The market's erratic movements over the last six weeks appear to have calmed somewhat with the major indexes holding near zero on Wednesday. I would welcome some relief from the triple digit swings but I fear this is just a pause to reload.

The market has done everything possible to cause us grief over the last five weeks. We have been stopped out on the upside and the downside only to have the stocks reverse and in some cases multiple times. It is tough to maintain stop losses when the Dow is gapping up and down by 180 points or more every 2-3 days.

The S&P refuses to move over 2117.69 and the historic high close. The trading range is getting progressively narrower and we know from experience that when a breakout/breakdown finally appears it is likely to be explosive. We are only one headline away from a major market move. The problem is that we don't know in what direction.

This is not how I envisioned the performance of the portfolio. In retrospect I was too aggressive for a high volatility market. I added too many plays when the market had no trend. In theory selling premium in spreads is a good strategy in a range bound market but the problem has been that our range has been almost 500 points on the Dow and it makes that move from one extreme to the other about every 4 days.

On the positive side the range has decreased from 17,600-18,200 to 17,725-18,200 over the last five weeks. However, the last three days of trading may be a clue as to our future. Note that the last three candles on the Dow have clustered towards the top of the range. Also, the -180 point drop in the Dow at Tuesday's open was erased with a buy program at 10:30. Institutional investors bought the dip. Today there was no dip even though DuPont knocked almost 40 points off the Dow.

I could be grasping at straws here but maybe the range is about to end. The fly in my forecast is the fact that the indexes closed near their lows for the day. The highs were hit at the open and the market weakened as the day progressed. Was that fear of Cisco's earnings or traders just giving up on the volatile market? Cisco beat the street on earnings by a penny and just slightly on revenue. The stock failed to move in the afterhours and declined only 10 cents. If traders were hoping Cisco would provide a catalyst for Thursday's trading they were severely disappointed.

Jack in the Box, parent of Qdoba Mexican Grill, reported earnings of 69 cents that beat by 3 cents and revenue also beat slightly. JACK is normally very volatile after earnings and the stock moved only 18 cents. Are you seeing a trend here?

Shake Shack (SHAK) reported earnings of 4 cents that beat estimates for a 3 cent loss. Revenue also beat strongly at $37.8 million compared to estimates for $33.4 million. SHAK shares spiked $7 in afterhours but they will have no impact on any of the indexes. This is a cult stock with a devoted following but it will have no impact on the market.

The S&P futures opened the evening session at +2 points and have declined to +.25 in the first 3 hours.

The bond market seems to be driving equities and yields rose to a six month high close at 2.28% today. The great rotation out of bonds may have started but the money is not yet moving into equities. Instead the rising yields are weighing on equities. The economic numbers are still declining with retail sales flat for April when analysts were expecting a +0.3% rise.

The market needs a catalyst to break out of its range but all the catalysts we have seen lately have been negative. Maybe we should be thankful the market has not broken down instead. Investors seem to be afraid to sell but they are also afraid to buy. The lack of conviction and the growing uncertainty is keeping excess cash in their accounts rather than being put to work in equities.

I think everyone is expecting a decline. Unfortunately, just because everyone has an opinion it does not make the market move in their direction. In fact, the more bearish investors become the more likely we will see a move higher.

All this market analysis is only good for pointing out that nobody knows which way the market is going. The volatility has devastated the current portfolio and there is nothing we can do about it other than pick up the pieces and move forward. I take responsibility for recommending too many plays in a volatile market. Until the market picks a direction I am going to recommend less and try to find the ones with the least volatility. The premiums will be smaller but small wins are preferable to large losses.

Please bear with me for another month and I am sure the results will be better.

Our remaining May positions will expire on Friday.

There was a bad tick on the Oil Volatility Index ($OVX) today that spiked from $33 to $45. No options traded on the spike and the bid/ask in time and sales never fluctuated so I did not close the position.

Jim Brown

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Current Portfolio

Current positions

Current Position Changes

Stop Loss Updates

Check the graphic above for any new stop losses in bright yellow. We need to always be prepared for an unexpected decline.

UAL - United Continental (Stopped, again)

UAL rebounded +5% the prior week on the drop in oil prices. We were stopped out on the initial short call. On Thursday I recommended reentering that call if UAL declined to $61.50, which should have indicated the short term rally was over. We were triggered on Tuesday when UAL declined to $61.49 at the open. On Wednesday morning UAL spiked +$1.65 to stop us out again at the open and then decline to close near $61. This was another case of bad luck because the spike was market related with the S&P spiking +11 points at the open to 2110 and then declining to close negative for the day. These opening spikes/gaps are killing us.

I am recommending we close the long June $67.50 call while it still has value. I don't expect UAL to rebound back over $64.

Closed short June $65 call entry $1.52, exit $2.04, -.52 loss
Close long June $67.50 call, entry $1.05, currently .71

RCL - Royal Caribbean (Stopped)

Everything was going so well on RCL with the stock in a slow decline until Friday's big short squeeze on the payroll numbers. More jobs equals more cruise passengers or at least that was the reason given for the gains. I think it was just the shorts getting squeezed rather than a flood of RCL buyers.

The May $80 long call will expire worthless on Friday without a huge headline.

Closed May $77.50 short call, entry $.54, exit .08, +.46 gain.
Retain long May $80 call, entry .30, currently zero, no stop.

X - US Steel (Stopped)

US Steel rebounded $2.50 on Monday as commodity prices spiked and Morgan Stanley reiterated a buy rating and gave four reasons to buy the stock. 1, expectations have been lowered. 2, shares are correlated with steel prices, imports are falling and capacity utilization is rising. 3, trade enforcement moves are pending o prevent dumping of steel in the U.S. market. 4, iron ore prices are reflating as the dollar declines and Chinese production weakens.

That all combined to produce the spike in the shares and stop us out. Fortunately the long call rescued us from a loss. I am recommending we close it for a gain.

Close the June $28 long call.

Closed June $26 short call, entry .68, exit $1.04, -.36 loss
Close June $28 long call, entry .34, currently .89, +.55 gain.

LNG - Cheniere Energy (Stopped)

On May 7th Cheniere Energy filed an 8K with the SEC indicating they had received formal approval for the construction of the first two LNG trains at the Corpus Christi facility for $11.5 billion. They awarded the contract to Bechtel as stated in the 8K. Shares of LNG spiked $4 over the next two days to stop us out of the short call.

You can't forecast these kinds of events. The trade was proceeding like clockwork and shares were at a 3-month low and falling. The announcement in the 8K caused the shorts to cover and we were stopped out. Shares immediately rolled over and are back at the lows. I am thinking about reentering the short call but Cheniere formally announced to the public the decision after the close today. We could see a spike tomorrow that could setup a better entry point. I will update this on Thursday night.

Closed June $80 short call, entry $1.50, exit $2.30, -.80 loss
Retain June $85 long call, entry .70, currently .30.

New Recommendations

DDD - 3D Systems (Bear call spread)

On May 6th, 3D Systems reported an adjusted loss of 5 cents that matched estimates. However, they were shocked by the "abrupt interruption in customer demand late in the quarter." Even though the company said sales were improving in Q2 they withdrew their guidance for full year for earnings in the range of $.90 to $1.10.

The 3D printing market is starting to get crowded and it will be harder for 3D Systems to recover from their "acute cessation of purchases" and withdrawing guidance is not shareholder positive. Shares have trended lower since the report.

Sell short June $24 call, currently .46, stop loss $23.55
Buy long June $26 call, currently .23, no stop.
Net credit 23 cents.

GPRO - GoPro (Bull put spread)

GoPro reported earnings of 24 cents in late April that blew away estimates for 18 cents. Revenue of $363 million also beat estimates for $340 million. They announced plans to buy Kolor, a virtual reality and spherical media systems company. Analysts rushed to upgrade the stock and it spiked nearly $10 on the news. On the conference call the company hinted at new products in the pipeline including a 360 degree action camera thanks to their acquisition of Kolor.

After two-weeks of post earnings decline the shares are starting to inch slowly higher. A move over $50.75 should setup some short covering and the potential for a new leg higher. I am putting an entry trigger on this position at $50.80 to make sure we clear resistance before selling a put.

Today the $39/$43 put spread nets 30 cents. If we enter the trade at $50.80 I would expect the $40/$44 spread to net the same 30 cents and be relatively safe if there such a thing as safe.

With a GPRO trade at $50.80
Sell short June $44 put, currently .75, stop loss $47.65
Buy long June $40 put, currently .30, no stop
Net credit .45 cents today.

Supplemental suggestions

The next two recommendations on my list of potential candidates are listed below. Trade them if you want but I am not making them firm recommendations. I am trying to only add two positions a week until the market picks a direction.

CHL - China Mobile, bear call spread, $72.50/$75.00, credit .25

ENDP - Endo Intl, bear call spread, $90/$95, credit .35

Existing Play Recommendations

Links to original play recommendation

$OVX - Oil Volatility Index (Bear Call Spread)

RCL - Royal Caribbean (Bear Call Spread)

GDX - Gold Miner ETF (Bear Call Spread)

JKS - JinkoSolar (Bull Put Spread)

BBBY - Bed Bath & Beyond (Bear Call Spread)

FB - Facebook (Bear Call Spread)

X - US Steel (Bear Call Spread)

WYNN - Wynn Resorts (Bear Call Spread)

UAL - United Continental (Bear Call Spread)

LNG - Cheniere Energy (Bear Call Spread)

FSLR - First Solar (Bear Call Spread)

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.