Sometimes disaster strikes because you are standing in the wrong place at the wrong time.

Last week we were caught standing under a biotech stock when the world came crashing down. We had two put spreads on Illumina when the stock gapped down -$50 on Tuesday. Needless to say, we experienced a significant loss. These events happen on rare occasions but they do happen. There is nothing anyone can do to prevent these disasters because nobody can see the future. Illumina had the best chart in the portfolio over the last month. Their earnings warning came out of the blue and caught everyone by surprise.

The implosion in Illumina caused the entire biotech sector to collapse and that rippled over into the market indexes including the Nasdaq and the Russell 2000. That crash that started on Tuesday is continuing tonight.

Wednesday's market rebound was lackluster and I wrote in the Option Investor newsletter after the close, I was worried about a continued decline because of the weakening internals and the rise in the VIX even though the market was positive.

As I write this newsletter tonight the S&P futures are down -13 points and falling. There were some new revelations out about Trump this evening, including accusations of attempted rape 30 years ago. Needless to say that should kill his candidacy. That means Clinton, even with all her problems could end up the winner. The market fears her win because it would mean higher taxes, more regulation and increased deficit spending. Previously the market believed a Clinton win would be restrained by republicans maintaining control of the House and Senate. Now even that is in doubt and the futures are running scared.

With the futures down hard and falling fast, I am not adding any plays this week. It would be financial suicide to try to sell premium in this market.



Maybe next week the market will have calmed and with Q3 earnings in full bloom the thoughts of investors will return to profits in the market.

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


ILMN - Ilumina (October Put Spread Stopped)

We were blown out of the Ilumina positions on Tuesday after the company warned for Q3/Q4 and gapped down -50 point at Tuesday's open. We had two wide put spreads and we took a huge hit. The only bright side to the positions is that the long puts are still open and the shares are still declining. However, Illumina would have to fall another $15 to get us out without a loss.

These kinds of events happen from time to time but not of this magnitude. A $50 gap lower is very rare.

Closed Oct $165 short put, entry $2.44, exit $25.30, -.22.86 loss
Retain Oct $150 long put, entry .62, currently $13.40, +12.78 gain

Closed Oct $170 short put, entry $2.49, exit $30.40, -27.91 loss.
Retain Oct $150 long put, entry .44, currently $13.40, +12.96 gain



ACIA - Acacia Communications (Oct Put Spread Stopped)

Acacia posted strong earnings and the stock shot up to $115. Shares faded the next day to $110. After the close they announced a secondary offering of $4.5 million shares at $100, that was $10 under the market. Shares plunged to stop us out of the position for a major loss. You can never count on companies doing what is right for shareholders.

The long Oct $80 put is still open and we have a chance it will rise quickly since the stock is still falling.

Closed Oct 95 put, entry $1.05, exit $4.90, -3.85 loss.
Retain Oct $80 long put, entry .40, currently $1.05, +.65 gain.


CLVS - Clovis Oncology (Oct Covered Call Stopped)

The covered calls on Clovis were proceeding nicely until the company released some trial data on one of their cancer drugs and gapped down -$10 on Friday. We escaped from both calls without a loss but gave up a significant amount of gains.

Closed CLVS shares, entry $25.01, exit 25.65, +.64 gain
Closed Oct $25 short call, entry $3.40, exit $3.59, -.19 loss.
Net gain 45 cents.

Closed CLVS shares, entry $29.29, exit $29.65, +.46 gain
Closed Oct $30 call, entry $3.26, exit $1.60, +1.66 gain.
Net gain $2.12.



Monthly Cash Machine Play Updates


IWM - Russell 2000 ETF (Oct Put Spread Stopped)

The market drop on Tuesday knocked us out of the second short put attempt on the IWM.

Closed Oct $118 short put, entry .81, exit .43, +.38 gain.
Retain Oct $103 long put, entry .34, currently zero.



SPY - S&P-500 ETF (Oct Put Spread Stopped)

The market drop on Tuesday knocked us out of the short side on the SPY put spread.

Closed Oct $206 short put, entry .59, exit .28, +.31 gain
Retain Oct $200 short put, entry .27, currently .04.



IBB - iShares Biotech ETF (Nov Put Spread Stopped)

The crash in Illumina and resulting implosion in the biotech sector knocked us out of the IBB pus spread.

Closed Nov $250 short put, entry $1.34, exit $2.00, -.66 loss
Retain Nov $220 long put, entry .25, currently .15,



New Option Writer Recommendations


No New Recommendations


New Covered Call Recommendations


No New Covered Calls


New Monthly Cash Machine Recommendations


No new plays

The major indexes are seeing some significantly increased volatility and it would be financial suicide to enter any new plays this week.


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.


ACIA - Acacia Communications (Oct Put Spread)

Acacia is a recent IPO that took off like a rocket. The company preannounced earnings on Tuesday that blew away estimates and guided higher for the current quarter. Support at $100 has held for two months and with the higher guidance, it should continue holding.

Sell short Oct $95 put, currently $1.95, stop loss $97.85
Buy long Oct $80 put, currently .40, no stop loss.
Net credit $1.55


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

Update 9/28/16: Broadcomm gapped down -$4 with the market on the 26th when it was reacting to the bank meltdown in Europe. Shares have rebounded well over the prior levels.

I am recommending we reload this position with the Oct $162.50 put.

Closed Oct $155 short put, entry $1.69, exit $1.55, +.14 gain.
Retain Oct $145 long put, entry .64, currently .05.

Sell short Oct $162.50 put, currently $1.30, stop loss $165.75


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.


CLVS - Clovis Oncology (Oct Cov Call)

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.


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.


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.

CytRx received some bad news on a drug trial and the stock gapped down to 65 cents. We are waiting for some positive news to inflate the stock and we will sell a new call.


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


ILMN - Illumina (Oct Put Spread)

Shares of Illumina are breaking out to a new 9-month high after basing in a holding patter at resistance for two months.

Earnings are Oct 25th.

Sell short Oct $165 put, currently $2.30, stop loss $171.00
Buy long Oct $150 put, currently $1.15, no stop loss,
Net credit $1.15


ILMN - Illumina (Oct Put Spread)

We already have a put spread at a lower strike on ILMN but it has the best chart I have seen today. With October premiums already evaporating, I am willing to double dip on this stock. Shares have broken over long term resistance at $178 and closed at a 9 month high today.

Sell short Oct $170 put, currently $2.45, stop loss $174.65
Buy long Oct $150 put, currently .65, no stop loss.
Net credit $1.80.


NTES - Netease (Nov Put Spread)

Netease has a great chart and they just renewed their deal with Activision last week to sell video games in China through 2020. That lifted the shares off $240 and with any positive market, we could see new highs.

Netease has earnings on Nov 15th, 3 days before expiration so we will need to exit early if we ar enot already out.

Sell short Nov $210 put, currently $2.30, stop loss $233.50
Buy long Nov $190 put, currently $1.15, no stop loss.
Net credit $1.15


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.


TAP - Moulson Coors (Oct Short Put)

TAP is about to move to a new high after Wednesday's $3 spike. The stock has been basing like the market around the $102 level with a pattern of higher lows.

Earnings Nov 1st.

Sell short Oct $95 put, currently $1.45, stop loss $100.00.


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.


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 (Nov Put Spread)

The IBB is testing resistance at $300 and a lot of the political negativity is already prices into the market. We already have a November XBI spread but the biotechs are the only ETFs that have any option premiums. I am picking a strike well out of the money, which should be relatively safe if that is possible in this market.

Sell short Nov $250 put, currently $1.30, stop loss $275.00

Buy long Nov $220 put, currently .35, no stop loss.
Net credit 95 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 (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.


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

The S&P closed at a two week high and there are no more obvious hurdles on the horizon. I am sure there will be some unexpected events but after holding at the same level for two weeks the odds of a drop below that level are much smaller. That built up a significant amount of support.

Sell short Oct $206 put, currently .80, stop loss $212.25
Buy long Oct $200 put, currently .40, no stop loss.
Net credit 40 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 (Nov Put Spread)

The XBI has broken out to a 9-month high and appears to be headed even higher. I am going to reach out on this position to the November strikes so I can keep the short strike under the recent support.

Sell short Nov $58 Put, currently .75, stop loss $63.00
Buy long Nov $50 put, currently .21, no stop loss.
Net credit 54 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.


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.