The markets ended the day mixed but still no volatility.

The morning decline came on the news the manufacturing ISM had fallen sharply. However, about an hour later the ISM numbers were revised higher after a software glitch produced the erroneous print.

The Dow and S&P recovered and closed slightly higher for the day with both at new record highs. Unfortunately the Russell 2000 and Nasdaq declined for the day. The Nasdaq fell as a result of the drop in Apple and on some declines in biotech stocks. The Russell declined because traders are afraid of what summer may bring.

The Russell has declined for two days and closed at a 5 day low. If the Russell fails to recover on Tuesday it could spoil sentiment and begin to weigh on the big cap averages. The four day rebound from the low on the 20th has now stalled for four days. It sure looks like the rebound was short covering and those shorts are now getting back into the game.

There are a lot of economic events this week and market direction will be a tossup with the Nonfarm Payrolls on Friday the biggest event. Estimates are all over the map and there is a growing worry it will be a low number. The revised ISM today eased those concerns somewhat but they are still there.

Even with the small bouts of volatility in the indexes there is no volatility in the option premiums. The VIX closed at 11.58 and the 6th day under 12. If we were to have a bullish day in the markets I would not be surprised to see it drop under 11.

With very small option premiums I had to put a lot of small stocks in the recommendation list with small premiums.

While nobody knows for sure and quite a few people are expecting a summer decline I would caution you not to overextend your portfolio. Take smaller positions and only those you feel comfortable holding through some market volatility.

Jim Brown

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Current Portfolio

Current positions

Covered Calls

Long Term Positions

Past performance

Click for 2014 Statistics through February

Click for 2013 Statistics

Current Position Changes

INSM - Insmed (Closed)

Insmed finally broke below uptrend support to stop us out of the position at $12.45 and near the low of the day. This was painful because we were playing a deep in the money put so we were hit penny for penny for the entire drop.

Closed Aug $20 Put, entry $6.70, exit $8.10, -$1.40 loss.

CLVS - Clovis Oncology (Update)

Clovis shares declined -$3.50 today after news broke at the ASCO cancer conference that "some" of the patients taking their new cancer drug CO-1686 caused a rise in blood sugar. The press immediately jumped on the news claiming the drug caused diabetes but according to the CEO that is not true. "We do not cause diabetes" in an interview.

He was interviewed at the conference and said only a few patients had exhibited hypoglycemia problems and those were easily handled with the oral drug Metformin. He reminded everyone that ALL cancer drugs have side effects and any effect that can be handled with an oral pill is the best kind.

These patients have cancer. They are terminal without treatment. He said 95% of patients show improvements in quality of life and "progression free survival." That means the cancer does not worsen and longer life spans are expected. In 65% of patients the improvement in quality of life was "startling" and progression free survival was greatly extended.

In only 22% of patients did they see the appearance of minor hypoglycemia. He said if the problem was bad patients would be dropping out of the trial. To date there have been ZERO patients withdraw from the trial due to the hypoglycemia.

What would you do? Take an oral pill to suppress it or stop the drug and die?

Mizuho said the data from CO-1686 looks superior on progression free survival compared to AstraZenaca's AZD9291. The firm reiterated a buy rating on CLVS with a $100 price target. The stock closed at $48 today.

We had a short July $75 call that we closed last week for a $14 gain. Unfortunately the stock is down -$30 from our entry point. I believe we are going to see a rebound in CLVS based on the real information from the company rather than the initial headlines.

The headlines today knocked it back to support at $48 and a level that has been tested before.

When Clovis begins its rebound we will sell a new call to reduce our exposure.

New Short Put Recommendations

YELP - Yelp Inc

Yelp is an online guide that directs customers to their local mechanics, florists, restaurants, etc. They are expanding their offerings and could be competition for GrubHub in the near future.

Shares were beaten down in the Nasdaq sell off in March/April and bottomed around $52. The rebound has been steady and they paused just under the 200-day average at $70 on Thursday. The weak Nasdaq and Russell provided some profit taking and they could be ready to restart the rebound if the market is willing.

Earnings July 30th.

Sell short July $57.50 put, currently $2.25, stop loss $60.85

American Airlines, United, Delta

It is summer time and the airlines are taking off. Planes are full and the winter flight cancellations are a distant memory. Delta (DAL), American (AAL) and United Continental (UAL) are all in solid rally mode.

Pick you favorite:

Sell short AAL July $39 Put, currently $1.05, stop loss $38.85

Sell short DAL July $39 Put, currently $.94, stop loss $38.85

Sell short UAL July $43 Put, currently $1.18, stop loss $43.60

GBX - Greenbriar Companies

Greenbriar closed at a new high on Monday. They make rail cars to supply the growing demand for oil tankers, flatbeds and hopper cars. They have a 2 year backlog and earnings are rising due to price hikes and strong demand.

I am picking the $50 strike as a safe play. The odds of a decline that far are slim. You can pick a higher strike if you like.

Sell short July $50 Put, currently .85, stop loss $53.65

Alternate Opportunities

These are not official recommendations but they were on my top 10 list so I am listing them here if you are looking for something else to play. They will not be followed in any future newsletter.

SLCA $48 Put $1.05
SLCA $49 Put $1.35
CTRP $50 Put $1.10
SYNA $60 Put $1.50
OCN $32.50 Put $.95

New Covered Call Recommendations


New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

CLVS - Clovis Oncology (Aggressive Covered Call)

FB - Facebook (Long Term Short Put)

MOBI - Sky-Mobi Ltd (Covered Call)

KNDI - Kandi Technology (Covered Call)

NUS - NuSkin (Aggressive Short Put)

PRAN - Prana Biotech (Short Put - Update)

APC - Anadarko (Long Term Short Put)

INSM - Insmed Inc (Long Term Short Put)

ARWR - Arrowhead Research (Covered Call)

EXAS - Exact Sciences (Short Put)

GTAT - GT Advanced (Covered Call)

YNDX - Yandex (Covered Call)

P - Pandora (Long Term Short Put)

ISIS - Isis Pharma (Covered Call)

ISIS - Isis Pharma (Long Term Covered Call)

ITMN - Intermune (Covered Call)

FEYE - FireEye (Short Put)

EMES - Emerge Energy (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.