We missed a great opportunity for a big sell off on Monday and futures are flat on Monday night. The earnings have been just good enough to keep traders interested and the buy the dip crowd is getting restless. Is it possible the tide has turned and January will go out with a bang?
While that is just conjecture we have gone several weeks without any material gains. Last week was positive for the first time in 2015 but only marginally so for the Dow. The Nasdaq big caps added more than 3% for the week but they have a serious pothole in the rally road for Tuesday. Apple will announce earnings after the close and we know from experience there is normally a significant bout of volatility after they report. If they do post strong earnings as expected it could light a fire under the Nasdaq 100 and push it over the downtrend resistance. Conversely if Apple disappoints it could kill any bullish enthusiasm still in the market and retest the lows.
Microsoft reported earnings after the close on Monday and declined -$2 in afterhours trading. However, the Nasdaq futures are down only $2 suggesting Microsoft will not have a material impact on the market on Tuesday.
As usual for this week in the earnings cycle it was difficult to find good plays that did not have earnings in the next couple weeks. I am hopeful the market will finish January with a gain because that would set us up for some great opportunities post earnings in February and March.
Send Jim an email
Current Position Changes
Here are the earnings dates for our current positions for those with expiration dates after earnings. 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.
BHI - Jan 20th, no exit
LNG - Feb 20th, exit 19th
XOP - N/A
TFM - Mar 5th
SFM - Feb 26th
INSY - Mar 4th
INFY - Apr 4th
FEYE - Feb 11th
FIVE - Mar 25th
NPSP - Feb 18th, no exit
GWPH - Feb 5th
GOGO - Mar 12th
SODA - Feb 25th
FUEL - Feb 19th, exit 18th.
GILD - Gilead Sciences (Close)
The premium on the Feb $85 put has evaporated to only 14 cents and there is no reason to leave the position open with earnings the first week of February.
Buy to close Feb $85 Put, entry $3.00, currently .14, +2.86 gain.
VIX - Volatility Index (Closed)
I recommended we close the VIX position last Tuesday before expiration. The market was still behaving badly and out time was running out. Of course the VIX declined from 23 to 15 over the last week.
Closed Short Jan $13 call, entry $5.80, exit 6.90, -1.10 loss.
Closed Long Jan $23 call, entry $1.85, exit .17, -1.68 loss.
Net loss $2.78
CGNX - Cognex (Close)
The short Feb $35 call was stopped out on the 21st as the shares rebounded. I am recommending we close the long $40 call while it is still profitable.
Closed Short Feb $35 call, entry $3.64, exit $4.00, -.36 loss
Close Long Feb $40 call, entry $1.00, currently $1.30, +.30 gain
Net loss 6 cents.
GOGO - Gogo Inc (stopped)
GOGO has also rebounded sharply from its $13.26 low to close at $15.25 today. This stopped us out of the short Feb $12 call but we are still long the Feb $15 call.
Closed short Feb $12 call, entry $2.12, exit $3.20, -1.08 loss.
Retain long Feb $15 call, entry .60, currently 1.00, +.40 gain
SODA - Sodastream (Stopped)
SODA rebounded from a historic low at $17.81 to stop us out at 18.65 on the short call. However, the long $19 call is now profitable and we will retain it.
Closed Feb $15 call, entry $2.69, exit $4.40, -1.71 loss
Retain long Feb $19 call, entry $0.60, currently $1.45, +.84 gain.
XOP - S&P Exploration & Production ETF (Short Put)
The XOP is a portfolio of 80 somewhat equal weighted energy stocks involved in exploration and production of oil and gas. With WTI prices trying to find a bottom in the $45 range many analysts are recommending establishing positions in the energy ETFs. They are far more cautious about individual energy stocks because of the unknown surprises when they report earnings in February. With the ETF we are insulated to a point from individual earnings events. We get the good and the bad and they average out, hopefully to the upside.
Sell short March $44 put, currently $1.96, stop loss $41.45
TFM - Fresh Market Inc (Short Put)
On January 12th Fresh Market unexpectedly announced a leadership change and replaced the long time CEO. No reason was given for the unexpected change. They also preannounced their Q4 earnings in line with expectations. Shares declined from $41 to $35 on the news. After a week of sideways movement shares are starting to rise again. I think the surprise is over and shares will regain the $41 level before earnings.
Earnings Mar 5th.
Sell short Feb $40 put, currently $1.60, stop loss $36.65
SFM - Sprouts Farmers Market (Put Spread)
Sprouts rang the opening bell on the NYSE on Jan 7th and then announced they were opening 32 new stores in the Houston area on the 21st. The combination of these high profile events has catapulted SFM into overdrive. Look out Whole Foods, here they come.
Earnings Feb 26th.
Sell short Feb $37.50 put, currently $1.25, no stop.
Buy long Feb $32.50 put, currently .25, no stop.
Net credit $1.00
INFY - Infosys (Put Spread)
On January 9th INFY reported strong earnings and gapped up +$4 and neer looked back. The stock closed at a new high on Thursday and is holding those gains. The December weakness has been erased.
Sell short Feb $37.50 put, currently $1.90, no stop.
Buy long Feb $35.00 put, currently .60, no stop.
Net credit $1.30.
Other possible plays
I am not going to write these up individually but they made my top ten list. If you are looking for additional positions I would consider these. They will not be followed in the newsletter.
VA - Virgin Atlantic - no earnings date.
Feb $35/$40 bear call spread $1.25/$3.20
APOL - Apollo Group - earnings 3/31
Feb $26/$29 put spread $.54/$2.55
Feb $25/$28 put spread $.28/$1.68
SRPT - Sarepta - earnings Feb 26th.
Feb $12.50 put, currently $.95
CUDA - Baracuda Networks - earnings April 2nd.
March $35 Put, currently $2.15.
GOGO - Gogo Inc - Earnings March 12th.
Speculative volatility trade.
Buy Feb $14 put, currently .45
Buy Feb $16 call, currently .45
One should finish in the money.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
VIX - Volatlity Index (Bearish call spread)
OVX - Oil Volatlity Index (Bearish call spread)
GILD - Gilead Sciences (Short Put)
SRPT - Sarepta Therapeutics (Covered Call)
NPSP - NPS Pharma (Covered Call)
GWPH - GW Pharma (Short Put)
CGNX - Cognex (Call Spread)
FIVE - Five Below (Call Spread)
LNG - Cheniere Energy (Short Put)
GOGO - Gogo Inc (Call Spread)
SODA - Sodastream (Call Spread)
FUEL - Rocket Fuel (Call Spread)
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.