Can we have a do over for Monday?

Monday was a very bad day for Nasdaq stocks. Intraday the Nasdaq was down -62 points but the damage to the stocks were worse than that. We were stopped out of 8 positions on Monday. The individual declines were brutal in the small cap stocks we were playing.

For instance PRTA -6%, ARWR -8%, EXAS -7%, UBNT -7%, SPLK -6% and ACHN -9%. This happened on a day when the Nasdaq only declined -1%. After looking at about 500 stock charts today I don't know what held the Nasdaq up. The large cap stocks were crushed as well but at least not to the same degree.

I want to blame the Alibaba IPO for the selling but after looking at so many charts I am no longer sure. I could rationalize it if only the big caps sold off or the recent leaders but the selling was brutal across all sectors.

Every chart I looked at today in trying to find new plays looked like a falling knife. I had to reach out to December on a couple of plays to get away from the Nasdaq and move to NYSE stocks.

With September options expiring this week the October premiums have already evaporated. The only premiums left were on stocks with horrendous declines.

We are also approaching the earnings season in three weeks so moving to November options puts us at risk for an earnings event.

With the sharp and unexplained decline in the Nasdaq today I kept the new plays to a minimum.

Jim Brown

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Current Portfolio

Current positions

Covered Calls

Long Term Positions

Current Position Changes

RCPT - Receptos (Stopped)

Receptos declined to hit our stop at $47.65 on Tuesday. Of course that was the day before it rocketed off from $47 to $62 over the next four days.

I had recommended putting in a limit order to close the position last week at $3.75. When the stock broke support the wide option spreads evaporated as people began buying puts. We were able to escape this position for a minor loss.

Closed Oct $45 Put, entry $3.60, exit $4.00, -.40 loss.

PRTA - Prothena Corp (Stopped)

Prothena declined today to hit our stop at $22.25 on the put and $21.65 on the covered call. It was not a good day for PRTA with a -5% decline.

Closed Oct $20 Put, entry $1.00, exit $1.20, -.20 loss.

Covered Call:

Closed PRTA shares, entry $23.14, exit $21.65, -1.49 loss
Closed Oct $25 call, entry $1.60, exit $1.60, breakeven.

ARWR - Arrowhead Research (Stopped)

Arrowhead broke support today to stop us out at $14.85 on the short put.

Closed Oct $16 Put, entry $1.70, exit $2.50, -.80 loss

INSY - Insys Therapeutics (Closed)

Insys was on the verge of breaking support at $33.40 and I wanted to bail on this position before that happens. I recommended we close the position at the open on Tuesday. That support level broke at the open on Tuesday.

Closed Oct $33 put, entry $2.40, exit $2.75, -.35 loss

EXAS - Exact Sciences (Stopped)

Exact fell -7% today to hit our stop loss at $20.65 on the put and $20.35 on the covered call. No news.

Closed Oct $20 Put, entry $1.50, exit $2.15, -.65 loss.

Covered Call:

Closed EXAS shares, entry $22.34, exit $20.35, -1.99 loss
Closed Oct $22 call, entry $2.20, exit $2.10, +.10 gain

UBNT - Ubiquiti Technology (Stopped)

Ubiquity had a really bad day with a -7% drop on the Nasdaq selloff. We were stopped at $44.95.

Closed Oct $44 put, entry $1.35, exit $1.80, -.45 loss.

SPLK - Splunk (Stopped)

Same story on Splunk with a -6% decline today. We were stopped at $54.35.

Closed SPLK shares, entry $59.09, exit $54.35, -4.74 loss.
Closed Oct $62.50 call, entry $2.00, exit $1.60, +.50 gain

ACHN - Achillion Pharma (Stopped)

Stopped when ACHN declined to $10.85 on a -9% decline today.

Closed ACHN shares, entry 11.22, exit $10.85, -.37 loss
Closed Oct $12 call, entry 1.75, exit $1.50, +.25 gain.

OCN - Ocwen Financial (Stopped)

The OCN decline was not as dramatic but it still took us out of the position with a dip to $27.25.

Closed OCN shares, entry $27.63, exit $27.25, -.38 loss.
Closed Oct $27.50 Call, entry 1.85, exit 1.63, +.22 loss.

SRPT - Sarepta Therapeutics (Expiring)

The SRPT $24 covered call is expiring on Friday. It is currently out of the money with SRPT at $22.72. If the call expires I want to immediately sell a new October $24 call on Monday morning. Don't wait for the Monday night newsletter.

Expiring Sept $24 call, entry $1.25, currently .40.

If it expires out of the money, sell the Oct $24 call Monday morning.

New Short Put Recommendations

LL - Lumber Liquidators

LL crashed back in early July on earnings but after two months of consolidation the stock is trying to rebound. Shares gained +82 cents today on a bad tape. Resistance is $59 and it is knocking on the door. The $55 put still has some decent premium. Earnings are not until Oct 22nd.

Sell short Oct $55 put, currently $1.90, stop $55.75

New Covered Call Recommendations


New Aggressive Recommendations


New Long Term Recommendations

CLR - Continental Resources (Short Put) Continental is the biggest producer in the Bakken and has tremendous upside potential. The stock split 2:1 on Thursday and then the president resigned on Friday to seek other opportunities. The founder and chairman Harold Hamm is still in charge. He hired the president in late 2012 so apparently the combination did not work out. Shares declined -$2 on Friday but were positive today on a bad day in the market.

I think enough investors are excited about buying these shares at $73 instead of $150 that the normal post split depression phase may not appear. If it was going to happen today would have been a perfect opportunity.

I am recommending we sell a December $67.50 put with the stock at $73.50 today. That gives us a little wiggle room if any sellers appear.

Sell Dec $67.50 put, currently $2.20, no initial stop.

LNG - Cheniere Energy

Cheniere has been on a very strong run for the last year. This company is building the largest LNG export facility in the U.S. and by 2017 will be exporting 5% of the daily gas production in the USA. Analysts love Cheniere. They have no earnings because they are not yet exporting so nobody expects anything from the earnings report.

The chart shows a nice steady pattern and ideally I would like to enter a position with a dip to the 50-day average but I think we are relatively safe today. The stock barely dipped at all over the last week despite a crash in oil prices and a sharp decline in energy stocks. This relative strength is our friend.

Sell Dec $75 Put, currently $3.05. No stop because $75 is the 50-day average support.

Existing Play Recommendations

Links to original play recommendation

CLVS - Clovis Oncology (Aggressive Covered Call)

CLVS - Clovis Oncology (Update Existing Position)

CLVS - Clovis Oncology (Covered Jan Call)

FB - Facebook (Long Term Short Put)

PRAN - Prana Biotech (Short Put - Update)

SRPT - Sarepta Therapeutics (Covered Call)

ISIS - ISIS Pharma (Covered Call)

INSY - Insys Therapeutics (Short Put)

AVGO - Avago Technologies (Short Put)

NLNK - Newlink Genetics (Covered Call)

RCPT - Receptos (Short Put)

ASPS - Altisource Portfolio Soln (Short Put)

ACHN - Achillion Pharma (Covered Call)

OCN - Ocwen Financial (Covered Call)

TKMR - Tekmira Pharma (Short Put)

PRTA - Prothena Corp (Short Put)

TKMR - Tekmira Pharma (Covered Call)

NBIX - Neurocrine Biosciences (Covered Call)

PRTA - Prothena Corp (Covered Call)

ARWR - Arrowhead Research (Short Put)

EXAS - Exact Sciences (Short Put)

UBNT - Ubiquiti Networks (Short Put)

ARWR - Arrowhead Research (Covered Call)

EXAS - Exact Sciences (Covered Call)

SPLK - Splunk (Aggressive Covered Call)

GPRO - GoPro (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.