The indexes have compressed their gains in a multi-week consolidation pattern and a breakout/breakdown is imminent.

This is week two of the most volatile six weeks of the year. Volume actually picked up on Wednesday to 6.8 billion shares as the major indexes dipped nearly to critical support levels. However, the dip buyers were waiting and the intraday losses were cut in half.

Everyone is holding their breath for the Friday jobs report and its potential impact on the next Fed meeting on September 20th. Last week the Fed heads said the report will be critical for their decision process and rate hike expectations are rising for the September meeting.

Despite todays market weakness the markets are still in consolidation patterns. About the only thing we know for sure about the next several weeks is that we are likely to see a breakout/breakdown and it could be significant.

This is only the fourth time since 1928 that the market has traded in this narrow of a range for this long. It has been 38 sessions since the S&P made a 1% move.

The bid ask spreads on the index ETFs have widened and premiums are surprisingly small. Nobody has a clue what will happen when fund managers return to work after the holiday.

I believe the market has a bullish bias because of the sharp increase in volume on the dip. There are plenty of buyers waiting and no indications of a bigger sell off ahead. However, that opinion and $5 will only buy you a cup of strong coffee at Starbucks. We simply have to wait for the direction to appear and then follow the trend.

For the last three days, the S&P has closed almost in the middle of its 40-point channel near 2,175. Until we see a break over 2,193 or under 2,150 we ar ejust passing time.


The Dow dipped to critical support at 18,350 twice in the last four days and is holding at the bottom of its recent range. The Dow could be the leader to the downside but buyers just keep appearing despite the minor weakness.


Since the Vix Futures ETF (VXX) reverse split 1:4 in early August it has been almost perfectly flat. There is still no volatility. The VIX did rise to touch 15 on Friday but it was a quick trip. It is starting to edge back in that direction but that could change at Thursday's open. The S&P futures are up +4.50 overnight after the Asian markets shook off some minor declines at the open to make some modest gains.


I listed new plays today but I would strongly recommend that investors wait until after Labor Day to plan new entries. We could be looking at an entirely different market by next Wednesday.

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.

Lines in blue were previously closed.

Current positions

Covered Calls

Monthly Cash Machine



Current Option Writer Position Changes


ALXN - Alexion Pharma (Stopped)

Alexion began crashing late last week after the Mylan EpiPen pricing scandal took over the headlines. The decline has been nonstop. We were stopped out of the short put position. The odds of our long put falling into the money are slim but we will keep it open with more than two weeks until expiration.

Closed Sept $125 short put, entry $1.99, exit $1.80, +.19 gain.
Retain Sept $110 long put, entry .45, currently .15.


ADRO - Aduro Biotech (Stopped)

The short put was stopped out on the same crash in the biotech sector as the result of the Mylan headlines. We actually escaped with a gain on this position.

Closed ADRO shares, entry $15.19, exit $14.45, -.74 loss.
Closed Sept $15 Short Call, entry $2.40, exit .65, +1.75 gain.
Net gain $1.01.



Monthly Cash Machine Play Updates


QQQ - Nasdaq 100 ETF (Sept Put Spread)

The QQQ rallied for over a month and then stalled at the $117 level. The decline late last week knocked us out of the short side of the position.

Closed Sept $108 short put, entry .79, exit .19, +.60 gain.
Retain Sept $100 long put, entry .26, currently .02.



XBI - Biotech ETF (Sept Put Spread)

The XBI failed at the 300-day average when support evaporated under the barrage of Mylan headlines. We were knocked out of the short side of the spread.

Closed Sept $55 short put, entry .45, exit .47, -0.2 loss.
Retain sept $48 long put, entry .11, currently zero.



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

The SPY dipped to $216 on Friday to knock us out of the short side on the SPY put spread.

Closed Sept $205 short put, entry .61, exit .46, +.15 gain.
Retain Sept $197 long put, entry .29, currently .08.



XLE - S&P Energy ETF (Sept Put Spread)

The -3.5% decline in oil prices today knocked -1.6% off the XLE and stopped us out of the Sept quarterly short put. Since we still have four weeks to go on the long put this position could easily turn profitable since oil prices normally decline after Labor Day.

Closed SeptQ $65 short put, entry .47, exit .55, -.08 loss.
Retain SeptQ $60 long put, entry .15, currently .06.



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

The MDY dipped on Friday to our stop loss at $283.75 to knock us out of the short side of the spread. I looked at reloading it but the only strikes with any value are the $270 and higher. The $270 was 40 cents and I did not feel it was worth the risk. The spreads are really wide with the ask at 70 cents. That is what hurt us on the stop. The spread was very wide and we lost part of our gains.

Closed Sept $265 put, entry $1.10, exit .85, +.25 gain.
Retain Sept $245 put, entry .25, currently zero.



New Option Writer Recommendations


TSLA - Tesla Inc (Oct Call Spread)

We already have a call spread on Tesla for September. With their announcement this week they will have to sell stock and debt to raise more money, I do not see them rising anytime soon.

Earnings Nov 3rd.

Sell short Oct $230 call, currently $3.15, stop loss $223.75
Buy long Oct $250 call, currently $1.07, no stop loss.
Net credit $2.08.



Other Potential Plays (October 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 October 21st.



New Covered Call Recommendations


WATT - Energous Corp (Oct Cov Call)

WATT is a new company that I am currently recommending in the Ultimate Investor Newsletter. We got in back at $12 and the company has taken off. The reason for the recent spike is the rapidly growing order backlog. Their product is a wireless charging technology for phones, tablets, notebooks, headphones, etc. Anything that needs to be charged can be adapted to this technology. The distance can be 2-3 feet from the power source or up to 12-15 feet for the industrial models.

They have signed 5 licensees, they are negotiating with 30 prospective licensees and have 50 additional expressions of interest. Their first products will begin delivering in Q4.

They did a private offering for $20 million a week ago to one investor and that give them the cash to complete production and deliver the first models in Q4. They will not disclose the existing licensees that are currently manufacturing their devices with this technology. The licensee will disclose it when they announce their next product that includes the technology. This gives them a head start on everyone else. The major player are companies like Samsung, Apple, Lenovo, Motorola, etc. None of them would want the others to know they were going to offer the technology until they actually announce the products.

If one or more of those major companies were the "top tier" licensees WATT claims to have, that would be tens of millions of devices in 2017. The company could be a rocket ride when those announcements break. With the initial devices delivering in Q4 there has to be an announcement by somebody soon.

Earnings Nov 8th.

I am using a wide stop loss because we could easily sell another call next month if we do not end up in the money.

Buy write WATT Oct $18 call, currently $18.00-$2.60, stop loss $13.75.
Net debit $15.40. Gain if called $2.60.



CLVS - Clovis Oncology (Oct Cov Call)

Clovis has had a lot of good news lately and the stock is on fire. They have multiple cancer drugs in the pipeline and the ovarian cancer drug rucaparib is in phase II and III clinical trials and expected to be approved in 2017. They licensed the drug from Pfizer for future milestone payments of $259 million plus royalties when the drug reaches the market. This is considered a blockbuster drug and will have billions in sales. This is just one of their recent drug headlines.

Earnings Nov 3rd.

I am using a wide stop loss because we could easily sell another call next month if we do not end up in the money.

Buy-write Oct $25 call, currently $24.77-$3.20, stop loss $19.85
Net debit $21.57, gain if called $3.43.



New Monthly Cash Machine Recommendations


The six weeks that started the prior Monday are the most volatile period of the year for the markets. Second half lows are normally made in September and October. The market is not showing any material indications of a pending decline but anything is possible. What little volatility we had last week stopped us out of most of our positions. I probably had the stops too tight but given the potential for a sudden decline in the last week of August, I was trying to prevent any big losses.

There is still no trend despite several days of weak markets. The S&P futures are up +4.50 on Wednesday evening suggesting we could have a short squeeze open.

I am very hesitant to add back in any index spreads. After the jobs report on Friday, we could go directional next week at a high rate of speed. Most of the bid ask spreads are ridiculous because nobody else knows what will happen over the next few days. I am going to err on the side of caution and only add one position.

TLT - Ishares 20+ Year Treasury Bond (Oct Put Spread)

Yes, I know bonds could be crazy but there is enough room between the current price and our strikes that we should be able to get out if disaster occurs. The TLT has been trading in a tight range for the last two months because Fed expectations have been mixed. They may remain mixed if the jobs report is neutral or negative.

Sell short Oct $132 put, currently .49, stop loss $136.50
Buy long Oct $127 put, currently .18, 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.


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.


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.


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.


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.


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.


TAP - Moulson Coors (Oct Short Put)

In late July there was a hiccup in the planned merger of SABMiller and AB InBev. InBev sweetened the deal to make up the loss in the price after the drop in the pound and the SABMiller board reconfirmed their approval and the two biggest shareholders also approved. That means Moulson Coors is still in the mix with their $12 billion offer to buy SABMiller's majority stake in MillerCoors, the joint venture that sells Coors Light, Miller Genuine Draft and other SABMiller products in the U.S. and the stock rebounded. At this point there are no further roadblocks to the three way deal.

Earnings Nov 1st.

Sell short Oct $92.50 put, currently $2.05, stop loss $97.85.


TSLA - Tesla Inc (Oct Call Spead)

Tesla is in a minor decline since the confirmation of the deal to acquire SolarCity. I do not see any catalysts on the horizon that could add $20 to the stock price but there is always that chance. The SolarCity deal should continue to be an anchor on the stock price. There are questions about corporate governance and today there was a question on why the officers in SolarCity were buying the company's debt. Lots of headlines and all are negative.

Earnings Nov 3rd.

Sell short Oct $240 call, currently $3.20, stop loss $233.
Buy long Oct $260 call, currently $1.03, no stop loss.
Net credit $2.17.


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.


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.


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.


IWM - Russell 2000 ETF (Oct Put Spread)

The Russell made a new 52-week high on Tuesday and then gave back all of Tuesday's gains on Wednesday. However, the Russell is still the most bullish index even though it has not yet made a new high. The Nasdaq was the leader but the implosion in the biotech sector could have derailed that leadership. The Russell has been moving slower but in a steadily bullish direction. Slow and steady wins the race.

Sell short Oct $111 put, currently .77, stop loss $118.50
Buy long Oct $103 put, currently .32, no stop loss.
Net credit 45 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.


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 (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.


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.


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.