Editors Note:

Current market volatility is making it very hard to succeed. The Dow declined -1,009 points in five days to stop us out of 75% of our short put positions. When tech stocks are moving over 30 points in 3 days there is slim to no chance we are not going to be stopped.

This is extremely frustrating because there is still no market direction. We go up then down then up and the only people winning are the day traders and market makers.

I periodically subscribe to other option newsletters to see how they are handling the market movements. What are they doing that we could do better? This week I got an email from a provider of a service that provided condor trades saying they were shutting down the recommendations effective April 24th. The market volatility had claimed yet another victim.

Everyone can be a hero when the market is directional and volatility is low. Last year was the perfect environment with the lowest extended market volatility in 50 years. The last three months have seen significant enhanced volatility and that makes non-directional trades nearly impossible to pick and manage. We have had numerous 500-700 point intraday swings. Tech stocks have been dropping $10-$15 intraday only to rebound that much and more in the days that follow.

I gave serious thought to cancelling this newsletter as well but we all know this volatility will eventually end. When it does the market will likely go directional and more than likely it will go sideways for several months with a minimal bias. When that happens we can make some money.

With the S&P futures down -8 again tonight after blowout earnings from AMZN, INTC and MSFT, I am not going to tempt fate and try to add new positions. We need to wait until the volatility fades. I will look at the outlook again on Sunday night and see if there is anything worth adding.

Readers should be patient. The idea is to find low volatility trades where we can make money not launch new trades just because it is a newsletter day.

Enter passively, exit aggressively!

Jim Brown

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No New Trades Today

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.

Stop Loss Plan:
If a stop loss is hit, immediately sell the next higher option.
With most brokers you can place a contingent order. For instance, if NFLX trades at $351, buy to close May $375 call, sell to open May $385 call. You may have to make it two different orders. If we are stopped and you reopen the position like this, add $7 from the stop price for the new stop. If we are stopped again do not reload. Reverse the procedure for the put side.

Play Updates

GOOGL - Alphabet - Company Profile


We closed the Google position at the open on Monday due to impending earnings. This position was killed with GOOGL spiked $52 points in three days to knock us out of the short call with a big loss. We almost recovered that loss but the change in the earnings date was the deciding factor.

Original Trade Description: April 12th

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.

Position 4/13/18:
Short May $950 put @ $8.58, exit 2.43, +6.15 gain.
Long May $900 put @ $4.02, exit 1.57, -2.45 loss.
Short May $1150 call @ $6.72, exit 15.81, -9.09 loss.
Long May $1200 call @ $3.20, exit 4.90, +1.70 gain.
Net loss $3.69.

ADBE - Adobe Systems - Company Profile


The market crash last week knocked us out of the initial short put. Using the stop loss scenario described, we added a new position of a short May $190 put and lowered the stop loss by $7. The stock rebounded and is back in its recent range.

Original Trade Description: April 22nd

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. Company description from FinViz.com

Adobe spiked higher on great earnings and ran into resistance at $230. The choppy market has prevented the stock from moving higher over the last month. With the focus on other tech earnings this week, Adobe could be forgotten and left to wander between $230-$215.

Earnings June 14th.

Position 4/23/18:
Short May $245 Call @ $1.55.
Long May $265 Call @ $0.68.
Short May $200 Put @ $1.06.
Long May $180 Put @ $0.23.
Net credit $1.60.

Position 4/24/18:
Short May $200 Put @ $1.06, exit $1.90, -.84 loss.
Short May $190 Put @ $.95.

NFLX - Netflix - Company Profile


The Wednesday market crash knocked us out of the initial May $285 short put and we adjusted down to the May $275 put. The stock continued to decline and the new put was also stopped out. When the stock drops $36 in three days, we would have been stopped out regardless of the position. We no longer have as short put on NFLX.

Original Trade Description: April 22nd

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. Company description from FinViz.com

Netflix spiked on earnings to a new high but it was only $5 over the old high. Shares seem to have stalled at those levels. While I do not expect Netflix to collapse, I doubt it is moving significantly higher without a bullish market.

Earnings July 16th.

Position 4/23/18:
Short May $375 Call @ $1.39.
Long May $395 Call @ $0.41.
Short May $285 Put @ $1.54.
Long May $265 Put @ $0.55.
Net credit $1.96.

Position 4/24/18:
Short May $285 Put @ $1.54, exit $3.26, -1.72 loss.
Short May $275 Put @ $1.92, exit $3,25, -1.33 loss.
We no longer have a short put on Netflix.

NVDA - Nvidia - Company Profile


Nvidia was another casualty of the Wednesday market crash. We were stopped on the initial $190 put and we added a $180 put and lowered the stop loss by $7. Shares are back in the middle of their range and we are relatively safe unless the market crashes again.

Original Trade Description: April 22nd

NVIDIA Corporation operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based game-streaming service; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for AI utilizing deep learning, accelerated computing, and general purpose computing; GRID provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and cryptocurrency-specific graphics processing units. The Tegra Processor segment provides processors designed to enable branded platforms - DRIVE and SHIELD; DRIVE automotive computers and software stacks, which offer self-driving capabilities; SHIELD devices and services designed for mobile-cloud in home entertainment, AI, and gaming applications; and Jetson TX 2, an AI computing platform for embedded use. Company description from FinViz.com

Shares have been moving sideways in a wide range. Multiple headlines negative to the chip sector have weighed on the stock. Resistance at $250 is strong as is support at $217.

Earnings May 10th before expiration.

Position 4/23/18:
Short May $260 Call @ $2.55.
Long May $280 Call @ $0.66.
Short May $190 Put @ $1.60.
Long May $170 Put @ $0.54.
Net credit $2.95.

Position 4/25/18:
Closed Short May $190 Put, exit $4.10, -2.50 loss.
Added Short May $180 Put @ $2.56.

STMP - Stamps.com - Company Profile


Stamps is the only stock that ignored the market volatility and remain in its recent range. That is somewhat scary because that suggests a positive market could see a big spike in STMP shares.

Original Trade Description: April 22nd

Stamps.com Inc. provides Internet-based mailing and shipping solutions in the United States. The company offers mailing and shipping solutions to mail and ship various mail pieces and packages through the United States Postal Service (USPS) under the Stamps.com and Endicia brands. Its solutions support various USPS mail classes, including First Class Mail, Priority Mail, Priority Mail Express, Media Mail, Parcel Select, and others. Company description from FinViz.com

Shares dropped on the 13th on news the Post Office was going to investigate discounted postage rates. The target was Amazon but Stamps.com also has a sweet deal and any investigation could suggest reducing their discount. Shares have rebounded but are approaching resistance at $230.

Earnings May 23rd.

Position 4/23/18:
Short May $260 Call @ $1.85.
Long May $280 Call @ $0.35.
Short May $175 Put @ $2.18.
Long May $155 Put @ $.35.
Net credit $2.89.

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