The VIX rose slightly today to close just over 11 but that is still extremely low volatility.
It is becoming increasingly hard to find options with decent premiums because of the lack of volatility. Nobody is buying puts and even with the market at new highs the call premiums are low. This is really perplexing. Typically with a market rally the call premiums will inflate. Either nobody expects the rally to continue or the limited number of investors in the market is not enough to inflate prices.
There are numerous biotechs with a lot of premium but the they are being knocked around by the news headlines and takeover activity. Those with drug results due out soon have extremely high premiums but we know what happens when the results are negative.
Check out the July premiums on Vertex (VRTX). They have two drug studies due out any time now. I could not figure out a way to profit from these without taking on too much risk.
I managed to add a couple of new covered calls and a couple of new plays on Clovis. The rebound has begun and the CEO is still out pounding the table on the company.
With the market at new highs heading into the summer doldrums in a midterm election year I don't want the portfolio to be too heavy. We could be due for a reset any day now. Volume is very low at 5.25 billion shares so there is a definite lack of conviction.
While nobody knows for sure and quite a few people are expecting a summer decline I would caution you not to overextend your personal portfolio. Take smaller positions and only those you feel comfortable holding through some market volatility.
Send Jim an email
Long Term Positions
Click for 2014 Statistics through February
Click for 2013 Statistics
Current Position Changes
P - Pandora (Stopped)
Pandora gapped down to $23.10 on a headline last Thursday o trigger our stop loss at $23.45 before rebounding to recover all the losses. The U.S. said they were going to review Pandora's royalty payment program. Listener hours rose +28% in May to 1.73 billion. Active listeners rose to 77 million and total market share rose +1.84% to 9.13%. If it were not for the government inquiry I think they would have risen sharply.
Closed Sept $22 Put, entry $2.00, exit $1.99, breakeven.
CLVS - Clovis Oncology
We were dealt a serious blow the prior week when Clovis was knock for a loss after market reporters grabbed a sensational headline (wrong) and played the sound bite over and over for several days. Clovis shares fell from $51 to $36.
This is a reprint of my comments from last week:
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 CEO was interviewed again last week and he stood behind his comments. Analysts are tripping all over themselves to recommend buying the dip on Clovis.
I am recommending we take two actions. I think we should sell a put on Clovis and use the premium to buy a long call to help repair our position. There has been no further selling and I think the bottom has been found.
Call premiums are high but we can sell an at the money put to offset the premium.
Buy Oct $45 Call, currently $6.30, no initial stop.
Sell Oct $40 put, currently $6.20, no initial stop.
New Short Put Recommendations
CLVS - Clovis Oncology (Short Put, Covered Call)
For those readers not in the current Clovis trade the high premiums in that stock and the potential for a rebound give us a couple of opportunities. (See my Clovis comments above)
For put sellers we can use the July $45 put, slightly in the money, for a whopping premium of $5.80.
For covered call writers I would suggest the October $45 call at $4.90. If called that is an $8.24 profit and it is only $3.34 out of the money today.
Sell July $45 put, currently $5.80, no initial stop.
Buy-write Oct $45 call, currently $41.66-$4.90, no initial stop.
New Covered Call Recommendations
See Clovis Above
ARWR - Arrowhead Research
We already have a covered call that is deep in the money on ARWR. However, a lot of new readers may have arrived after that recommendation. The stock is cheap and the options are high. Biotechs are back in demand and ARWR is recovering from the biotech selloff in March and April.
Buy-Write July $15 call, currently $14.46-$2.00, no initial stop.
GOGO - GOGO Inc
GOGO is the leading company putting Wi-Fi on airplanes so you can have Internet access during the flight. They suffered a dip in early May but they are roaring back. AT&T had announced they were going to offer a competing service in late 2015. That is far outside our time horizon.
GOGO announced this week they were going to add Wi-Fi to American Airlines regional jets in June. The company charges $5 for one hour or $16 for 24 hours. They also have a frequent flyer plan for $60 a month to connect on any airline.
Buy-write July $20 call, currently $19.29-$1.10, no initial stop.
Gain if called $1.81.
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)
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)
YELP - Yelp Inc (Short Put)
AAL - American Airlines (Short Put)
DAL - Delta Airlines (Short Put)
UAL - United Continental (Short Put)
GBX - Greenbrier (Short Put)
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.