The most hated bull market ever, continues to be reborn daily.

The market has outlasted the naysayers and refused to decline even in the face of seasonal weakness. It appears to have more lives than a dozen cats. Weak economics have no impact. The FOMC minutes pointed out weakness in the U.S. and warned about continued weakness overseas. Wednesday night Japan reported some ugly trade numbers but after a brief dip in the S&P futures, they quickly rebounded to positive territory at +2.50 where they are holding overnight.

The markets had a good opportunity to decline today with the Dow dropping nearly 100 points to 18,470 before rebounding to close with a 22-point gain at 18,571. The S&P dipped to a nine-day low at 2,168 but rebounded to close at 2,181 and a 4-point gain. The Nasdaq dipped briefly under 5,200 but immediately rebounded to close at 5,228.

All the major big cap indexes dipped to initial support and then posted an equally large rebound to end positive. One more life was used up in this exercise. We have no idea how many lives the market has left but there is one thing for sure. If the market succeeds in making another new high it will likely continue higher from there.




The fly in the rally soup is the Russell 2000. While the longer-term trend is positive, it has posted losses for two consecutive days. The index has not tested the bottom of the channel since early July. However, support at 1200-1205 is probably rock solid. If the Russell decides to test that support it will weigh on the big cap indexes.

Currently only a few big caps are rising and leading the market higher. The small cap troops are dragging along behind without any conviction. Eventually conviction will arrive and it could be bullish or bearish but it will arrive. That could be a turning point for the broader market.


Because the indexes continue to trade mostly sideways in a tight range, the option premiums have evaporated to almost nothing. If you want to buy put insurance for your equity positions the premiums are a bargain. Nobody expects the market to decline. The VIX remains at a two-year low because nobody is buying puts.


You will see in the "additional plays" graphic the sharp decline in the net credit column from last week. Even the high dollar stocks have very little premium. Another factor is the option expiration. The September options are becoming the front month so the premiums have declined even further. It is still too early to open October positions unless we could be guaranteed market direction and that is far too uncertain even with the bullish charts.

The next six weeks are the most volatile of the year. The only options with real premium are the VIX calls. Enough traders expect the normal seasonal weakness to appear that the calls have decent prices well away from the $12 price.

The Q2 earnings cycle is over and the last Dow component (WMT) will report on Thursday. More than 95% of the S&P has reported. This is when the post earnings depression should appear with very low volume through Labor Day.

No covered calls or naked puts again today. I could not find any where the risk matched the reward in a low volatility environment.

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


$VIX - Volatility Index (Expired)

The long call on the VIX call spread expired on Wednesday for a very profitable position. If the VIX spikes up again over the next six weeks I plan on repeating this play.

Expired Aug $35 Long Call, entry .94, -.94 loss.
Previously closed Aug $25 short call, entry $3.00, exit .25, +$2.75 gain
Net gain $1.81



PANW - Palo Alto Networks (stopped)

The long put on PANW was stopped out on the bounce that started on the 11th. The prior two short calls had already been closed. The stop loss on the long put let us escape the position for a break even.

Closed Aug $110 long put, entry .40, exit .05, -.35 loss.
Previously closed Aug $120 short put, entry .65, exit .75, -.10 loss.
Previously closed Aug $120 short put, entry $1.70, exit $1.25, +.45 gain.
Net gain = zero.



GILD - Gilead Sciences (stopped)

The long put on GILD was stopped today when the stock rebounded 2% from three weeks of consolidation.

Closed Sept $70 long put, entry .32, exit .09, -.23 loss.
Previously closed Sept $77.50 short put, entry $1.30, exit $1.58, -.28 loss.
Net loss 51 cents.



TREE - Lending Tree (stopped)

The short put position on TREE was stopped out when the stock rolled over and dropped about $10 in three days on no news.

Closed Sept $90 short put, entry $2.40, exit $1.10, +$1.30 gain.

The short put in the $80/$95 spread position was also stopped out.

Closed Sept $95 short put, entry $1.68, exit $2.80, -1.12 loss.
Retain Sept $80 long put, entry .33, currently .10



MLM - Martin Marietta (stopped)

The short put on the MLM spread was stopped out today after MLM shares fell -$10 in 2 days on no news.

Closed Sept $190 short put, entry $2.02, exit $2.95, -.93 loss.
Retain Sept $175 long put, entry .44, currently .60.



Monthly Cash Machine Play Updates


IBB - Biotech ETF

We were the victims of a bad fill on the launch of the IBB put spread last Thursday. The short $345 put opened at 35 cents while the long $225 put, $20 lower, opened at .55. We lost 20 cents on the bad fill and our only hope of recovery is for the IBB to crash and raise the value of the long put. With the IBB at $290 the odds of the $225 put having any value over the next four weeks is very slim.

These things happen from time to time where the volume is thin enough that the initial quoted prices are depleted and a secondary seller with a higher asking price becomes the market.

I considered closing the $245 put and selling a higher put to reload the position but the IBB appears to be weakening. I would rather just take our 20-cent loss if we make it to expiration than risk a new entry. I did raise the stop loss to take us out on any further decline.



New Option Writer Recommendations


NXPI - NXP Semiconductor (Sept Short Put)

NXPI is on the verge of breaking out to a two month high over $90 thanks to the surge in the semiconductor sector. Volatility in NXPI shares tends to keep the premiums inflated but a break over $90 should deflate the puts in a hurry.

Earnings Oct 26th.

Sell short Sept $82.50 put, currently .75, initial stop loss $85.
Buy long Sept $75 put, currently .14, no stop loss.
Net credit 61 cents.



WYNN - Wynn Resorts (September Put Spread)

Wynn Resorts is riding higher as the business in Macau is improving. Shares are about to retest resistance at $105 and could actually break out this time.

Earnings Nov 4th.

Sell short Sept $90 put, currently .94, stop loss $95.50
Buy long Sept $80 put, currently .23, no stop loss.
Net credit 71 cents.



Other Potential Plays (September Spreads, Covered Calls, 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


No New Covered Calls


New Monthly Cash Machine Recommendations


XLE - Energy Select SPDR (Sept Quarterly Put Spread)

The option premiums are so small on all the regular September options I am going to recommend a quarterly expiration on the XLE. This option expires on September 31st instead of the regular expiration on the 16th. This gives us two more weeks and inflates the premiums by about 20 cents. Oil prices should continue to be relatively firm IF OPEC continues to talk up a potential production freeze agreement at the end of September.

Sell short Sept Quarterly $65 put, currently .57, stop loss $66.85
Buy long Sept Quarterly $60 put, currently .27, no stop loss.
Net credit 30 cents.



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

We already have an expiring August put spread on the MDY. I am going to recommend we replace it with a September spread. The MDY has moved in a very narrow range for the last 7 weeks it refuses to decline although we did see an attempt to sell off with the broader market on Thursday. The dip was bought again.

If the market opens lower on Thursday, please do not enter this position. There is no reason to jump in front of a moving train.

Sell short Sept $265 put, currently .75, stop loss $277.85
Buy long Sept $245 put, currently .45, no stop loss.
Net credit 30 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.


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


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.


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


MLM - Martin Marietta Materials (Sept Short Put)

MLM missed on earnings and revenue last week and shares dropped sharply. However, they remained bullish about the business and expected volumes over the rest of the year. Shares rebounded from the drop to $192 and closed over $200 on Wednesday.

Earnings November 1st.

Sell short Sept $190 put, currently $1.90, stop loss $195.50.
Buy long Sept $175 put, currently .55, no stop loss.
Net credit $1.35


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.


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.


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.


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.


TREE - Lending Tree (September Put Spread)

We have a successful short put play in progress on TREE and the option premiums are still inflated. With the stock making new highs I am going to double dip and add a put spread.

Earnings Oct 27th.

Sell short Sept $95 put, currently $1.30, stop loss $105.50
Buy long Sept $80 put, currently .65, no stop loss.
Net credit 65 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.


IBB - IShares Biotech ETF (Sept Put Spread)

We already have a couple of positions on the XBI but I am adding a new one on the IBB because the dollar value of the ETF allows for premiums well away from the current price. The 3% decline on the XBI on Wednesday caused these premiums to be inflated slightly. If the IBB retraces enough to put us in danger, this position will be the least of our problems.

Sell short Sept $245 put, currently .55, stop loss $277.25>
Buy long Sept $225 put, currently .25, 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.


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.


SPY - S&P-500 ETF (Sept Put Spread)

It is August but the market refuses to die. Contrary to normal seasonal patterns, it wants to continue higher. Despite this trend there are no premiums on the calls above the current level. All the premiums are in the puts so that tells us what investors are expecting. I am going to try and squeeze in a put position with a high stop well under the current levels. We will stop out before any damage is done if the market reverses.

Sell Sept $205 put, currently .70, stop loss $214.50
Buy long Sept $197 put, currently .33, no stop loss.
Net credit 37 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.


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.


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.


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.