The market currently has a bullish bias but it is still struggling.

The small and midcap indexes are moving up nicely with the S&P-400 and S&P-600 setting new highs on Wednesday. However, the big cap indexes including the Dow, S&P-500 and S&P-100 all closed in negative territory. There is a battle underway and the portfolio managers are selling big caps to raise cash to invest in small cap stocks.

Since the Dow and S&P are commonly seen as "the market" by most retail traders, that is not instilling confidence in the continued trend. However, as long as the small caps continue rising we have a chance for the rally to continue.

This is a short post holiday week and volume is still decent at 6.3 billion shares but it could be heavier. Except for Friday, which is recognized as almost a holiday in the market, today's volume was the lightest in a week.

The big cap indexes remain locked in a very tight consolidation range. 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 42 sessions since the S&P made a 1% move. The longest streak recently was 62 days in 2014. However, instead of perfectly sideways like this current streak, the one in 2014 saw the S&P add +163 points because the low volatility was in a bullish uptrend that ended in early August.

Whenever there is a tight sideways trend for a long period, it almost always ends in either a blowout to the upside or a sharp decline. It rarely melts up or down slowly. There is too much pent up frustration and traders on both sides get nervous. Eventually the compressed spring expands rapidly and we just hope we are on the right side of the market when it happens.

The S&P has resistance at 2,193 and support at 2,150. When that range breaks it could moe quickly.


The Dow dipped to critical support at 18,350 multiple times but is currently easing up to the top of the range. The Dow could be the leader to the downside but buyers just keep appearing despite the minor weakness.


The Nasdaq has broken out to a new high but has failed to gain any momentum. There is still a lot of disbelief and indecision. The big cap techs were up strongly on Tuesday but down slightly on Wednesday and that held the index to a minor gain.


The market leader is the S&P-600 Small Cap Index. It has broken out to a new high and is actually accelerating. This could eventually lead the broader market higher.


Option premiums are starting to inflate but until the Dow and S&P pick a direction the premiums will remain muted.

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


MLM - Martin Marietta (Stopped)

The stop loss on the long put was hit on Thursday to take us out of that side of the play with a gain. We were previously stopped out on the short side for a loss so every little bit helps.

Closed Sept $175 long put, entry .44, exit .90, +.46 gain.
Previously closed Sept $190 short put, entry $2.02, exit $2.95, -.93 loss.
Net loss 47 cents.



NXPI - NXP Semiconductor (Stopped)

The short side of the NXPI put spread was stopped on Tuesday at $86.25 for a minor gain. We still have the long put but it is well out of the money and it is not likely to regain its value.

Stopped Sept $82.50 short put, entry .75, exit .34, +.41 gain.
Retain Sept $75 long put, entry .10, currently zero.



WYNN - Wynn Resorts (Stopped)

Wynn rebounded sharply when news broke that gaming in Macau did not decline for the first month in the last two years. We were stopped out on the rebound on the long put.

Closed Sept $80 long put, entry .29, exit .27, -.02 loss.
Previously closed Sept $90 short put, entry 1.10, exit 1.61, -.51 loss.
Net loss -53 cents.



Monthly Cash Machine Play Updates


No Changes


New Option Writer Recommendations


CMG - Chipotle Mexican Grill (Oct Put Spread)

Bill Ackman rescued CMG from another month wandering around in the $390 range after he announced on Tuesday he had taken a 9.9% stake in the company. He was pounding the table on how undervalued the stock was and why it was such a good deal. He would have to be a believer to take a 10% stake in a $13 billion market cap company. The filing of the SEC notice was good for a $24 spike so he is already profitable. This vote of confidence should have erased any lingering worries over the stock price. Shares were already rebounding before his announcement.

Earnings are Oct 21st. We will need to close this position before the 21st.

Sell short Oct $400 put, currently $4.90, stop loss $418
Buy long Oct $375 put, currently $1.75, no stop loss.
Net credit $3.15.



DPZ - Dominos Pizza (Oct Put Spread)

Dominos posted decent earnings and shares gapped higher to $147. After a month of post earnings consolidation shares are about to break out to a new high over $151. Dominos is a cult stock and a break higher should cause short covering by the bears and price chasing by the faithful.

Earnings are Oct 21st. We will need to close this position before the 21st.

Sell short Oct $145 put, currently $3.50, stop loss $147.85
Buy long Oct $130 put, currently $1.05, no stop loss.
Net credit $2.45



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


No New Covered Calls


New Monthly Cash Machine Recommendations


The six weeks that started the Monday August 22nd 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.

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

With the S&P-400 making new highs this is about the only index I am comfortable using in a put spread. The big cap indexes are still choppy with alternating gains and losses. The midcaps seem to be the market leaders at present. We are only 5 days into September so anything is still possible but the overall market bias is still bullish.

Sell short Oct $270 put, currently $1.25, stop loss $279.50
Buy long Oct $250 put, currently .60, no stop loss.
Net credit 65 cents.



QQQ - Nasdaq 100 ETF (Oct Put Spread)

With the Nasdaq Composite setting new highs now I feall more comfortable about adding another QQQ spread. The big cap techs were hot on Tuesday but cooled off slightly on Wednesday. The chart suggests we could see a breakout. That could trigger additional short covering by traders and price chasing by funds.

Sell short Oct $111 put, currently .56, stop loss $115.
Buy long Oct $105 put, currently .21, no stop loss.
Net credit 36 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.


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.


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.


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.


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 $17.50 call, currently $18.00-$2.60, stop loss $13.75.
Net debit $15.40. Gain if called $2.60.


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.


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.


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.