The bullish bias from the prior week collapsed in a spectacular fashion.

Thursday saw a minimal decline in all the indexes and Friday saw a significant crash of more than 2.5% on the major indexes. Monday gapped lower at the open before a monster short squeeze was born. Tuesday saw a reversal that erased the gains from Monday and Wednesday closed with the major indexes, excluding the Nasdaq, closing at or below critical support.

Since the market closed on Wednesday the S&P futures have ranged from +6 to -4 and back to zero again. The volatility is continuing overnight. With the quadruple option expiration on Friday and the Fed statement next Wednesday, there is a significant probability that the market is going to make another major move over the next four days. Unfortunately, we do not know the direction. Tuesday is likely to be higher because of the trend for the day before a Fed announcement to be positive. However, with the major indexes closing on support on Wednesday, there is a high risk of another strong decline before next week.

While nobody can predict market moves with any certainty, we can look at the charts and recognize critical patterns.

The small cap S&P-600 set a new high last Wednesday and then collapsed -4% to close on critical support on Wednesday. A break below 732 targets 675, which would be a -12% correction. Let's hope we do not go there.


The Dow dipped below 18,000 late in the afternoon but recovered to close above that level right at the close. If the Dow falls below 18,000 the next target is 17,100, which would be an 8% drop.


The Nasdaq has not yet fallen out of its consolidation range and we can thank Apple for that. The iPhone 7 preorders have been 375% to 400% higher than the iPhone 6 preorders according to the carriers. That has lifted Apple $10 over the last 4 days and all the chip suppliers are posting similar gains. That has kept the Nasdaq from crashing with the rest of the indexes.


With small caps and large caps both experiencing distress, the only market positives are the Apple related tech stocks. That $10 rebound in Apple shares has added nearly 80 points to the Dow or we would already be well under that 18,000 level.

I would like to think that the market damage has been done and our 4% correction will fade. However, we cannot ignore the major indexes closing right on support. If that support convinces the bulls the selling is over, then it would be the perfect place for a rebound to begin. However, if portfolio managers show in force and sell into the next bounce then we should expect lower lows.

I would encourage cautious investors to sit this week out. There is no reason to put money at risk when we do not have a decent idea about market direction. Over the next 2-3 weeks the market will pick a direction. Typically a rally begins after the second week in October as fund managers buy stocks to dress up their portfolio for the fiscal year end on October 31st.

The last week in September and the first week in October are known for making market bottoms. We just need to wait for that bottom and then make our play decisions.

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


NFLX - Netflix (Closed)

The short put on the Netflix spread was closed at the open last Thursday for a nice gain. The long put is still open but has no chance of being in the money.

Closed Sept $85 short put, entry $1.84, exit .04, +1.80 gain
Retain Sept $70 long put, entry .20, currently zero.



TAP - Moulson Coors (Stopped)

The short put on TAP was stopped on the market crash on Friday for a minor gain.

Closed Oct $92.50 short put, entry 2.05, exit $1.65, +.40 gain.



CMG - Chipotle Mexican (Stopped)

Chipotle crashed with the market on Tuesday and stopped us out on the short put side of the spread. The long put is up significantly and I put a stop loss on it to prevent giving back those gains.

Closed Oct $400 short put, entry $5.38, exit $7.80, -2.42 loss.
Retain Oct $375 long put, entry $1.67, currently $2.70, with a $417.50 stop loss.



DPZ - Dominos Pizza (Stopped)

Dominos crashed with the market on Friday to stop us out and then immediately rebounded back to $150. I am recommending we reshort the Oct $140 put.

Closed Oct $145 short put, entry $3.83, exit $4.80, -.97 loss.
Sell short Oct $140 put, currently $2.15, stop loss $145.50.



CNX - Consol Energy (Covered Call Stopped)

Shares of CNX began crashing with the market and with oil prices on Friday and have not stopped. We were knocked out of the position at $17.85 for a minor gain.

Closed CNX shares, entry $18.89, exit $17.85, -1.04 loss
Closed Sept $20 call, entry $1.12, exit .04, +1.08 gain.



WATT - Energous Corp (Covered Call Stopped)

WATT began crashing on the 7th and declined from $20 to $14 on no news. This was probably a big institution locking in profits as the market imploded.

Closed WATT shares, entry $18.55, exit $15.55, -3.00 loss
Closed Oct $18 call, entry $3.00, exit $1.20, +1.80 gain.
Net loss $1.20.



Monthly Cash Machine Play Updates


Index plays were crushed last week when the market declined 2.5-3.0% on Friday. There was no save port in the storm. Big caps, small caps and tech stocks were all hit.


IWM - Russell 2000 ETF (Oct put spread - closed)

The short Oct $111 put was stopped out in Friday's market crash.

Closed Oct $111 short put, entry .83, exit .77, +.06 gain.
Retain Oct $103 long put, entry .34, currently .26



TLT - 20-YR Bond ETF (Oct put spread - closed)

The short Oct $132 put was stopped out on Friday for a minor gain. I am recommending we close the long put to lock in a profit on the position.

Closed Oct $132 short put, entry .66, exit .54, +.12 gain
CLOSE Oct $127 long put, entry .18, currently .40, +.22 gain.



MDY - S&P-400 Midcap ETF (Oct put spread - closed)

The Midcap index crashed starting on Friday and closed at a 2-month low today. We were stopped on the gap down on Friday and the premiums reflected the sharp gap lower. This one was painful.

Closed Oct $270 put, entry $1.29, exit $3.50, -.2.21 loss
Retain Oct $250 long put, entry .60, currently $1.05, stop loss $279.00



QQQ - Nasdaq 100 ETF (Oct put spread - closed)

The Friday market crash hammered the QQQ with the Nasdaq 100 down over -130 points.

Closed Oct $111 short put, entry .65, exit $1.24, -.59 loss.
Retain Oct $105 long put, entry .24, currently .45. stop loss $116.50.



New Option Writer Recommendations


ALXN - Alexion Pharma (Oct Put Spread)

Alexion is fighting the market and rising to retest resistance at $130. The company just got EU approval for another orphan drug, which means higher prices and a longer period of exclusivity.

Earnings Oct 27th.

Sell short Oct $120 put, currently $2.15, stop loss $124.25
Buy long Oct $110 put, currently .95, no stop loss.
Net credit $1.20.



AVGO - Broadcom (Oct Put Spread)

All of the Apple chip suppliers have been rising in a weak market after the carriers announced how strong the iPhone 7 sales have been. Sprint and T-Mobile both said sales were up 375%-400% over the iPhone 6 announcement period.

Earnings Dec 1st.

Sell short Oct $155 put, currently $1.65, stop loss $162.65
Buy long Oct $145 put, currently .65, no stop loss.
Net credit $1.00



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


CLVS - Clovis Oncology

Clovis has completely resisted all the market weakness and has continued to rise. The relative strength is very strong. We already have a Clovis call but we can always add another one. If this is the strongest stock available in a weak market then we should play it.

Earnings Nov 3rd.

Buy-write Oct $30 call, currently $29.10-$3.20, stop loss $25.50
Gain if called $4.10.



New Monthly Cash Machine Recommendations


The last week has seen more volatility than the prior two months. We were blown out of all out index ETF positions because of the major moves. Last Friday saw the indexes move 2.5% to 3.2% in one day. Since I have been researching/writing this newsletter tonight the S&P futures have gone from +6 to -4 and back to +1. The volatility is still with us in the overnight session.

I am sorry but I am not recommending any new index plays until the market settle down or at lease picks a direction. I cannot recommend positions I would not play with my own money and there are no index positions I would risk money on today. With the Fed announcement on Wednesday and a quadruple option expiration on Friday, there is significant risk of another major move in either direction. There is no reason to flip a coin and place a bet. We need to have at least a little confidence in the direction before putting money at risk.


No New Plays


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.


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.


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.


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


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.


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

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.


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.


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.