Unfortunately volatility kills when you are not expecting it.
The -3% decline in the market last week knocked us out of most of the short term positions. Our stop losses saved us from any material losses. We exited six positions for a net loss of 5 cents. Considering the volatility event we had on Thursday and Friday I consider that a winning week. We did not make any money but we didn't lose any either.
The market rebounded today from the oversold conditions from last week. It may continue higher or it may not. A three day decline is not a trend. It could be just a hiccup or the start of a late summer trend.
Monday's rebound was lackluster and was most likely short covering and new month end retirement money hitting fund accounts. Futures have been slightly negative since the market closed but there is a lot of darkness left before the dawn and anything can happen.
I am holding off on adding covered calls because the potential for loss is higher and the call premiums are nearly zero. I am limiting the number of new plays I am adding until we see where the market is going.
August is typically the worst month of the year for the markets and has been down 4 of the last 5 years. Selling premium is a bullish strategy for range bound or bullish markets. It is not a strategy for declining markets.
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.
SCTY - 8/06
CLVS - 8/07
LNG - Cheniere Energy (Closed)
Cheniere had spiked up ahead of earnings to $76 but faded the last couple of days. I recommended we close LNG before earnings.
Closed Sept $70 Put, entry $2.70, exit $2.23, +.47 gain.
LGF - Lions Gate Ent (Stopped)
LGF dipped with the market on Thursday and stopped us out at $30.45 for a gain. No complaints here.
Stopped Aug $28 Put, entry $1.05, exit .25, +.80 gain.
FEYE - FireEye (Stopped)
FireEye collapsed on Friday and hit our stop at $34.75 for a minor loss. Earnings week and a volatile market were too much for FEYE holders.
Stopped Sept $36 put, entry $3.70, exit $4.18, -.48 loss.
PANW - Palo Alto Networks (Stopped)
PANW dropped with the market on Thursday and Friday to stop us out at $79.45 for a very minor gain, which in my account is always better than a loss.
Stopped Aug Wk4 Put, entry $2.70, exit $2.55, +.15 gain.
GRUB - GrubHub (Stopped)
GRUB dropped to our stop at $35.50 on Friday to stop us out. Because this was an ITM put I had the stop loss pretty close to the recent range. When the drop came on Friday the stop was about 24 cents too high. The low for the day was 35.26.
Stopped Sept $35 Put, entry $1.22, exit $2.40, -1.18 loss.
EMES - Emerge Energy Svcs (Stopped)
Emerge collapsed with the market on Wed/Thr and stopped us out at $103.65 for a minor gain.
Stopped Sept $100 put, entry $5.20, exit $5.01, +.19 gain.
SCTY - Solar City
SolarCity bounced off resistance at $75 when the market dropped late in the week. Earnings are this Wednesday. I think the stock has a good chance of a post earnings (Elon Musk) bounce. Just in case that does not happen we do have an August week two $65 put to protect our Sept $75 short put position.
We have a very short fuse if disaster strikes. The long put expires on Friday. That means we have to close the long put on Thursday at the close. I chose the close instead of the open because an early dip and rebound is not as bad as a day when selling occurs all day.
Be aware this LONG put must be closed on Thursday.
The short put is a September $75 so we have plenty of time on that position. I will email on Wednesday night after earnings if anything changes.
NOW - Service Now
NOW reported earnings on July 30th and got caught in the market downdraft. Shares fell from the pre earnings close of $62.67 to $56.03 on Thr/Fri before a rebound began. We have a short $65 Sept put and a long August $55 put. There is no rush to close either one. If the rebound continues a couple more days I will probably recommend exiting the long $55 before the week is out in order to save a little premium.
WCG - WellCare Health Plans Inc
There was no material change in WCG. Shares did decline slightly with the market but held support at $62. We have a long August $60 put and a short Sept $65 put.
No change in the play.
New Short Put Recommendations
I looked through several hundred charts and to come up with my list of possible plays for this week. I only chose three to include in the newsletter. These listed below were in the last cut. If you don't like the three plays I chose (GBX, APC and AAPL) you can pick something from this list. These are just suggestions and will not be updated in future newsletters.
All strikes are September put options.
Symbol, strike, premium
HP $105 $3.10
AKS $9 $0.45
GLW $20 $0.61
TQNT $18 $0.85
SLAB $40 $0.85
WDC $100 $2.45
PCYC $110 $3.90
SOHU $52.5 $1.25
DNKN $42.5 $1.00
GBX - Greenbrier Companies
Greenbrier is a manufacturer of railcars and business is booming. They dropped with the market last week and rebounded on Monday. Earnings were in July so that is behind us.
Sell short Sept $60 Put, currently $1.10, stop loss $62.45.
APC - Anadarko Petroleum
Anadarko posted strong earnings, said it was going to sell off its overseas assets and get out of the LNG business. On Monday a deal was reached with the Governor of Colorado to avoid a fracking fight inside Colorado. Anadarko has a large development effort in progress there. Shares rallied $5 on the news. I believe APC is a great company and will break over resistance at $112 if the market cooperates.
Sell short Sept $105 Put, currently $2.47, stop loss $106.50.
AAPL - Apple Inc
Apple shares dropped -$4 last week on profit taking after the post earning spike. Just above the $95 level is where investors should come back to the stock. Nobody wanted to buy it over $99 with the $100 resistance level. The dip back to $95 should be an attractive entry point. The 30 day average has been support since May.
Apple is going to announce multiple products in late September for Q4 delivery. Shares should run up into that announcement.
Sell Sept $92.50 Put, currently $2.07, stop loss $94.45
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)
CLVS - Clovis Oncology (Update Existing Position)
FB - Facebook (Long Term Short Put)
MOBI - Sky-Mobi Ltd (Covered Call)
PRAN - Prana Biotech (Short Put - Update)
LGF - Lions Gate Ent (Short Put)
EMES - Emerge Energy Svcs (LT Short Put)
LNG - Cheniere Energy (Short Put)
FEYE - FireEye (Short Put)
PANW - Palo Alto Networks (Short Put)
SCTY - SolarCity (Aggressive Short Put)
NOW - ServiceNow (Aggressive Short Put)
GILD - Gilead Sciences (Short Put)
GRUB - GrubHub (Short Put)
WCG - WellCare (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.