop loss $95.85.



ALXN - Alexion Pharmaceuticals (September Put Spread)

Alexion reported adjusted earnings of $1.25 compared to estimates for $1.17. Revenue of $753.1 million also beat estimates for $742.5 million. The company guided for the full year to earnings of $4.50 to $4.65 on revenue of $3.05 to $3.10 billion. Shares shifted into rally mode after the July 28th release.

Earnings Oct 27th.

Sell short Sept $125 put, currently $1.75, stop loss $129.25
Buy long Sept $110 put, currently .70, no stop loss.
Net credit $1.05.



Other Potential Plays (September Spreads, Naked Puts)

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

Expiration is September 16th.



New Covered Call Recommendations


RIGL - Rigel Pharmaceuticals (Sept Covered Call)

Rigel reported a loss of 15 cents on Tuesday and analysts were expecting a 20 cent loss. Shares exploded higher after the company updated the news on its drug portfolio currently in development.

Earnings Nov 1st.

Buy-write Sept $2.50 call, currently $2.87-$1.10, stop loss $2.20
Net debit $1.87.



ADRO - Aduro Biotech (Sept Covered Call)

Aduro reported earnings of 3 cents and analysts were expecting a loss of 5 cents. Revenue of $39 million easily beat estimates for $30.7 million. Shares closed at a 3 month high.

Buy write Sept $15 call, currently $15.09-$1.10, stop loss $13.85
Net debit $13.99



New Monthly Cash Machine Recommendations


XOP - Oil Exploration ETF (Sept Put Spread)

Oil has been volatile over the last two weeks but the XOP has resisted dropping below support at $33. If it was able to hold that level with oil trading close to $39 it should hold on any further dips. Oil prices could return to less than $40 but analysts believe it will be brief. Some of the oil producers have actually turned in some decent earnings, all things considered. Exxon was not one of them.

Sell short Sept $30 put, currently .43, stop loss $32.45
Buy long Sept $25 put, currently .07, no stop loss.
Net credit 36 cents.



XBI - Biotech ETF (Sept Put Spread)

The XBI closed at a new 6-month high and multiple analysts believe it will test resistance at $72 if not higher. They believe the bad news is already priced into the market. We have had pretty good luck on the XBI and I am going to try and squeeze in another play. It is the only index that is actually directional.

Sell short Sept $55 put, currently .42, stop loss $59.65
Buy long Sept $48 put, currently .11, no stop loss.
Net credit 31 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.


CNX - Consol Energy (Sept Covered Call)

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.


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.


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


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.


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.


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.


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.