Editors Note:

The VIX actually closed at a three-week low but headline volatility is still with us. The market rallied intraday as worries over Syria/Russia cooled but a new headline at the close knocked 100 points off the Dow and the S&P futures are down -8 overnight.

The news that a brokered meeting between President Trump and Robert Mueller had been called off sent the market back into the dumps. Most worry that an interview with Mueller could put Trump at risk of saying too much. Every word and sentence would be parsed and compared with what the FBI knows and there would be no gray area for interpretation. Since the president tends to exaggerate and miss-remember things it is probably best for him not to be interviewed on the record.

However, the other view is that without an interview, Mueller will probably press the attack in an effort to get somebody else to testify against the president. His attorney is in a world of trouble and he is likely the one to get squeezed. This caused the market to sell off at the close but the Dow still managed a 294 point gain.

The major indexes are trying to push through resistance but they are struggling. The Dow is fighting 24,500 and the S&P 2,675. The Nasdaq managed to close above 7,100 and the Russell above 1,550. If we could keep a positive trend for a couple more days, the sentiment would likely improve.

However, every day is a new headline on a different topic and investors are very gun shy. Fortunately, we are headed into the earnings cycle for Q1 and there will be a lot of headlines next week that are not political.

The Dow needs to get through 24,500 and then 25,000 to have a chance at making a three-month high. The 50/100 day averages have crossed and that is technically bearish but it has been telegraphed for the last two weeks so it was a well anticipated event.

The S&P is struggling at 2,675 and strong resistance. It will probably take a big gap open to propel us past that point. A calm orderly day would probably continue to fail. The 50/100 crossed on Thursday.

The Nasdaq is leading again. The index pushed through the same relative resistance area facing the Dow and S&P and closed 40 points over the 7,100 level. The Russell also closed above 1,550 and the same relative resistance level. Only three big cap techs were negative on Thursday.

The challenge with Friday is weekend event risk. There is a good chance there will be some more political headlines and the odds are also good something will happen in Syria. With Russia warning they will shoot down our missiles and the ships they were launched from, there is an entirely new threat that could cause the market to crash. If Russia was successful in sinking one of our ships, what would our retaliation be? When two nuclear powers spar, what happens when one of them takes a serious hit. Do they pull out the big guns?

The Syria problem should keep a lid on the market on Friday even if the futures reverse over night.

Personally, I would not want to be short anything over the weekend.

Enter passively, exit aggressively!

Jim Brown

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SPX - Weeky Expiration

The volatility has given us some additional premium at the weekly level on the S&P. I am going to try and squeeze in a one week position and hope the S&P does not run for 100 points.

The S&P is trying to move out of its congestive resistance but the headline flow is working against it. With the president's troubles increasing, Syria, Russia and Iran looming, we could have a material headline at any time that tanks the market back to support.

If either stop loss is hit, immediately roll out the short position another 20 points. For instance if the S&P hits 2595, close the 2550 put and sell the 2530 put.

SPX April 20th expiration:
Sell short 2550 put, currently $3.70. Stop loss 2595.
Buy long 2520 put, currently $2.55.
Sell short 2750 call, currently $1.15. Stop loss 2720.
Buy long 2780 call, currently $0.95.

GOOGL - Alphabet - Company Profile

This is going to be a short position because Alphabet has earnings on May 3rd. We should be able to get two weeks of depreciation before we have to exit ahead of earnings. The spread between strikes is larger than normal so the margin will be a little higher but there are also high premiums.

May options:
Sell short May $950 put, currently $10.20, stop loss $1105.
Buy long May $900 put, currently $4.80.
Sell short May $1150 call, currently $6.60, stop loss $985.
Buy long May $1200 call, currently $3.10.
Net credit $8.90.

Optional Positions

These are not official positions but something else to look at if you want to live dangerously in the current volatility.

PANW - earnings 5/28
Calls 210-230 Net $1.29
Puts 170-150 Net $1.05

FDX - earnings 6/19
Calls 260-280 Net .95
Puts 220-190 Net .98

Current Portfolio

Stop Loss Updates

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

Play Updates

CMG - Chipotle Mexican - Company Profile


CMG is holding right where we want it to expire next Friday. The stock has remained dormant and we will likely play this company again in the May option series.

We closed the put side last week because there was nothing left to be gained and there was heightened risk in the volatile market.

Original Trade Description: March 8th

Chipotle Mexican Grill, Inc., together with its subsidiaries, operates Chipotle Mexican Grill restaurants. As of December 31, 2017, it operated 2,363 Chipotle restaurants throughout the United States, as well as 37 international Chipotle restaurants; and 8 non-Chipotle restaurants. The company was founded in 1993 and is based in Denver, Colorado. Company description from FinViz.com

Earnings May 8th.

Chipotle has a new CEO and investors are hopeful for a turnaround but skeptical that anything will happen in the near future. The stock declined sharply in the market correction but has rebounded to $321 and has been trading there for the last three weeks despite some market volatility. I am hoping this dormancy continues for several more weeks. The $320 level has been the midpoint since September.

Position 3/9/18:
Closed 4/4: Short Apr $260 put @ $2.06, exit .25, +1.81 gain.
Closed 4/4: Long Apr $250 put @ $.58, exit .16, -.42 loss.
Short Apr $360 call @ $2.79
Long Apr $370 call @ $2.10

NFLX - Netflix - Company Profile


We were killed on Netflix last week. We had a stop loss on the short put at $275 and the stock gapped down -$14 at the open on the 4th along with the rest of the market. That was a 2-month low. Shares gapped down to $271 and well below our stop loss. We gave up $12 on that stop.

I am going to try and recover some of it by selling a $275 put at the open on Friday. The April series only has one week until expiration and the premium will fall significantly on Monday. We cannot get all the loss back but we can get $3 more.

Sell short Apr $275 put, currently $3.85. stop loss $301.25.

Original Trade Description: March 15th

Netflix, Inc., an Internet television network, engages in the Internet delivery of television (TV) shows and movies on various Internet-connected screens. It operates in three segments: Domestic Streaming, International Streaming, and Domestic DVD. The company offers TV shows and movies, including original series, documentaries, and feature films. It offers members with the ability to receive streaming content through a host of Internet-connected screens, including TVs, digital video players, television set-top boxes, and mobile devices. The company also provides DVDs-by-mail membership services. As of January 22, 2018, it had approximately 117 million members in 190 countries. Netflix, Inc. was founded in 1997 and is headquartered in Los Gatos, California. Company description from FinViz.com

Netflix options are always high. It is my favorite go to stock for selling naked puts. I believe it has reached a point where it may not accelerate higher from here. It is up a whopping 72% year to date. Near the money options are extremely high. This means we can buy/sell significantly OTM for a decent premium. If the stock is going to move from here the most likely direction is down. With a PE of 249, I believe it will rest for a while before going on another spike run.

Earnings are April 23rd and expiration is on the 20th.

Position 3/16/18:
Closed 4/4: Short April 270 put @ $2.74, exit $15.10, -12.36 loss.
Long April $250 put @ $1.10.
Short April $370 call @ $4.31.
Long April $390 call @ $2.25.

OLED - Universal Display Corp - Company Profile


We closed the short put on the 23rd and the stock continued to decline. I recommended we close the rest of the position to lock in our gain. When the market gapped down the next morning it spiked our long put for a nice surprise.

Original Trade Description: March 15th

Universal Display Corporation engages in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for use in flat panel displays and solid-state lighting applications. As of February 22, 2018, it owned or had exclusive and co-exclusive licenses, or had sole license rights with respect to approximately 4,500 issued and pending patents worldwide. The company licenses and supplies its proprietary UniversalPHOLED materials to display and lighting manufacturers, and others. Company description from FinViz.com

OLED was a high flyer but the stock took a tumble from $209 back to $120 where it has languished for the last month. It is currently using the 300-day average as support. It has traded in a narrow $13 range since late February. The stock has lost its momentum.

Earnings May 24th.

Update 3/22: OLED shares fell on news that Apple was working on its own LED screen technology. However, reports suggest it could be years before it actually makes it into a phone. The decline was overdone thanks to the weak market. I am recommending we exit the short put to stop the bleeding since the market is likely to go lower. The call side should continue to decline in value and expire. If the stock decline continues we can possibly recover some value in the long put.

Position 3/16/18:
Closed 3/23: Short April $105 Put @ $1.11, exit $3.90, -$2.79 loss.
Closed 4/4: Long April $95 Put @ .39, exit $5.50, +$5.11 gain.
Closed 4/4: Short April $145 Call @ $1.11, exit .03, +$1.08 gain.
Closed 4/4: Long April $155 Call @ .50, exit .01, -$.49 loss.
Net gain $2.91.

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