The overall market breadth is shrinking across all the major markets.

It appears we have entered the normal Aug/Sep weakness with the markets down for two consecutive weeks. The outlook for the next six weeks is negative with multiple catalysts that could push stocks lower.

The volume over the next couple weeks will be minimal as the final summer vacations are squeezed in before Labor Day. Once past the holiday we are faced with the budget and debt ceiling battles and the potential for a government shutdown. The Fed will also muddy the water in mid September when they announce their taper program for QE purchases.

Stir in a little presidential volatility a couple times a week and the market has a major wall of worry to climb.

The S&P has not had a correction since January 2016 and we are seriously overdue. With all the negative events in our immediate future and the fact this is a normally weak period, the outlook is bearish.


The Nasdaq is no longer leading the charge higher and the advance/decline line on the tech index has collapsed.


The market volatility has reduced the premiums on September options to minimal amounts. I had to reach out to October strikes to find anything to sell but I think we have some good play possibilities this week.

I apologize for postponing the newsletter on Wednesday. I am still battling my illness so this is going to be a short commentary this week.

Enter passively, exit aggressively!

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

Leftover Stock


August Position Recap


The Q2 earnings cycle reduced our available plays for August. We squeezed out a minor gain but it was definitely minimal. The NTNX covered call hurt us the worst.




Current Position Changes


IWM - Russell 2000 ETF (Put Spread)

The Russell 2000 has been the weakest index and the ETF declined to our profit stop at $136 on August 11th to take us out of the position. In retrospect, I wish it was still open but we exited with a profit and we should not complain.

Closed Sept $129 long put, entry .41, exit $1.13, +.72 gain.
Previously closed Sept $135 short put, entry .75, exit 1.03, -.28 loss.
Net gain 44 cents.



New Recommendations


NVDA - Nvidia (Oct Call Spread)

Nvidia's chart is showing a wide rounding top formation with solid resistance at $170. I do not think the stock is done going higher but I do believe it is going to rest over the next six weeks of normal market weakness. The $170 resistance gives us a good threshold to set our stop loss.

Earnings Nov 9th.

Sell short Oct $185 call, currently $2.80, stop loss $175.25.
Buy long Oct $195 call, currently $1.49, no stop loss.
Net credit $1.31.



KITE - Kite Pharma (Oct Put Spread)

Kite closed at a new high on Friday and has a very strong chart. The put spread Iam recommending is $20 OTM. If the current rally continues even a few more days we should be comfortably safe for weeks to come.

Earnings Nov 7th.

Sell short Oct $110 put, currently $2.85, stop loss $119.35
Buy long Oct $100 put, currently $1.30, no stop loss.
Net credit $1.55.



NFLX - Netflix (Oct Short Put)

Netflix is currently fading from the $25 post earnings spike and is currently at $166. The recommend put is $130 and $36 OTM today. There is strong support at $158, $146 and $140.

Earnings Oct 17th. (3 days before expiration)

Sell short Oct $130 put, currently $1.09, stop loss $139.



New Covered Call Recommendations


No Covered Calls

The market is not cooperating and the low dollar stocks are plunging rather than rising.


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.

September expiration is the 15th. October 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.



ADBE - Adobe Systems (Put Spread)

Adobe has a great chart except for the May/June Nasdaq declines. Shares are about to breakout to a new high.

Expected earnings September 19th.

Sell short Sept $140 put, currently $1.20, stop loss $144.65
Buy long Sept 130 put, currently .43, no stop loss.
Net credit 77 cents.

Update 8/2/17: The Nasdaq crash on Thursday knocked $6 off Adobe intraday and stopped us out of the short side on the put spread. I considered reinstating it but the continued Nasdaq weakness suggests the stock will decline further. This is a September position so we have plenty of time to watch it and sell a new put when the time is right.

Closed Sep $140 short put, entry $1.26, exit $2.46, -1.29 loss.
Retain Sep $130 long put, entry .51, currently .40, no stop loss.


BA - Boeing (Call Spread)

Boeing gained $34 last week alone and they are up $70 since May. While it is always possible for them to rise, there should be some profit taking very soon. If the market moves lower starting next week, the Dow stocks are going to be a big target because of their big gains.

Sell short Sept $250 call, currently $1.37, stop loss $245.
Buy long Sept $260 call, currently .36, no stop loss.
Net credit $1.01.


COST - Costco (Put Spread 7/12)

This is a risky position. Costco has fallen $30 in the last 3 weeks after Amazon announced the acquisition of Whole Foods. Even though the acquisition will more than likely not be final until Q1-2018, Costco has been killed. I personally do not believe it would have any impact to their business until 2019 at the earliest. I am a strong buyer of Costco at this level, but I have already been blown out of two positions where I bought the dip. Support is $150 and the stock is holding at $151. Eventually, somebody is going to upgrade them on price and this stock will turn into a rocket. Until that happens, there is always the risk of another decline.

Earnings August 25th.

Sell short Aug $145 put, currently $1.62, stop loss $147.85.
Buy long Aug $135 put, currently .50, no stop loss.
Net credit $1.12.


IWM - Russell 2000 ETF (Put Spread 7/6)

The Russell is right on the verge of breaking out to a new high. The relative strength over the last three weeks has been stronger than the big cap indexes.

Sell short Aug $134 put, currently .90, initial stop loss $137.85
Buy long Aug $128 put, currently .44, no stop loss.
Net credit 46 cents.

Update 8/2/17: The monster intraday drop last Thursday killed both of our IWM put spreads. The ETF fell to 141.55 on Thursday and is still declining. If the typical August weakness appears we could see out long puts turn profitable.

Closed Aug $134 short put, entry $1.04, exit .30, +.74 gain.
Retain Aug $128 long put, entry .52, currently .10. Profit stop $136.


IWM - Russell 2000 ETF (Put Spread 7/26)

The Russell 2000 is slowly easing higher and closed at a new high on Tuesday. We need one more good day to really trigger a breakout and that could drag the other indexes higher.

Sell short Sep $135 put, currently .89, stop loss $138.85.
Buy long Sept $129 put, currently .40, no stop loss.
Net credit 49 cents.

Update 8/2/17: The monster intraday drop last Thursday killed both of our IWM put spreads. The ETF fell to 141.55 on Thursday and is still declining. If the typical August weakness appears we could see out long puts turn profitable.

Closed Sep $135 short put, entry .75, exit $1.03, -.38 loss.
Retain Sep $129 long put, entry .41, currently .54, Profit stop $136.


NFLX - Netflix (Call Spread)

Netflix added $31 after earnings to hit $191.50. Shares have already declined $10 to close at $181 today. I am recommending a $200/$215 call spread because I expect the August weakness to appear. The Nasdaq has had a bad five days and it may get worse.

Sell short Sept $200 call, currently $1.54, stop loss $190.50.
Buy long Sept $215 call, currently .51, no stop loss.
Net credit $1.03.


NTNX - Nutanix Inc

Goldman added the stock to their conviction buy list saying there was a 53% upside potential. Goldman called Nutanix a '"hyperconverged infrastructure company," a "once-in-a-decade tech infrastructure story," as they see strong adoption of the technology among chief information officers. Based on a survey Goldman did in June they found that 18% of CIOs expected to move to this technology over the next two years with Nutanix the leader in the field. They also said the company could easily be an acquisition target because of their size and revolutionary technology. Shares have risen sharply since the upgrade.

Earnings August 24th.

Buy-write Aug $25 call, currently $24.41 - $1.40, initial stop $21.65.

Update 8/2/17: I recommended closing the NTNX position last week because the stock was declining. The Thursday market decline knocked it $2 lower so we exited just in time.

Closed NTNX shares, entry $24.48, exit $23.23, -1.25 loss.
Closed Aug $25 short call, entry $1.42, exit .60, +.82 gain.
Net loss 43 cents.


PXD - Pioneer Natural Resources (Put Spread)

Pioneer disappointed on earnings by reducing guidance. They are going to spend more but defer 30 new wells from 2017 to 2018 and that impacted their production guidance and revenue. Shares fell more than $30 after earnings. This is a major buying opportunity so the worst should be over.

Earnings Oct 31st.

Sell short Sept $125 put, currently $1.40, initial stop loss $128.50.
Buy long Sept $110 put, currently .45, no stop loss.
Net credit 95 cents.


RH - RH Inc (Short Put Spread)

RH, formerly Restoration Hardware, has been on a rocket ride higher. The company change its business model to a member subscription model like Costco and the stock is on fire.

Expected earnings August 31st.

Sell short Aug $50 put, currently $1.75, stop loss $52.35.
Buy long Aug $40 put, currently .85, no stop loss.
Net credit 90 cents.

Update 7/12/17: RH was doing great with a long sustained rally until Monday. Shares declined $7 from Friday's high of $69.25 to a low of $61.20 to stop us out at $61.35. After two days of declines, the stock rebounded to its prior highs.

I am going to recommend we reenter this position in order to offset the premium on the long put.

Closed Aug $50 short put, entry $1.72, exit $1.91, -.19 loss.

Sell short Aug $50 put, currently .80, initial stop loss $58.65.

Retain Aug $40 long put, entry .67, currently .20. No stop loss.


RH - RH Inc (Short Put)

RH is on a rocket ride higher since they changed their business model. This put is currently $17 OTM with the stock making new highs.

Earnings Aug 31st.

Sell short Aug $50 put, currently $1.10, initial stop loss $61.50.

Update 7/12/17: RH was doing great with a long sustained rally until Monday. Shares declined $7 from Friday's high of $69.25 to a low of $61.20 to stop us out at $61.35. After two days of declines, the stock rebounded to its prior highs.

I am not recommending we renter this position. We are already exposed with the spread position and the premiums have declined to the point where a naked put does not make sense.

Closed Aug $50 short put, entry $1.30, exit $1.81, -.61 loss.

Update 8/2/17: The stock rolled over at $80 and is taking the elevator down. The company bought back 50% of their stock in the first six months of 2017 and the buyback program ended. Now the shorts are killing it.

I seriously doubt the long put will regain value over the next two weeks but shares have fallen $20 in the last two weeks so anything is possible.

Closed Aug $50 short put, entry .87, exit .57, +.30 gain.
Retain Aug $40 long put, entry .67, currently zero. No stop loss.


SHOP - Shopify (Call Spread)

SHOP posted blowout earnings and spiked to $104 but the post earnings depression period and the weak market is taking a toll. With August typically weak, we could see SHOP return to support at $90 and consolidate.

Earnings Oct 31st.

Sell short Sept $105 call, currently $2.05, initial stop loss $100.65.
Buy long Sept $115 call, currently .80, no stop loss.
Net credit $1.25.


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.


SLCA - U.S. Silica Holdings (Short June 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.

Update 5/3/17: Covered Call Update: Silica shares have collapsed. The stock has declined $11 in the last two weeks despite strong earnings and stronger guidance. Making the situation worse was a big earnings miss by Emerge Energy Services (EMES) reporting a loss of 38 cents compared to estimates for 34 cents. EMES misses estimates 58% of the time so a miss is not uncommon. However, it does impact the other two stocks in the sector, SLCA and HCLP. Emerge said total sand volumes rose 185% to 1,251,000 tons. We know from other reports that sand prices have doubled over the last six months and are expected to double again over the next six months.

Also, Dan Loeb's hedge fund Third Point is shorting the frac sand distributors. Third Point said there could be a shift from northern white sand to abundant in-basin brown sand. They warned there were new sand reserves being developed and there were significant reserves on the sidelines that had been deactivated during the slump. SLCA debunked all those excuses in their earnings report. They said frac sand revenue rose 161% YoY and 41% from Q4.

Comments from the conference call: Our comments last quarter and other industry capacity expansion announcements have created questions for some investors over the potential future supply and demand balance of sand proppants and the implications for pricing and other industry dynamics. Let me take a few minutes this morning to share some thoughts on how we see this unfolding and why we believe that the sand proppant market fundamentals should say strong for the foreseeable future.

We believe our industry will remain tight in the near future due to 3 main factors: First, our industry must add capacity to meet customers' needs. Our internal estimates and current sell side reports estimate industry sand proppant demand to be about 75 million tons here in 2017, growing to over 100 million tons in 2018, with some estimates as high as 147 million tons.

Our industry will be short capacity and we cannot let sand become the bottleneck for the completions industry. Second, oil sand is not fungible within that 100-million-plus tons of projected 2018 demand. Unlike many industrial products, there is a lot of friction in the sand market for a variety of reasons, including logistics, quality differences and mesh sizes. Therefore, we're on average to see 20% to 25% more total supply than demand before our markets come into balance. So for example, if 2018 demand is 110 million tons, that implies that supply and demand balance around 135 million tons of effective capacity. Today, even after estimated reactivations of idle capacity, our industry will only have approximately 90 million tons of effective capacity, thus leaving a 45-million-ton shortfall versus projected 2018 needs. And third, even all the likely capacity additions that are being talked about are not enough. We think there could be an additional 10 million to 15 million tons of brownfield capacity added in the next 12 to 18 months, including our own expansions and perhaps as much as 20 million to 25 million tons of greenfield capacity being added locally in the Permian. All of which will be needed, if current demand estimates prove accurate. Even if our estimated 35 million tons of potential brownfield and greenfield additions come online, the market will still be short.

Full transcript HERE

I cannot fix the current covered call. I am recommending we close it but call premiums are depressed and I am not going to recommend selling a new $40 call today because that would lock in our loss on the first rebound. We need to wait for the rebound to inflate premiums then sell a new call in the $45 range.

We cannot buy a put to protect against further declines. The put premiums are too expensive. You could close the position, take the loss now and then buy back in when the stock rebounds.

Close May $50 short call, entry $2.40, currently .04, +$2.36 gain.
Retain SLCA shares.

Update 5/3/17: Short Put Update: If you read the prior commentary, you know the facts on SLCA. We have a June $45 short put that is under water. We sold it for $4.50 last week. I am recommending we turn this into a spread to protect against a further decline. This will reduce our eventual gain but it will ease the pain now.

Buy June $37 put, currently $2.55, no stop loss.
Retain June $45 short put, entry $4.50, currently $8.00.


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

The S&P is holding near its highs and the earnings cycle starts next week. This should give the market a positive bias for the next three weeks, assuming earnings are positive.

Sell short Aug $230 put, currently .82, initial stop loss $235.00
Buy long Aug $220 put, currently .40, no stop loss.
Net credit 42 cents.

Update 8/2/17: The Nasdaq crash on Thursday knocked $3 off the SPY intraday to stop us out of the SPY short put position. This was an August position and I do not anticipate replacing it. We have a long $220 put but it would take a significant market correction over the next two weeks to create any value.

Closed Aug $230 short put, entry .97, exit .28, +.69 gain.
Retain Aug $220 long put, entry .44, currently .06, profit stop 50 cents.


URI - United Rentals (Call Spread)

United reported earnings after the close of $2.37 that beat estimates for $2.31. Revenue of $1.6 billion beat estimates for $1.55 billion. They guided for full year revenue in the $6.25-$6.40 billion range. That was up from the prior guidance of $6.05-$6.25 billion and above analyst estimates for $6.23 billion. Shares rose $4 in afterhours to $122, which has not been factored into the options yet.

I am recommending the $135/$145 calls because there is strong resistance at $125-$126 and post earnings depression will probably prevent a breakout.

With the stock rising $4 in afterhours I am betting the call premiums will spike at the open. The values below are my estimates only.

Sell short Aug $135 call, est $1.70, stop loss $128.25.
Buy long Aug $145 call, est .35, no stop loss.
Net credit estimate $1.35.

Update 8/9/17: I recommended last week that we close the short side on the URI spread. The call had declined to 9 cents and there was no further benefit in keeping it open.

Closed Aug $135 short call, entry $1.18, exit .09, +$1.09 gain.
Retain Aug $145 long call, entry .24, currently zero. No stop.


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.