The Nasdaq crash the prior week caused significant grief and it still refuses to make a new high.

The rest of the market indexes are setting new highs daily but the Nasdaq, especially the Nasdaq 100 big cap index is refusing to cooperate. The $NDX declined -3.5% in three days last week to stop us out of multiple positions. The index is rebounding today but the damage is already done. It is nearly impossible to pick plays to hold for several weeks with this kind of volatility.


The OPEC decision last week compounded our problems with the Pioneer position. The shares dropped nearly $20 the two days before the meeting as cautious investors ran to the sidelines. We were stopped out of the put spread for the second time with a big loss despite the strong upward bias. You cannot predict $20 moves in two days. It is very painful.


The Dow and S&P have both broken out to monster new highs and anyone still short is probably drinking themselves into oblivion tonight. The sudden burst of buying on Wednesday started with a $6 billion buy order for 50,000 contracts of the S&P futures around lunch time. That started a major short squeeze when the indexes broke out to new highs and the volume on the S&P futures hit 1.48 million contracts. The overall volume was not that unusual but this time most of it was buy orders.



I was surprised that I could not find more covered call plays with the market spike. However, even though the Russell 2000 broke out to a new high, the majority of the small cap stocks only posted minor gains and not enough to juice the call premiums. The market breadth in the small caps is very narrow. Given the decline in the biotech sector today it is surprising the Russell advanced at all.

Until today, I thought the market could continue chopping slowly higher for the rest of the year, which is actually only 16 trading days. Given today's monster move, that analysis is in doubt. I find it very hard to believe that we will move much higher and the Dow 20,000 level is going to be a major sell the news event. If that happens the week after Christmas, it would set the stage for a very negative January.

I think we need to keep our premium portfolio conservative and the closer we get to the end of December the fewer positions we should be holding.

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


TREE - Lending Tree (Short Closed)

Tree shares dropped with the Nasdaq on 12/3 to stop us out of the short side at $99.50. No specific news. Just fell with the market.

I considered selling another December put since we already have a long put but the bid ask spreads have widened to 50-75 cents. Selling a 50-cent put with a 70 cent spread makes no sense. If we were stopped again it would be a big loss.

Closed Dec $70 short put, entry $1.70, exit .50, +1.29 gain
Retain Dec $60 long put, entry .75, currently zero.



ACIA - Acacia Communication (Short Closed)

ACIA fell with the Nasdaq to stop us out at $71.35 on Tuesday the 29th. No specific news. Just dropped with the market.

Closed Dec $60 short put, entry $1.24, exit .80, +.44 gain.
Retain Dec $50 long put, entry .40, currently zero.



TSLA - Tesla Inc (Short Closed/Reload)

TSLA fell with the Nasdaq to stop us out at $183.50 on Thursday 12/1. No specific news. Just dropped with the market. I am recommending we reload this position since we already have a long option and the premiums are still high.

Sell short Jan $170 put, currently $2.56, stop loss $182.25

Closed Jan $170 put, entry $2.82, exit $4.36, -1.54 loss.
Retain Jan $150 long put, entry $1.00, currently $1.18.



PXD - Pioneer Natural Resources (Short Closed)

Pioneer fell almost $20 in three days ahead of the OPEC decision. The rebound was immediate to higher highs but we were already stopped out.

Closed Dec $165 put, entry $2.00, exit $4.90, -2.90 loss.
Retain Dec $145 long put, entry $.78, currently zero.



Monthly Cash Machine Play Updates


SPY - S&P SPDR ETF (Short Closed)

The S&P dipped just enough last week to stop us out of the short side at $219.50. That was the only decline in the last four weeks.

Closed Dec $204 short put, entry .87, exit .08, +.79 gain
Retain Dec $196 long put, entry .41, currently .02.



QQQ - Nasdaq 100 ETF (Short Closed)

The QQQ dropped nearly 5 points to stop us out of the short side at $116.85. That was the only decline in the last four weeks.

Closed Dec $110 short put, entry .53, exit .18, +.35 gain
Retain Dec $103 long put, entry .14, currently .01.



New Option Writer Recommendations


ACIA - Acacia Communications (January Put Spread)

The Nasdaq decline in late November pushed ACIA down to $64.50 where the stock came to a dead stop. That is slightly higher than the $62.65 low in early November. I believe that is going tobe strong support if we should get another bout of market weakness.

Earnings Feb 9th.

Sell short Jan $60 put, currently $1.75, stop loss $66.85
Buy long Jan $50 put, currently .55, no stop loss.
Net credit $1.20.


NFLX - Netflix (January Put Spread)

Netflix surged after getting an upgrade from Evercore ISI saying expected competition had not appeared and they now had a lead in original content that was insurmountable. Shares should retest resistance at $130.

Earnings Jan 16th.

Sell short Jan $110 put, currently $2.00, stop loss $115.85
Buy long Jan $100 put, currently .70, no stop loss.
Net credit $1.30.



SIG - Signet Jewelers (January Naked Put)

The fourth quarter is normally the best quarter of the year for jewelers and Signet is moving to a 7 month high. Support at $90 in early December was decent and the stock is accelerating higher.

Earnings Feb 21st.

Sell short Jan $85 put, currently $1.40, stop loss $90.45.



Other Potential Plays (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.

January expiration is the 20th.



New Covered Call Recommendations


No Covered Calls


New Monthly Cash Machine Recommendations


I am terminating the Cash Machine recommendations with the January option cycle. It is difficult to force a play on an index or sector ETF every week just because there is a scheduled newsletter. The market has broken out of its three month trading range and the odds are VERY good we are going to see a lot of volatility in 2017. I will still include spreads on indexes when they are available at an attractive price and the market is cooperating. Those ETF spreads will be presented in the regular Option Writer recommendations.


QQQ - Nasdaq 100 ETF (January Put Spread)

The Nasdaq corrected almost 4% the prior week. The Nasdaq 100 has been the lagging index and it appeared to catch fire today with a better than 1% gain. The QQQ has dipped several times over the last two months and the decline halted in the $114-$115 range. I am going to try and sell well under that level in hopes the next several weeks will see the Nasdaq break out to a new high with the rest of the market.

Sell Jan $110 put, currently .50, stop loss $114.85
Buy Jan $104 put, currently .19, 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.


ACIA - Acacia Communications (December Put Spread)

ACIA has had a rough couple of months. Things are finally improving and the shares hit a 3 week high intraday on Wednesday.

Earnings Feb 9th.

Sell short Dec $60 put, currently $1.20, stop loss $64.85
Buy long Dec $50 put, currently .70, no stop loss.
Net credit .70


ANET - Arista Networks (January Naked Put)

Arista has blasted off after they solved their import problems. The stock exploded past $90 and should continue higher.

Earnings Jan 31st.

Sell short Jan $85 put, currently $1.10, stop loss $89.85


CLVS - Clovis Oncology (Covered Call)

Clovis has had some challenges over the last month but the worry over Clinton being elected was the power behind the decline over the last two weeks. Shares rallied 18% on Wednesday. They posted better than expected earnings (loss) last week.

Earnings Feb 2nd.

Buy-write Dec $30 call, currently $32.20-$4.10, stop loss $27.85


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.

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.


INCY - Incyte Corp (January Call Spread)

Shares of INCY have been trending higher but they have a strongly repetitious pattern of peaks and valleys over the last year. The current spike has stalled and we should see another valley appear. Shares have hit a strong resistance range from $100-$118 and further gains could be difficult without some profit taking.

Earnings Jan 31st.

Sell short Jan $120 call, currently $2.00, stop loss $112.25
Buy long Jan $140 call, currently .90, no stop loss.
Net credit $1.10.


LLY - Eli Lilly & Co (December Put Spread)

Lilly spiked on the election results and has faded slightly as the sector cools. Because of the spike we can sell a put under the prior low and we should be relatively safe.

Earnings Jan 25th.

Sell short Dec $70 put, currently $1.40, stop loss $74.50
Buy long Dec $60 put, currently .40, no stop loss.
Net credit $1.00.


PXD - Pioneer Natural Resources (December Put Spread)

Pioneer posted earnings of 13 cents that missed estimates for 17 cents. It was purely low oil prices in Q3 that caused the miss. Revenue fell -47% to $1.186 billion and beat estimates for $1.022 billion. They produced 239,000 Boepd, a 13.3% increase. They are the lowest cost producer in the Permian and my top pick in the energy space. Shares fell $13 on earnings but have nearly regained all of that loss.

Earnings Jan 31st.

Sell short Dec $165 put, currently $2.70, stop loss $168.85
Buy long Dec $145 put, currently $1.25, no stop loss.
Net credit $1.45.

Update 11/17/16: We were stopped out of the short side on this put spread when PXD crashed $13 from the Thursday high at $181.50 to the $168.79 low on Friday. That was a $13 drop caused by a sharp drop in oil prices to trade at $42.20 and a three-month low. The speed of the drop rapidly inflated the premiums and we lost $2 on the exit.

I am recommending we reload the Dec $165 short put, currently $2.55.

Closed Dec $165 short put, entry $2.92, exit $5.00, -2.08 loss

Sell short Dec $165 put, currently $2.55, stop loss $171.50.


TSLA - Tesla Inc (January Put Spread)

Tesla has completed the acquisition of SolarCity and all that uncertainty is now behind them. Shares have been trending higher since the vote on the 17th. The $180-$185 level has been support in the past.

Earnings Jan 25th.

Sell short Jan $170 put, currently $2.70, stop loss $183.50
Buy long Jan $150 put, currently $.98, no stop loss.
Net credit $1.72.


TREE - Lending Tree (December Put Spread)

TREE posted good earnings but the revenue was just under the estimates. The stock sold off hard but has rebounded for the last four days in a weak market. Banks and mortgage companies should do well heading into December with the Fed pointing to a potential December rate hike.

Earnings Dec 27th.

Sell short Dec $70 put, currently $1.40, stop loss $74.85
Buy long Dec $60 put, currently .60, no stop loss.
Net credit $.80.


WDC - Western Digital (January Naked Put)

WDC finally found some traction in the last couple of weeks and analysts continue to upgrade their estimates. Now that the SanDisk acquisition is well behind them and new products are hitting the market, they are the number one disk drive maker in the market.

Earnings Jan 26th.

sell short Jan $55 put, currently $1.06, stop loss $58.65.


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.


IWM - Russell 2000 ETF (January Put Spread)

The Russell has lost touch with reality and posted 15 consecutive days of gains. Monday was a 1% loss to break that streak. However, the economic situation has changed and expectations for a business friendly administration should keep the trend positive over the next several weeks even if there are some temporary dips. I am playing this as far out of the money as possible and still have the targeted 30 cent credit.

Sell short Jan $117 put, currently 52 cents, stop loss $125.65
Buy long Jan $110 put, currently 22 cents, no stop loss.
Net credit 30 cents.


QQQ - Nasdaq 100 ETF (December Put Spread)

The Nasdaq 100 has been the weakest index for the prior week as portfolio managers dumped big cap tech stocks to raise money for banks and industrial stocks. The NDX is starting to rise again and had the biggest gain of all the indexes today. I expect the NDX to continue to outperform as the other indexes face some profit taking.

Sell short Dec $110 put, currently .56, stop loss $113.85
Buy long Dec $103 put, currently .16, no stop loss.
Net credit 40 cents.


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

Despite being stopped out of the November spread, I am going to try and take advantage of the current market volatility to launch a new one. The SPY spiked to $216 on Wednesday and the market direction should still be up although we could continue to see some significant volatility. The low last Thursday was $208.38 and I am recommending a $204/$196 spread. Even if we do get more volatility I think the dips will be bought.

I am only adding one position because of that potential for additional volatility.

Sell short Dec $204 put, currently $1.02, stop loss $210.85
Buy long Dec $196 put, currently .50, no stop loss.
Net credit 52 cents.

 


XBI - Biotech ETF (December Call Spread)

Clinton is leading and is now assumed to be the winner despite recent gains by Trump. The biotech sector is in serious decline in anticipation of drug price controls if she is elected. With two weeks to go until the election we should see a continued decline in the sector. If she is elected the decline should continue. If Trump pulls out a win the sector should rebound but we can stop out if that happens.

Sell short Dec $67 call, currently .48, stop loss $62.25
Buy long Dec $72 call, currently .14, no stop loss.
Net credit 34 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.