Last week the Dow declined -665 points and the Nasdaq lost -219. This week the S&P is up +63 and the Dow +525 in only 3 days.

Erratic markets are nice if you are a day trader. However, they are not nice if you are trying to buy a low volatility option and sit on it for 4 weeks. Since we started playing the November cycle the S&P rallied +126 points, dropped -76 then rebounded +63. That happened in just over 4 weeks and it is next to impossible to sit on options with that kind of volatility.

Nearly all of our November short positions were stopped out on both the put spreads and call spreads because of the volatility. Now that we are in the December cycle and this is supposed to be the best two months of the year, I am hoping we can retain at least a semblance of an upward bias.

The FOMC minutes today seemed to indicate that the Fed was still on track to hike rates in December and the market rallied with the Dow gaining +248 points. Analysts upgrades are flying fast and all sectors seem to get their share today. Apple was upgraded and shares rose nearly $4 to lift the Dow and the Nasdaq.

The Philly Fed Manufacturing Survey due out tomorrow is the last important economic report for the week. The terror headlines are starting to calm despite the hour-long firefight outside Paris last night. More than 5,000 rounds were fired at the apartment housing the terrorists. So many rounds that the structure of the building is collapsing. Rumor has it that the mastermind of the weekend attacks was killed in that firefight.

That should calm some of the hysteria in France and the headlines will fade. The earnings cycle is about over but those that reported tonight were almost all positive with major moves in the afterhours market. GMCR rallied +20%. rallied 5%. rallied +10%. Futures are up in the overnight market and hopefully that will give us another positive day tomorrow. There is lots of darkness before the dawn so anything is possible.

Jim Brown

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Current Portfolio

Current positions

Items shaded in blue were previously closed.

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.

ADI - Analog Devices

ADI dropped more than $2 on the 12th to stop us out at $59.45 for a decent gain. This was a sector specific decline not anything related to ADI.

Stopped Nov $52.50 short put, entry .84, exit .15, +.69 gain
Retain Nov $45 long put until expiration on Friday.

MON - Monsanto (Stopped)

Monsanto gapped down to $92.40 on the 12th and our stop loss was $92.45. It nailed us by a nickel. That was a four week low and it immediately rebounded. We still escaped with a gain.

Stopped Nov $85 Short Put, entry .79, exit .08, +.71 gain.
Retain Nov $80 long put until expiration on Friday.

YUM - YUM Brands (Stopped)

YUM Brands found a bottom last week and two days of strong gains lifted it to our stop at 70.25. This is a December position and a continued gain could put out long call well into the money.

Closed Dec $72.5 short call, entry $1.00, exit $1.70, -.70 loss
Retain Dec $77.50 long call, entry .31, currently .62, +.31 gain to date.

SWKS - Skyworks Solutions (Close)

Skyworks was in a steep dive until everyone started upgrading Apple. They are a major Apple supplier. Apple shares were upgraded today and the stock rallied $3.60. If Apple is going to suddenly reverse course and head higher then Skyworks will as well. Shares rallied +3.26 today after a $3 gain the prior two days. It is time to cut our losses and close the short. Retain the long call until December expiration.

Close Dec $85 Short call, entry $1.30, currently $1.65, -.35 loss.
Retain Dec $95 call, entry .26, currently .10.

New Recommendations

NFLX - Netflix (Put Spread)

Netflix is on fire. After dropping to $101 last Friday it has rebounded more than $17 in three days and closed at a three-month high. I seriously doubt it is going to return to $100 in the next four weeks.

Earnings Jan 13th.

Sell short Dec $102.86 put, currently $1.23, stop loss $109.65
Buy long Dec $93.57 put, currently .53, no stop loss
Net credit 70 cents

WDC - Western Digital (Put Spread)

Western Digital shares fell hard after it announced it was buying/merging with Sandisk (SNDK). As a tech guy I understand the reasoning behind the acquisition. Having Sandisk memory in Western Digital drives will make them run faster. However, analysts thought WD paid too much and the stock tanked.

It appears to have found a bottom at $60 and there are some rumors that the deal may not happen. If that was the case WDC shares would rocket higher. At this point the deal is priced in and shares are risng anyway so it looks like the worst is over.

Earnings Jan 26th.

Sell short Dec $60 put, currently $1.01, stop loss $61.25
Buy long Dec $55 put, currently .36, no stop loss
Net credit 65 cents.

LRCX - Lam Research (Put Spread)

Lam has been a steady stock and the only position in the November cycle that did exactly as it was supposed to do. It went sideways with an upside bias. The stock broke out to a four month high on Wednesday and could be poised to move over $80. Let us hope it stays steady with an upside bias for another month.

Earnings Jan 27th.

Sell short Dec $72.50 put, currently $1.10, stop loss $74.85
Buy long Dec $62.50 put, currently .25, no stop.
Net credit 85 cents.

Existing Play Recommendations

Links to original play recommendation

ADI - Analog Devices (Put Spread)

XBI - Biotech ETF (Bear Call Spread)

MON - Monsanto (Put Spread)

HOG - Harley Davidson (Call Spread)

XBI - Biotech ETF (Put Spread)

LRCX - Lam Research (Put Spread)

RRGB - Red Robin (Call Spread)

YUM - YUM Brands (Call Spread)

SWKS - Skyworks Solutions (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.