Strong short squeeze on Friday and weak consolidation on Monday. Will the next move be up?
The individual stock charts are not particularly bullish and most are downright bearish but there may be a bottom in here somewhere. The various geopolitical headlines have not been able to derail the market and the Q3 earnings cycle is just ahead.
While the majority of individual stock charts are bearish the big caps are holding the high ground. Since the big cap stocks report earnings first there is a possibility of an earnings surge that overpowers the weakness in the small caps.
The volatility has been eating our lunch. We need to get back to an upward trending market for our bullish short puts to have a chance. Selling put premium in a bearish market is a recipe for losses.
Lately it has not been that the individual stocks turned negative but the market volatility is bouncing them all over the board. We lost several positions in the opening implosion last Thursday.
I considered not adding plays today but I guarantee if I didn't the market would gain +200 points on Tuesday. The good thing is that you have the last word on whether you make the plays. You have the luxury of seeing how the market opens on Tuesday and then deciding if the plays make sense.
We are approaching the Q3 earnings cycle and we want to make sure we exit all the short term positions before the earnings dates. The 4 year high on the dollar could cause some earnings problems from about half of the S&P. That has not shown up yet in the Q3 guidance but we can expect Q4 guidance to be negative.
Send Jim an email
Long Term Positions
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.
FB - Oct-29th
ATK - Oct-30th
GPRO - Oct-30th
CLVS - Oct-30th
ISIS - Nov-3rd
SRPT - Nov-6th
MBLY - Nov-6th
INSY - Nov 12th
SPLK - Nov 20th
AMBA - Dec 6th
LOCO - UNK
TKMR - UNK
PRAN - UNK
ASPS - Altisource Portfolio Solutions (Stopped 10/2)
ASPS imploded at the open last Thursday when the market hit its lows and this stopped us out of our position. Fortunately it was an October put that had already deflated significantly.
Closed Oct $85 put, entry $3.80, exit .75, +3.05 gain
TKMR - Tekmira Pharma (Close)
It was a rocket ride for Tekmira with all the Ebola headlines but that came to an end on Monday with a -$5.50 decline. I am recommending we close this position.
Close Oct $17.5 put, entry $1.70, currently .20, +1.50 gain.
ZU - Zulily (Stopped 10/02)
Zulily declined to $35.71 on Thursday's market plunge to stop us out at $35.95. Nothing changed in the stock outlook. We were just a victim of market volatility.
Closed Nov $35 put, entry $2.05, exit $3.40, -1.35 loss.
ARWR - Arrowhead Research (Stopped 10/02)
Arrowhead declined below our stop at $13.85 on Thursday to knock us out of the position.
Closed ARWR shares, entry $17.00, exit $13.85, -3.15 loss
Closed Oct $17 call, entry $2.15, exit .40, +1.75 gain
Net loss -1.40.
GPRO - GoPro (Close)
The October $50 put position has declined to 10 cents and there is no reason to keep it open. The -$12 dip on Thursday was a stark reminder on what can happen to these momentum stocks.
Close the October position and leave the November position open. With the stock at $93 and our November put at $60 I think we are home free on that position.
Close Oct $50 put, entry $2.10, currently .10, +2.00 gain.
EMES - Emerge Energy Services (Stopped 10/02)
The support of the 100-day average failed on Thursday's market weakness and the sharp plunge in oil prices. This one was painful because EMES options rocketed higher on the -$15 opening drop to give us our biggest loss for the week.
Closed Nov $105 put, entry $5.00, exit $10.24, -5.24 loss.
New Short Put Recommendations
ATK - Alliant Techsystems
Defense stocks are normally safe havens during times of market stress. However, ATK has already declined from $140 to $122 so I don't know if that adage is really true. However, ATK is rebounding from support on its bid to build the replacement for the Russian rocket engines for less money in less time than Boeing, Lockheed and SpaceX. The bidding is expected to happen quickly and the award even quicker.
Earnings are Oct 30th. We will exit before earnings.
Sell short Nov $120 Put, currently $2.40, stop loss $122.25
LOCO - El Pollo Loco
Since going public in July EPL has traded in a narrow range but the key point it that it did not give back its IPO gains. Shares found support at $35 and they closed at a three-week high on Monday. EPL is getting a lot of headlines thanks to its rapid expansion program and healthy menu.
Earnings are unknown.
Sell short Nov $34 Put, currently $2.95, no stop
SPLK - Splunk
Morgan Stanley upgraded Splunk on Monday to overweight with a $66 price target. Analyst Keith Weiss said "Splunk benefits from strong secular tailwinds and significant market momentum." He cited the 40% year over year growth in sales capacity, Q2 billing acceleration and improving overall metrics.
Stifel Nicolaus initiated coverage with a buy rating.
Earnings are Nov 20th.
With SPLK at $60 we can sell the $52.50 put, under decent support.
Sell short Nov $52.50 Put, currently $1.75, no stop
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)
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)
ASPS - Altisource Portfolio Soln (Short Put)
TKMR - Tekmira Pharma (Short Put)
TKMR - Tekmira Pharma (Covered Call)
ARWR - Arrowhead Research (Covered Call)
AMBA - Ambarella (Short Put)
GPRO - GoPro (Aggressive Short Put)
MBLY - Mobileye (Aggressive 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.