Despite the bullish markets it is very difficult to find spreadable candidates because of the earnings calendar.
It is that time on the calendar again. We are right in the heart of the Q1 earnings cycle. More than 190 S&P companies report earnings this week and more than 2,000 companies in total report earnings over this week and the next two weeks. For some reason this has been the most concentrated earnings calendar in more than three years.
I expected to find plenty of potential positions given the bullish market but the earnings dates cancelled out almost everything.
A second problem remains the volatility. Just because the market rocketed higher earlier this week does not mean it is going to stay there. We are at double top levels on the Dow and S&P and the Nasdaq breakout is unsupported.
We have so many gaps on the charts from the strong short covering that we are setup for a reversal. Short squeeze gaps are almost always filled. That means the market or stock will eventually reverse and return to where it was before the gap occurred. The bigger the gaps the more likely they will be filled.
On the positive side, the Russell 2000 and S&P-600 small cap indexes both closed at new highs today, when the rest of the market was rolling over after the tax plan announcement. This should be bullish for the broader market sentiment.
The VIX hit a ten-year intraday low on Tuesday at 10.22 and is holding at 3-year lows. Traders are so complacent any unexpected event could cause trouble. However, we have had so much event risk over the last several weeks, I don't know what it would take to actually cause the market to sell off. The last bit is local risk is the government funding battle with a Friday deadline. Recent headlines suggest they are going to reach a compromise but it has not happened yet.
The Dow is struggling at 21,000 and resistance from mid March. Support is so far below at 20,800 or even 20,600 it is not relative. Any sell off it likely to be triple digits. I would like to think it could move higher but all lf the earnings catalysts have passed. Intel and Microsoft report after the close on Thursday but those results will not be felt until Friday. If they disappoint we could see a more active than usual, sell the news event as traders capture the short squeeze profits before the weekend event risk.
The S&P has a similar pattern. The index spiked over resistance at 2,388 on Tuesday but settled back to that level at the close. On Wednesday it almost reached 2,400 but fell back to resistance at the close. A failure at 2,400 could be seen as the beginning of a double top.
The Nasdaq could not make any forward progress on Wednesday. The index gains are very unsupported and there is going to be a flurry of big cap tech stocks reporting after the bell on Thursday. AMZN, GOOGL, MSFT, INTC, SBUX, SWKS, GPRO and GRUB all report. That could make for a very volatile open on Friday.
If the Russell 200 can hold or extend its gains after closing at a new high on Wednesday it would be very bullish for the broader market. The small caps are the sentiment indicator for fund managers. If small caps are raising it means fund managers are buying and are no longer afraid of a decline.
We should have a lot more candidates next week. With the 500+ companies reporting this week we should have a few that produce directional charts by next Wednesday. I should be able to begin recommending a lot more June options once we are over this hump. When you don't know what to expect from the market week to week it is hard to recommend an option that has 7 weeks until expiration.
Be patient with your entries and keep your stop losses tight.
Send Jim an email
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.
April Position Recap
In retrospect, the added volatility in March and April may not have seemed like a lot at the time but the S&P traded between 2,325 and 2,400 twice with a lot of indecision in the middle. This added volatility caused a lot of stops to be hit because there was never a direction that remained in place for more than a week or two. The big market dip at the middle of March was the main culprit. We still escaped the month with a minor gain but it was not pretty.
Current Position Changes
DPZ - Dominos Pizza (Closed short side)
Dominos crashed in early April and we had a bear call spread. Last week I lowered the stop loss on the short call just in case Dominos recovered. The stock gapped up with the market at the open on Monday and knocked us out of that short call for a decent gain. Unless somebody decides to buy Dominos, which is highly unlikely, our long call will expire worthless. It is $40 out of the money.
Closed May $200 short call, entry $1.87, exit .65, +1.22 gain.
Retain May $220 long call, entry .15, currently zero.
SLCA - U.S. Silica Holdings (Short Put)
We already have this as a covered call that is significantly underwater. However, they reported strong earnings this week and guided for 20% earnings and revenue growth for the foreseeable future. The stock is going to move higher as soon as oil finds a bottom, which is always does in late April, early May because of the demand cycle.
Strong guidance on earnings call. Earnings gudiance
I am recommending a slightly in the money put at $45 but the premium is $3.80. It is $1.94 in the money so the market maker cannot just put you the stock or he loses $1.86. If you were put, just repeat the process and you make $1.86 every time. Trust me, they will not put it to you. You have to be prepared in case they do but 99 times out of 100, they will not do it.
Earnings July 24th.
Sell short June $45 put, currently $3.80, no stop loss.
NFLX - Netflix (June Put Spread)
Netflix reported earnings last week and shares crashed back to $138 intraday on what some called weak guidance. They immediately rebound as analysts began to pound the table on the stock. Several days after earnings the CEO tweeted they had exceeded 100 million subscribers. They guided to add 3.2 million in Q2 and analysts now believe that was a lowball number. Multiple analysts have raised price targets to the $175 level.
Earnings July 17th.
Sell short June $140 put, currently $1.73, stop loss $143.00
Buy long June $130 put, currently .57, no stop loss.
Net credit $1.16.
New Covered Call Recommendations
No New Calls (Covered Call)
I would have thought with all the big spikes on short squeezes there would be a lot of covered calls available but the vast majority of candidate stocks have earnings over the next three weeks.
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.
May expiration is the 20th.
Existing 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 (Short Put)
ACIA appears to have bottomed at $50 and has been trending slowly higher until today. The trend has been solid despite some volatility in the market. Today was the exception but it did try to rally in the afternoon.
Earnings May 25th.
Sell short May $45 put, currently $1.35, stop loss $49.50.
Update 4/17/17: ACIA shares fell through support on Tuesday at $53 to stop us out of the short put position. There was no news to trigger the decline. Fortunately, we broke even on the position.
Closed: May $45 short put, entry $1.55, exit $1.55, no gain.
ACOR - Acordia Therapeutics (Covered Call)
Acordia is surging higher despite the volatility in the biotech sector. The stock closed at at 10-month high on Wednesday in a weak market. Volatility in the options suggest there may be something going on behind the scenes. They could be ripe for an acquisition.
Earnings May 16th.
Buy write ACOR April $28 call, currently $4.10, stop loss $24.35
Update 3/22/17: The Tuesday market crash also knocked us out of the Acordia covered call for a breakeven.
Closed ACOR shares, entry $28.30, exit $25.85, -$2.45 loss.
Closed Apr $28 call, entry $5.04, exit $2.70, +2.34 gain.
Net loss 11 cents.
AMD - Advanced Micro Devices
AMD was left for dead multiple times over the last several years. They have reinvented themselves and are becoming an actual competitor for Intel and Nvidia. They beat on earnings and have several new products in the delivery stream.
Earnings May 2nd.
Buy-write Mar $14 call, currently $13.56 and $.80, stop loss $11.85
Gain if called $1.24
Update 3/22/17: AMD closed on Friday at $13.49 and we had sold a $14 call. That call expired worthless and we need to resell an April call. Shares ar moving slowly higher and you have the option of selling the April $14 call for 97 cents with AMD at $14.10 or selling the $15 call for 58 cents and hoping to get an additional 90 cents of stock appreciation over the next three weeks. I am recommending the $14 call because the higher premium provides a little more insurance against a dip. Support is $13.
Expired Mar $14 call, entry .90, expired, +.90 gain.
Sell short Apr $14 call, currently .97, stop loss $12.85.
Update 4/12/17: AMD took a beating from Goldman with a sell rating and $11 price target. Shares have declined to $12.75 and our short call is worthless. I am recommending we close the April call and sell a May call.
Close Apr $14 short call, entry .95, currently .08, +.87 gain.
Sell short May $13 call, currently $1.06, no stop loss.
Previously closed: Mar $14 call, entry .90, expired +.90 gain.
BA - Boeing (Call Spread)
Boeing has been a star performer since October. They are up over $50 in that period with a $20 spike since the beginning of February. They appear to be topping out and the Dow is weakening. With the Fed meeting, debt ceiling and the tax cut proposal moving farther into the future every day, the Dow is likely to continue to weaken. Those stocks that led the charge higher are going to give back some of those gains.
Earnings April 26th.
Sell short April $190 call, currently $1.41, stop loss $185.85
Buy long April $200 call, currently .27, no stop loss.
Net credit $1.14
DLTR - Dollar Tree (Put Spread)
Dollar Tree is choping around between $75-$80 and the $72.50 put strike has some decent value. DLTR has not touched $72.50 since Nov 2015. I am going to use a wide stop on this that will be pretty close to the strike just to avoid the choppiness.
Earnings May 17th.
Sell short April $72.50 put, currently $1.70, initial stop loss $73.50
Buy long April $60 put, currently 35 cents. No stop loss.
Net credit $1.35.
DPZ - Domino's Pizza (Call Spread)
Domino's has topped out at $190 and has been trading sideways between $182-$190 for two months. With the potential for a market decline in April, I am going with a call spread because I believe it will be hard for DPZ to punch through resistance in a weak market. There are a lot of gains from January that have not yet been captured and that could produce weakness if the market starts to wobble.
Earnings May 30th.
Sell short May $200 call, currently $1.60, stop loss $191
Buy long May $220 call, currently .40, no stop loss.
Net credit $1.20.
INCY - Incyte Corp (Put Spread)
Incyte has a great pattern of gaps higher after earnings and no material retracements after the last two events. Shares spiked from $120 to $130 after earnings in late February and are close to a new high on Wednesday. There are no signs of sellers in this stock.
Earnings May 16th.
Sell short April $125 put, currently $2.40, stop loss $131.50
Buy long April $115 put, currently .90, no stop loss.
Net credit $1.50.
ITCI - Intra Cellular Therapies (Covered Call)
Shares were very volatile with earnings on March 1st but have shaken off that volatility and are moving nicely higher. I picked ITCI because of the nice trend. The call is well out of the money but the trend id likely to continue and we can pocket some gains from the rise in the stock price.
Earnings June 1st.
Buy write ITCI April $17.50 call, currently $15.42 and $1, stop loss $13.85.
Gain if called $3.08.
Update 3/22/17: The Tuesday market crash also knocked us out of the ITCI covered call.
Closed ITCI shares, entry $15.40, exit $13.85, -1.55 loss.
Closed Apr $17.50 call, entry $1.00, exit .80, +.20 gain.
Net loss $1.35.
JACK - Jack in the Box (Put Spread)
JACK is recovering from a post earnings beating and should return to the $110 level before the May earnings. Analysts have started to talk positive about JACK as a survivor in the current restaurant recession.
Earnings May 17th.
Sell short May $95 put, currently $2.00, stop loss $98.15
Buy long May $85 put, currently $.50, no stop loss.
Net credit $1.50
Update 4/17/17: JACK shares fell $6 in four days to stop us out of the short side of this put spread at $99.75. There was zero news to account for the move.
Closed May $95 short put, entry $1.90, exit $2.30, -.40 loss.
Retain May $85 long put, entry .54, currently .35. no stop loss.
MU - Micron Technology (Covered Call)
Micron reported better than expected earnings and raised guidance. Shares spiked then rolled over in the semiconductor meltdown last week. They are starting to rise again. The company said memory prices were up an average of 20% last quarter and they expected prices to continue to rise due to a shortage in the market.
Earnings June 22nd.
Buy-write May $27 call, currently $27.25-$1.25, stop loss $25.25
Gain if called $1.00.
NFLX - Netflix Inc (Put Spread 3/08)
I hate to keep going back to the same stocks but Netflix consistently has some of the highest option premiums and a relatively stable trend. While we cannot predict the future, I think Netflix has more upside than downside in the weeks ahead.
Earnings April 19th.
Sell short April $130 put, currently $2.60, stop loss $138.35
Buy long April $115 put, currently .57, no stop loss.
Net credit $2.03.
NFLX - Netflix (Put Spread 3/15)
I hate to keep going back to Netflix for a play nearly every week but they have a trend and great option premiums. The only negative about Netflix is that the premiums do not decline until the last couple weeks of the cycle. They do not decay much until they get close to expiration. This strike is well out of the money and hopefully we will not get stopped. One reason the premium does not decline is that earnings are 3 days before expiration. We will need to exit this position early.
Earnings April 18th.
Sell short April $135 put, currently $2.45, stop loss $139.75
Buy long April $120 put, currently .55, no stop loss.
Net credit $1.90.
NFLX - Netflix (Put Spread 3/22)
I am going to have to start calling this the weekly Netflix spread. They simply have the best premiums well out of the money and I am going to continue to take advantage of it.
Earnings April 19th.
sell short Apr $130 put, currently $2.18, stop loss $136.45
Buy long Apr $120 put, currently .83, no stop loss.
Net credit $1.35.
NLNK - Newlink Genetics (Covered Call)
NLNK beat the street on earnings and revenue with a strong report. On Wednesday they announced two abstracts on new drugs will be presented on April 4th at the AACR conference in Washington. These will more than likely be positive for the company.
Earnings May 30th.
Buy-write Apr $17 call, currently $16.78-$2.05, stop loss $13.85.
Gain if called $2.17
PANW - Palo Alto Networks (Put Spread)
Palo Alto posted better than expected earnings but revenue of $422 million missed estimates for $430 million on "execution issues." That was not explained and the stock was crushed. Shares found support at $115 and have been moving sideways for over two weeks. It is time for the shares to begin ticking higher. After this long, it is doubtful that they will move significantly lower. They have had plenty of time and $115 was solid support.
Earnings May 30th.
Sell short April $110 put, currently $1.50, stop loss $113.85.
Buy long April $100 put, currently .45, no stop loss.
Net credit $1.05.
Update 3/22/17: Palo Alto was another casualty of the Tuesday market crash. The stock broke month long support to stop us out at $113.85. The long put is still open and actually has a good chance of increasing in value.
Closed Apr $110 short put, entry $1.30, exit $2.00, -.70 loss.
Retain Apr $100 long put, entry .26, currently .25, no stop loss.
PII - Polaris Industries (Put Spread)
Polaris has a choppy uptrend with resistance at $90 but it has not touched support at $80 since December. The choppy chart is why the premiums are higher than normal.
Earnings April 25th.
Sell short April $80 put, currently $1.50, stop loss $83.85
Buy long April $70 put, currently .50, no stop loss.
Net credit $1.00.
Update 3/8/17: Polaris crashed with the market at the open on Monday to stop us out at $84.65 on the short side of our spread. I am recommending we reload it with a lower put. The $80 put is too close to the stock price and the market is weakening. It may only be temporary but we should be cautious.
Closed Apr $80 short put, entry $1.65, exit $2.50, -.85 loss.
RELOAD: Sell short Apr $75 put, currently 70 cents, stop loss $83.50
Retain Apr $70 long put, entry .65, currently .35.
Update 3/22/17: Polaris plunged $5 in Tuesday's market crash and stopped us out on the remaining short put. We still have a long April $70 put but it is well out of the money. I debated on closing it today for the 25 cent premium or letting it ride for another week. If PII breaks support at that $83 level, it could retest $80 and we could close the put next week. However, that is another week of premium deflation unless PII was todecline sharply. Because the stock did not rebound today, I elected to retain it.
Closed Apr $75 short put, entry .85, exit .45, +.40 gain.
Retain Apr $70 long put, entry .60, currently .25. No stop loss.
PXD - Pioneer Natural Resources (Call Spread)
Crude oil fell 5% on Wednesday to $50 and the lowest level in 2017. Energy stocks were crushed with PXD losing nearly $10. For various reasons oil is not likely to rebound strongly and energy equities are even less likely to rebound suddenly.
Earnings May 9th.
Sell short April $200 call, currently $1.95, stop loss $192.50
Buy long April 215 call, currently 65 cents, no stop loss.
Net credit $1.30.
SLCA - U.S. Silica Holdings (May Covered Call)
SLCA has found a bottom along with oil prices. Now that refineries are restarting and producing summer fuel blends, oil inventories will decline and prices should rise. This will continue to lift the energy sector. SLCA produces sand for fracking oil wells. Sand prices have doubled over the last 12 months and are expected to go up another 25% by fall. Some analysts are predicting a sand shortage late this year and early 2018. That will lift prices even higher.
Earnings May 24th.
SLCA has solid support at $43 when oil was crashing throughout March. If we are not called we will sell a new call.
Buy write SLCA May $50 call, currently $47.84-$2.25, no stop loss.
Net gain if called $4.41.
Update 4/17/17: SLCA shares imploded over the last week along with the price of oil. On Wednesday alone, crude prices fell -$1.83 to knock -$2.34 off the price of SLCA. I am not the least bit worried about SLCA long term. Sand prices have doubled over the last six months and they could double again over the next year. The decline in SLCA shares was directly related to the fall in oil prices and that trend is about over. Refiners are back at work and crude inventories are going to start declining rapidly as they gear up for summer blend fuels. I would not have any problem selling a call or put at this level at this point on the calendar.
We do not have a stop loss on the SLCA covered call because of the calendar bias for oil prices to rise starting in late April through July.
No change in the position.
SWKS - Skyworks Solutions (Put Spread)
Skyworks closed at a new high as speculation over the iPhone 8 continues to lift all the component suppliers. Skyworks also benefits from phones being manufactured by other companies besides Apple. They are in the sweet spot of mobile technology.
Earnings April 20th.
Sell short Apr $90 put, currently $1.50, stop loss $93.50
Buy long Apr $80 put, currently .30, no stop loss.
Net credit $1.20.
SWKS - Skyworks Solutions (Closed Short Put)
We were stopped out of the short side with SWKS crashed with the Nasdaq on Monday at the open. I am recommending we reload with the same strike. The stock is moving up again and closed near its highs.
Closed Apr $90 short put, entry $1.82, exit $1.85, -.03 loss.
RELOAD: Sell short Apr $90 short put, currently $1.10, stop loss $93.50
Retain Apr $80 long put, entry .32, currently .15.
Update 3/22/17: Skyworks was another casualty of the Tuesday market crash and our short put was stopped out. We have a long April $80 put but unless lightning strikes it will expire worthless.
I considered reshorting the Apr $90 put but the bid/ask spread is 40 cents .60/.100. If we were stopped again it would be a loss for sure. That is available if a reader wants to take the chance in this market with SWKS at $97.
Closed Apr $90 short put, entry $1.20, exit .90, +.30 gain.
Retain Apr $80 long put, entry .32, currently zero.
TMUS - T Mobile US Inc (Short Put)
T Mobile has a nice chart with a close at a 52-week high on Wednesday. The 50-day average has been support for months and we can set our stop loss just under that level. TMUS just spent $8 billion in a FCC spectrum auction this week in order to expand its coverage. They quadrupled their holdings of low-band spectrum and now have more per customer than any other mobile provider.
Earnings May 16th. (before expiration)
Sell short May $60 put, currently $1.00, stop loss $63.25
TSLA - Tesla Inc (Put Spread) 3/22
Shares of Tesla rallied last week on the Autocar article on the Model Y and then faded somewhat in the market crash on Tuesday. Since the company is doing a secondary for far less than investors expected, the stock is not likely to decline below support.
Sell short Apr $230 put, currently $2.00, stop loss $239.50
Buy long Apr $215, currently .77, no stop loss.
Net credit $1.23.
TSLA - Tesla Inc (Call Spread) 3/29
We have an April put spread on Tesla. With the potential for a market hiccup over the next four weeks I am adding a call spread to capitalize from any decline.
Earnings May 17th.
Sell short April $295 call, currently $2.94, stop loss $287.50
Buy long April $310 call, currently $1.13, no stop loss.
Net credit $1.81.
URI - United Rentals (Put Spread)
URI has been a post election favorite and the stock broke out of a month long consolidation to close at a new high on Wednesday.
Earnings April 26th.
Sell short Apr $120 put, currently $2.50, stop loss $125.85
Buy long Apr $105 put, currently .95, no stop loss.
Net credit $1.55.
Update 3/8/17: Somebody wanted out of URI in a hurry. After gapping up more than $1 to $130 at the open today the stock rolled over and fell to a 2-week low at $124. We were stopped out at $125.85. There was absolutely no news and that makes me nervous about trying to reload the position.
This could be a sign the broader market is about to decline. Several stocks that had been winners suddenly headed south on Wednesday. We will keep the long put and see if the direction stabilizes by next week.
Closed Apr $120 short put, entry $2.97, exit $4.10, -1.13 loss.
Retain Apr $105 long put, entry .74, currently $1.00.
VIX - Volatility Index (Call Spread)
The VIX has been slightly elevated over the last several days to close near 12 today. If we were to get a major downdraft, I would like to capture that by selling a call spread. We are going to enter the spread with a VIX trade at $18. There will be no stop loss because it rarely stays high for more than a couple days.
With a VIX trade at $18,
Sell short Mar $20 call, estimated premium $2.00, no stop loss.
Buy long Mar $30 call, estimated premium 40 cents, no stop loss.
Estimated net credit $1.80
Update 2/8/17: The market refuses to decline and the VIX refuses to rise. Both of those facts will eventually reverse. I profiled a March call spread in the VIX in the prior newsletter. With time expiring quickly, I am revising that to use April strikes.
With a VIX trade at $18
Sell short Apr $20 call, estimated premium $3.00, no stop loss.
Buy long Apr $30 call, estimated premium 50 cents, no stop loss.
Update 3/8/17: We have a speculative call spread on the VIX to be executed on a spike to $18. Since I added that potential position several weeks have passed and the April strikes were sneaking up on us. I modified the recommendation to use the May strikes if/when the VIX spikes to $18.
With a VIX trade at $18
Sell short May $20 call, estimated $3.00, no stop loss.
Buy long May $30 call, estimated 50 cents, no stop loss.
Update 4/12/17: We have a pending call spread on the VIX with a spike to 18. The VIX closed right at 16 on Wednesday and could hit 18 over the next couple of sessions. We have had this recommendation in place for several weeks and the May strikes are now too close on the calendar. I am changing the recommendation to use June strikes.
With a VIX trade at $18
Sell short June $20 call, estimated $3.00, no stop loss.
Buy long June $30 call, estimated 50 cents, no stop loss.
WDC - Western Digital (Cash Secured Put)
WDC posted good earnings and spiked to more than $80 but then saw a four-week decline. After hitting a low of $73 on the 24th, they announced a new storage 256gb storage chip for the iPhone and iPad and shares took off rising $5 over three days.
Earnings April 26th.
Sell short Apr $70 put, currently $1.01. Stop loss $74.25.
Update 3/22/17: Western Digital was another casualty of the Tuesday market crash. We were stopped at $74.25 on the short $72.50 put. This was the second strike on selling a short put on WDC. Call me crazy but I am going to try it again. The intraday dip at the open this morning hit $71.38 and then rebounded to $75. That should have cleared any sell stops today. It also inflated the premiums to give us another chance.
Closed Apr $72.50 short put, entry $1.27, exit $1.80, -.53 loss.
Sell short Apr $70 put, currently $1.01, stop loss $72.85.
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.