The sharp drop in the biotech sector knocked us out of several positions.

It was not only the drop in biotechs but in nearly every sector we were playing. We were knocked out of the majority of our positions as momentum plays, tech stocks and the biotechs were all hit.

Quadruple witching, the S&P rebalance and the selloff in the Nasdaq were the triple whammy to the portfolio.

These events occur without warning. We had a very nice portfolio heading into the last two weeks and lightening struck. Stop losses kept us out of any serious trouble but it was still painful.

On the positive side once the selling is over investors will rush back into these stocks in hopes they will return to their highs. We will be ready.

We were called on quite a few covered calls and because of the instability in the market I did not add any new ones today. I did re-write the AAL call that expired slightly out of the money.

Our Gilead CC position is underwater but the outlook is still good for Gilead and several brokers have come out calling this a buying opportunity. The stock is down -7.62 and we took in $6.50 in premium so any bounce will put us back into the green.

S&P futures have been volatile after the close with a high of +2.50 and now they have turned negative. I would wait for a positive market before entering the new plays from tonight.

Jim Brown

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Current Portfolio

Current positions

Covered Calls

Long Term Positions

Past performance

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Click for 2013 Statistics

Current Position Changes

Stop loss updates

Check the portfolio graphics for stop loss changes in bright yellow.

AAL - American Airlines (Expired/Write Again)

We had a March $37 call on AAL and the stock closed at $36.11 on Friday. We could write the April $37 call for $1.10 in premium but I am recommending we step out to the May $38 call for $1.60 and gain another $1.20 in stock appreciation if called. The AAL chart is still positive and support has formed at $36.

Expired Mar $37 call, entry $.95, expired, +.95 gain.

Write new:

Sell short May $38 call, currently $1.60, no stop loss.

CLVS - Clovis Oncology (Stopped)

The collapse in the biotech sector pushed Clovis down to our stop at $78.95 to take us out of the play on Friday.

Closed Apr $75 Put, entry $4.60, exit $4.20, +.40 gain

SLXP - Salix Pharma (Stopped)

Another biotech bit the dust in today's drop to our stop at $105.50.

Closed APR $105 Put, entry $3.70, exit $4.10, -0.40 loss.

ARUN - Aruba Networks (Stopped)

Aruba fell below our stop at $19.25 on the -87 point intraday drop in the Nasdaq today.

Closed Apr $21 Put, entry $1.14, exit $2.05, -0.91 loss.

AGN - Allergan (Stopped)

Allergen fell to our stop loss at $124.85 on the 21st to close the play.

Closed Apr $135 Put, entry $8.50, exit $7.48, +1.02 gain.

DDD - 3D Systems (Stopped)

3D declined to hit our stop loss at $59.25 on Friday to take us out of the play.

Closed Apr $60 Put, entry $2.74, exit $3.80, -1.06 loss

CZR - Caesars (Called)

The long running series of covered calls on Caesars finally came to an end when the Mar $22.5 call expired in the money. We lost money on the stock because it declined after we entered the first call. We missed the spike to $26 in late February because we had already written the March call in late January to gain more premium.

Closed CZR shares, entry $24.45, exit $22.50, -$1.95 loss
Closed Oct $25 call, entry $2.57, exit .20, +2.37 gain
Closed Jan $20 call, entry $1.30, exit $1.78, -.48 loss.
Called Mar $22.5 call, entry $1.55, +1.55 gain.
Net gain +$1.49

VNET - 21Vianet (Called)

We opened the VNET position in late December by selling the Feb $25 call. That position was closed early and we wrote the March $22.5 call. The stock finally caught fire and blasted off to $29 and we were called away at $22.50.

Closed VNET Shares entry $23.11, exit $22.50, -.63 loss
Closed Feb $25 call, entry .71, exit .11, +.60 gain
Called Mar $22.50 call, entry $1.01, +1.01 gain
Net gain .98 cents.

ARWR - Arrowhead Research (Called)

ARWR rallied to $27 after we entered the position at $12.50. When the biotech implosion began on the 11th I thought sure we would be safely called. As the decline accelerated I began to worry but we were called away successfully.

Closed ARWR shares, entry $12.50, exit $12.50, zero gain.
Called Mar $12.50 call, entry $1.65, +1.65 gain
Net gain +1.65

PRAN - Prana Biotech (Called)

We entered the position in late January at $9.83 and wrote two $10 calls in Feb and March. Shares closed at $10.82 on Friday to see us called away.

Closed PRAN shares, entry $9.83, exit $10.00, +.17 gain.
Closed Feb $10 call, entry $1.83, expired +1.83 gain.
Called Mar $10 call, entry $1.45, called, +1.45 gain.
Net gain +$3.45

ARWR - Arrowhead Research (Called)

This was the second position we entered on ARWR and we did a little better on this one. It was barely called away on Friday with the close at $20.69.

Closed ARWR shares, entry $18.26, exit $20.00, +1.74 gain.
Called March $20 call, entry $1.30, called, +1.30 gain
Net gain +$3.04

TKMR - Tekmira Pharma (Called)

The TKMR call expired in the money on Friday at $22.50. We were initially filled on a gap open on the TKMR shares to $23.96 so we barely broke even on the position.

Closed TKMR shares, entry $23.96, exit $22.50, -1.46 loss.
Called Mar $22.50 call, entry $1.90, +1.90 gain
Net gain +.44 cents.

NOW - Service Now (Stopped)

NOW declined sharply on Friday to break support at $66 and trigger our stop loss at $64.85. This put us in a loss on the play.

Closed NOW shares, entry $69.00, exit $64.85, -$4.15 loss
Closed April $70 call, entry $3.60, exit $1.12, +2.38 gain.
Net loss -1.77

LMT - Lockheed Martin (Stopped)

Lockheed had some bad news out last week that knocked it below our stop at $158.95 on Thursday. This was a June position. After looking at the chart again today the dead stop on the 50-day average looks like a buying opportunity. If you did not stop out of this play I would consider keeping it with a stop loss under today's low at $157.01.

Closed short June $170 put, entry $11.10, exit $13.90, -2.80 loss.

New Short Put Recommendations

NLNK - Newlink Genetics

Newlink spiked to more than $50 in February then declined sharply after CR Baird downgraded them to neutral based on valuation. Even with the downgrade Baird left their price target at $40. The stock fell to $30 ahead of earnings on the 12th and failed to decline any further. Throughout the biotech bloodbath over the last three weeks Newlink has remained steady at $29. The stock was actually up today with the Nasdaq down -87 intraday. This suggests to me the consolidation is about over and we should see gains in the near future.

Since the $29 level has held throughout the biotech crash it makes sense that it will continue to hold as the Nasdaq recovers.

Sell short May $30 put, currently $3.20, stop loss $26.75.

LNG - Cheniere Energy

Cheniere is an LNG export company without any LNG. They are building two massive plants, one in Louisiana and one in Texas. They are fully permitted for export, the first company to be awarded permits. They are building five trains in Louisiana and the first production is expected to be in 2015.

Since they have no current production the quarterly earnings are not material. The talk about LNG exports to Europe has put a floor under LNG shares and long term investors are buying for the eventual export.

Resistance is currently $55 and should break in the coming week. May options were just added today so there is no open interest in any strike. However, the May $60 had a volume of more than 300 today. I am recommending we sell the May $60 and follow the crowd.

Sell short May $60 Put, currently $6.70, stop loss $51.95.

New Covered Call Recommendations


New Aggressive Recommendations

NUS - NuSkin

The Chinese government announced a miniscule $540,000 fine against the company for sales practices in China. People were expecting millions to tens of millions and a severe reprimand after they announced the investigation several months ago. In the documentation surrounding the fine China said six distributors made misleading claims. That is SIX out of the tens of thousands of distributors in China.

This was barely even a wrist slap and more of a "we have to fine you something because we launched an investigation" penalty. NUS shares rallied nearly $14 today. I would expect some of that to bleed away but in the weeks ahead I suspect Nuskin to begin heading for the pre-investigation highs at $140.

You can take the easy road here and go for the May $80 put, currently $4.40 or you can bet on the eventual return to triple digit prices.

I am recommending we go for the gold here and sell the Jan $120 LEAP Put, currently $38.60. That is $31 in money with a $7 premium boost. If you go this route the cost in NUS would be $81.40 with strong support at $75 if put but I doubt that is going to happen. There were 158 ITM puts traded today and there is open interest on January ITM strikes from $90 to $190.

This is a rare opportunity to sell deep ITM on a distressed stock.

Normal position:

Sell short May $80 put, currently $4.40, stop $70.95

Long term position:

Sell short Jan $120 LEAP Put, currently $38.60, no stop.

New Long Term Recommendations

See NuSkin Above

Existing Play Recommendations

Links to original play recommendation

CZR - Caesar Ent (Covered Call #1)

CZR - Caesar Ent (Covered Call #2)

CZR - Caesar Ent (Covered Call #3)

INCY - Incyte (Covered Call)

VNET - 21Vianet (Covered Call)

CLVS - Clovis Oncology (Aggressive Covered Call)

ARWR - Arrowhead Research (Covered Call)

EXAS - Exact Science (Covered Call)

CLVS - Clovis Oncology (Aggressive Covered Call)

BBRY - BlackBerry (Covered Call)

PRAN - Prana Biotech (Covered Call)

ARWR - Arrowhead Research (Covered Call)

YUM - YUM Brands (Aggressive Short Put)

INCY - Incyte (Covered Call)

AAL - American Airlines (Covered Call)

TKMR - Tekmira Pharma (Covered Call)

NOW - ServiceNow (Covered Call)

FB - Facebook (Long Term Short Put)

CLVS - Clovis Oncology (Short Put)

SLXP - Salix Pharma (Short Put)

LMT - Lockheed Martin (Long Term Short Put)

ARUN - Aruba Networks (Short Put)

AVG - AVG Technology (Short Put)

AGN - Allergan (Aggressive Short Put)

PII - Polaris Industries (Aggressive 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.