Alcoa kicked off the earnings season today with some strong guidance for the rest of the year.

Let's hope the rest of the Dow components report strong guidance as well. The earnings beat the street but the street was not expecting much with aluminum prices on a downward spiral. The guidance was the key and Alcoa said they expected 9-10% demand growth for the rest of 2013.

It was not a spectacular start to earnings season but at least it is now underway. The market appears to be expecting good things even though analysts are looking for only 3.3% earnings growth and no revenue growth.

The market has been up for most of the last nine trading days and the S&P is comfortably over the 50-day average. Next resistance is 1650. This has deflated the VIX and put premiums. Even the call premiums on lower prices stocks have deflated somewhat. This makes it difficult to find reasonably safe plays with any premium.

Complicating the situation this time of year is the earnings calendar. Over the next three weeks more than 2000 companies will report earnings. That removes a lot of stocks from consideration because we don't want to be holding a short put over their earnings report. Bad things can and do happen after earnings. Likewise we don't want to be short on one company if another major company in the sector is reporting. One bad apple can spoil the entire sector.

I only added two plays today because I could not find satisfactory candidates. I don't want to write 50 cent puts on a $50 stock. The risks outweigh the potential gains. We should get a market dip here shortly to reflate the premiums. Also, once companies begin reporting we will have a lot of new candidates after their post earnings dips.

Be patient and trades will appear. If I see anything later this week I will send another update.

Jim Brown

Send Jim an email

Current Portfolio

Current positions

Current Position Changes

TSLA - Tesla Motors (Closed)

Tesla continues to power higher. I wish this had been a straight call rather than a short put.

Closed TSLA July $85 Put, entry $4.30, exit .19, +4.11 gain.

TSLA Chart

CTRX - Catamaran (Close)

Catamaran is not improving. We added a stop last week and while that stop has not been hit the stock is going nowhere. We had a very low premium of only 54 cents so we have a lot of risk if CTRX suddenly decides to break support at $47.25.

I am recommending we close this now for a miniscule profit rather than level it open and exposed to risk.

Close CTRX July $45 Puts, entry .54, currently .35, +.19 gain

CTRX Chart

New Short Put Recommendations

OUTR - Outerwall (Formerly Coinstar)

Coinstar changed its name and symbol on July 1st and the stock set a new 52-week high on Monday. This is the company that owns Redbox, the DVD kiosks all over the country. The trend on the chart is pretty choppy but accelerating and the symbol change inflated the premiums since most traders have not caught on to the name change yet.

I think we can launch a relatively safe $57.50 August put for a decent $2 premium. it is not in Tesla's class but it is less volatile.

Sell to open OUTR Aug $57.50 put, currently $2.00, stop $59.85.

OUTR Chart

New Covered Call Recommendations

TSLA - Tesla Motors

Hardly a day goes by that we don't hear some more good news on Tesla. The shorts are screaming and the longs are adding to their positions. Nearly 75% of the stock is held by 11 entities and it does not trade. This means it is hard to short and hard to cover if you are short.

This is a high dollar stock to write calls on but the premium makes it worthwhile. At the current rate of climb I could easily see it at more than $130 by the August expiration. I am recommending we write a $130 call, currently $8.55 with the stock at $121.61. if we are called that would be a profit of nearly $18.

Sell to open TSLA August $130 call, currently 8.55, no stop

TSLA Chart

New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

HLF - Herbalife (Covered Call)

PHM - Pulte Homes (Covered Call)

PHM - Pulte Homes (CC Update)

GMCR - Green Mountain Coffee (Covered Call)

GMCR - Green Mountain Coffee (CC Update)

SLW - Silver Wheaton (Covered Call)

SLW - Silver Wheaton (CC Update)

BZH - Beazer Homes (Covered Call)

BSFT - Broadsoft (Covered Call)

JASO - JA Solar (Covered Call)

DDD - 3D Systems (Short Put)

LGF - Lions Gate Films (Covered Call)

LGF - Lions Gate (CC Update)

BBRY - BlackBerry (Covered Call)

TSLA - Tesla Motors (Short Put)

CTRX - Catamaran Corp (Short Put)

Z - Zillow (Short Put)

CRR - Carbo Ceramics (Short Put)

GOLD - Rangold Resources (Short Put)

GOLD - Rangold Resources (Short Put)

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.