In some friendly sporting events you can sometimes call for a "Do Over" if the prior play did not work out.
Unfortunately we can get a do over in the market. The market decline last week decimated our portfolio as the majority of stops were hit. It was an ugly week.
There was no rhyme or reason as investors just decided to take profits after new highs all around in the first week of July. The end of quarter/half fund inflows had been put to work and for those traders waiting for that event they pulled the exit trigger.
The dip was short, fast and scary but only lasted three days and the dip was bought. At least the big caps were bought with the Dow and Nasdaq 100 back at new highs. Unfortunately the Russell 2000 did not cooperate. The small caps lost -4% last week even after a late week rebound. The gains today were only +5 points and left the Russell -45 points below its highs of the prior week.
This is a warning sign for the markets. If the Russell does not accelerate higher over the next couple days the fund managers will start to pull their bids. The Russell is the market sentiment indicator for fund managers. Without a positive Russell the rest of the market will eventually decline.
I only added three plays today because i expect more volatility. This is the first big week of earnings and there have already been numerous warnings. July is normally the best month of Q3 with August and September the worst months of the year. We lost 19 positions to the decline and I don't want to load up the portfolio only to have it repeated next week.
The descriptions of the stopped plays are going to be simple. They were all due to the market decline and not to individual stories. Therefore the closing comments are going to be very similar.
While nobody knows for sure quite a few people are expecting a late 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
Here are the earnings dates for our current positions. We need to be out of the positions before the earnings. That is not applicable for the long term positions or stock held for future call writing. Covered call positions will be evaluated the week before the expiration. Most of our current calls expire in July and will not be a problem. Some don't.
LGF - 8/28
CBI - 7/24
GTAT - 8/06
ITMN - 7/31
CLVS - 8/07
AMBA - 9/02
Kandi shares rallied +27% today to close at $18.63. Our cost in this position was $17.65. Rather than writing a new call on KNDI I suggest we close the position. The odds are good this spike will eventually fade.
Close KNDI shares, entry 17.65, currently $18.63, +.99 gain.
FEYE - FireEye (Long Term Covered Call Closed)
FEYE gave back almost $10 in the market decline last week or roughly 23%. This crash came on no news and was purely related to the market decline in small caps. Regardless of the reason we still lost money.
Closed FEYE shares, entry $37.86, exit $35.65, -$2.21 loss
Closed Sept $43 Call, entry $3.00, exit $1.35, +1.65 gain.
Net loss 56 cents.
AMBA - Ambarella (Stopped)
The dip below $30 on no news stopped us out at $29.85. The loss was minimal but still a loss.
Closed AMBA Aug $33 Put, entry $3.80, exit $4.00, -.20 loss
NLNK - Newlink (stopped)
The $6 loss on a $28 stock (-21%) on no news stopped us out at $25.50.
Closed Aug $25 put, entry $1.90, exit $2.65, -.75 loss.
QIHU - Qihoo 360 (Stopped )
Market drop knocked $15 off QIHU to stop us out at $89.85. The low for the week was $84.38 so our early exit saved us some money. However, shares rebounded to close over $90 again on Monday.
Closed Aug $85 Put, entry $2.00, exit $3.10, -$1.10 loss
KORS - Michael Kors (Stopped)
The market decline and additional warnings from retailers knocked KORS for a loss to stop us out at $88.25.
Closed AUG $87.50 put, entry $2.75, exit $3.50, -.75 loss.
UBNT - Ubiquiti Networks (Stopped)
The market decline knocked -$7 off UBNT shares to stop us out at $41.45.
Closed July $48 Put, entry $3.30, exit $7.30, -4.00 loss
YNDX - Yandex (Covered Call Stopped)
The July $32 covered call was stoppe dout at $31.75 thanks to the market decline. We still escaped with a minor profit.
Closed YNDX shares, entry $30.64, exit $31.75, +1.11 gain
Closed July $32 call, entry $1.45, exit .70, +.75 gain.
Net gain $1.86
ISIS - Isis Pharma (Covered Calls Stopped)
We had three covered call positions on ISIS that were started at different times and all were stopped out by the market drop. Having the best drug pipeline in the industry did not keep the stock from being sold.
Closed ISIS shares, entry $30.96, exit $31.25, +.29 gain.
Closed July $33 call, entry $2.28, exit .55, +1.73 gain.
Net gain +$2.02
Closed ISIS shares, entry $34.65, exit $32.85, -1.80 loss
Closed July $36 call, entry $2.00, exit .30, +1.70 gain.
Net loss .10.
Closed ISIS shares, entry $30.96, exit $31.25, +.29 gain.
Closed Oct $35 call, entry $3.30, exit 1.20, +2.10 gain.
Net gain +$2.39
CLVS - Clovis Onocology (Covered Call Stopped)
The market decline knocked Clovis back to support at $37 and stopped us out of the Oct $45 call.
Closed CLVS shares, entry $41.39, exit $39.35, -2.04 loss
Closed Oct $45 Call, entry $6.40, exit $3.60, +2.80 gain.
Net gain +.76
GOGO - GOGO Inc (Covered Call Stopped)
The market decline knocked GOGO for a -15% loss with shares falling to $15.43 from $19.79. We were stopped at $17.85.
Closed GOGO shares, entry $19.40, exit $17.85, -1.55 loss
Closed July $20 Call, entry $1.20, exit .15, +1.05 gain
Net loss -.50
NLNK - Newlink Genetics (Covered Call Stopped)
Newlink shares declined from $28 to $22 to stop us out at $24.85.
Closed NLNK shares, entry $26.30, exit $24.85, -1.45 loss.
Closed July $28 call, entry $1.50, exit .55, +.95 gain.
Net loss -.50
VNET - 21Vianet (Covered Call Stopped)
Market decline knocked us out of VNET at $28.65 when the stock broke down intraday on the 10th.
Closed VNET shares, entry $29.99, exit $28.65, -1.34 loss
Closed Aug $30 call, entry $2.10, exit $1.40, +.70 gain
Net loss -.64.
YOKU - Youku Tudo (Covered Call Stopped)
YOKU was stopped out at $21.50 on July 8th after two days of market related declines.
Closed YOKU shares, entry $23.88, exit $21.50, -2.38 loss
Closed Aug $24 Call, entry $1.55, exit .50, +1.05 gain
Net loss -1.33
APC - Anadarko Petroleum (Short Put Stopped)
The huge drop in oil prices along with the decline in the market knocked APC back to $104.45 to stop us out at $106.45. We did exit with a nice gain.
Closed Jan $125 put, entry $26.71, exit $21.15, +5.56 gain
NUS - Nuskin (Short Put Stopped)
The market decline knocked another $4 off NuSkin but the trend was negative going into last week. The stop loss at $69.85 was hit to knock us out for a big loss on Thursday.
Closed Jan $120 put, entry $38.60, exit $51.00, -12.40 loss
TAN - Solar ETF (Covered Call Stopped)
TAN shares declined -$5 with the market on no news to stop us out at $42.35.
Closed TAN shares, entry $42.93, exit $42.35, -.58
Closed Oct $45 call, entry $2.90, exit $1.95, +.95 gain.
Net gain .37.
New Short Put Recommendations
AMBA - Ambarella
I am relaunching a play on AMBA because the chart does not show the same kind of breakdown as the rest of the prior plays that were stopped out. There was one down day and then some intraday dips but support at $30.50 held firm. Earnings ar enot until September so that removes some of the risk.
Earnings Sept 2nd.
sell short Aug $30 Put, currently $1.40, stop loss 29.85 (ITM)
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
CBI - Chicago Bridge & Iron (Short Put)
CBI was crushed by a bogus report from a noted short seller claiming invalid accounting and fictitious writedowns of previously acquired companies. CBI responded strongly calling the claims bogus and reaffirming their prior earnings forecasts for Q2. I strongly expect CBI to blow the doors off the estimates just to erase the cloud of suspicion generated by the short seller. The short has a history of issuing scandalous reports on companies after they build up a large short position. We have to consider the source of this report and thank them for a great buying opportunity.
CBI is a major fabricator of LNG facilities, oil refineries, pipelines, storage facilities, etc for major fortune 500 companies around the world. Hardly a day goes by that they don't announce some new contract for tens to hundreds of millions of dollars.
I am going into the money on this play. The risk is the same but the reward is greater if they announce earnings as I expect.
Earnings are July 24th.
sell short Oct $75 put, currently $7.80, stop loss $64.85
EMES - Emerge Energy Services (Short Put)
EMES is a supplier of frac sand to the drilling community. They also supply fuel to run the rigs and they are growing like crazy. They have a huge dividend, strong growth and sharply rising earnings.
After rising to $117 they saw some profit taking back to $95. The dip was bought and now the stock is pressing on resistance at $109. I believe a breakout is imminent.
I am going out a couple months to get past the earnings cycle volatility. The strike is well below support.
Sell short Sept $100 put, currently $5.30, stop loss $103.65
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)
GTAT - GT Advanced (Covered Call)
YNDX - Yandex (Covered Call)
ISIS - Isis Pharma (Covered Call)
ISIS - Isis Pharma (Long Term Covered Call)
ITMN - Intermune (Covered Call)
CLVS - Clovis Oncology (Update Existing Position)
GOGO - GOGO Inc (Covered Call)
ISIS - Isis Pharma (Covered July Call)
TAN - Solar ETF (Long Term Covered Call)
FEYE - FireEye (Long Term Covered Call)
AMBA - Ambarella (Short Put)
AMBA - Ambarella (Covered Call)
NLNK - Newlink Genetics (Covered Call)
UBNT - Ubiquiti Networks (Aggressive Short Put)
VNET - 21Vianet Group (Covered Call)
YOKU - Youku Toudo (Covered Call)
LGF - Lions Gate Ent (Short Put)
NLNK - Newlink Genetics (Short Put)
QIHU - Qihoo 360 Technology (Short Put)
KORS - Michael Kors (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.