The market surged on no particular news on Monday other than the influx of month end retirement contributions and traders placing bets on Nasdaq 5000.

The news was lackluster with all the economic reports for the day missing estimates and coming in weaker than expected. In theory you would have expected the market to be down but the excitement over Nasdaq 5000 seemed to keep everyone occupied. The negative economics and a few small cap earnings misses were completely ignored.

However, over the last week there were numerous dips in a lot of stocks. It surprises me that the markets are breaking out to new highs with the minefield of small cap earnings misses. The key there is that small caps don't matter to the major indexes. It is kind of like a tree falling in the forest with nobody around. There was noise but nobody heard it because they were focused on AAPL, GOOG, NXPI, AMZN, NFLX and ISRG and their contribution to Nasdaq 5000.

Now investors should be worried about some light profit taking. While I think the rally will continue higher there may be some short term hiccups as some traders sell the news. However, when the bulls are running you either follow the trend or you get trampled.

Unfortunately in a bull market with the VIX at 13 the option premiums have deflated. While that is good for our existing portfolio it makes it tough to sell into new positions. I had to go out to April for any decent returns. With only 18 days left in the March cycle there was nothing left to sell unless you want to take on a lot of risk. About the only stocks with March premium were stocks like BABA and GPRO and both have more risk than we should accept today.

Don't initiate new plays unless the market is positive at the open. Selling premium is a bullish strategy.

Jim Brown

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Current Portfolio

The fourth column in the portfolio graphic is the earnings date. We will always exit a position before that date unless specifically mentioned otherwise in the play description. For the plays where we will not exit I added the No-X designation in the portfolio.

Current positions

Covered Calls

Current Position Changes

MU - Micron (Closed Long Call)

I recommended we close the long call on Micron last Monday and of course MU gapped down on Tuesday and erased all of our gains.

Closed short Mar $26 call, entry $3.64, exit $3.85, -.21 loss.
Closed long Mar $30 call, entry .95, exit .86, -.09 loss.

XOP - Oil Exploration ETF (close)

The short put on the XOP has declined to 35 cents and oil prices are struggling just above $49. Rather than wait for a disaster to happen I am recommending we take profits and close the position.

Buy to close March $44 put, entry $2.18, currently .35, +1.83 gain.

FCX - Freeport McMoran (Close short put)

We have a March $19 put on FCX that has declined to only 22 cents and I am recommending we close it and avoid the potential risk of a decline.

Buy to close March $19 put, entry $1.50, currently .22, +1.28 gain.
Retain March $16 put, entry .40, currently .04, -.36 loss
Net gain $.92

ATI - Allegheny Tech (Close position)

The short put on ATI has declined to 10 cents and there is no reason to leave it open and maintain the risk. Close the entire position.

Buy to close March $30 put, entry $1.90, currently .15, +1.75 gain.
Close March $25 put, entry .40, currently .10, -.30 loss.
Net gain $1.45.

INTC - Intel (Stopped)

The short put on Intel was stopped when the stock dipped to $33.35 today. The long put is still open.

Closed Short Mar $36 put, entry $1.88, exit $2.57, -.69 loss.
Maintain long March $33 put, entry .40, currently .26, -.14 loss

TDC - Teredata Corp (Stopped/Close)

The short put on TDC was stopped out on Wednesday when the stock declined to $43.85. The long put is still open. I am recommending we close the long put.

Closed Mar $45 put, entry $2.91, exit $1.85, +1.06 gain.
Close Mar $40 put, entry .57, currently .15, -.42 loss.
Net gain 64 cents.

RKT - Rock-Tenn (Stopped)

The short put on RKT was stopped out when the stock declined to $68.75 on Friday. The long put is still open and now in the money.

Closed Mar $75 put, entry $4.14, exit $6.30, -2.16 loss.
Maintain long Mar $70 put, entry $1.34, currently $2.15, +.81 gain.

New Recommendations

RAIL - FreightCar America (Put Spread)

After two months in the dumps on worries the railcar business would slow down as a result of the oil price drop and capex cuts the company posted better than expected earnings and shares are pulling out of their slump. Order backlogs are high and old cars still need to be replaced.

Earnings May 19th.

Sell short April $35 put, currently $3.40, stop loss $29.65
Buy long April $30 put, currently $1.00, no stop.

SPWR - SunPower Corp (Short Put)

Sunpower announced a deal last week with First Solar to spinoff some existing solar facilities supplying power to utility companies into a high yield venture. Both stocks soared and this spinoff would give them a vehicle for placing future completed facilities and not be forced to sell them individually to investors as in the past. This is a win-win for FSLR/SPWR shareholders who will receive the units in a distribution.

Sell short April $35 put, currently $2.80, stop loss $31.25

TRN - Trinity Industries (Short Put)

Trinity is another railcar manufacturer and they just reported record earnings for 2014 and beat estimates for Q4 on both earnings and revenue. Backlogs are still growing and apparently the reported death of this industry was in error.

Earnings May 20th.

Sell short April $35 put, currently $2.05, stop loss $32.90.

New Covered Call Recommendations

CSIQ - Canadian Solar

CSIQ has been on a huge acquisition spree and everything they touch seems to turn to gold. We already have a covered call position on CSIQ for March but I am adding another one for April. They are one of the few stocks that actually have a premium in the options.

Buy-write CSIQ April $31 calls, currently $30.42-$2.40, stop loss $27.45
Gain if called $2.98.

UBNT - Ubiquiti Networks

Ubiquiti beat on earnings and the stock has finally recovered from three months of consolidation. It appears to be headed back to resistance at $35.

Earnings May 7th.

Buy-write UBNT April $34 calls, currently $32.73-$1.15, stop loss $30.25
Gain if called $2.42.

New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

BHI - Baker Hughes (Covered Call)

OVX - Oil Volatlity Index (Bearish call spread)

OVX - Oil Volatlity Index (Bearish call spread - part 2)

XOP - Exploration ETF (Short Put)

FCX - Freeport McMoran (Put Spread)

ATI - Allegheny Technologies (Put Spread)

CSIQ - Canadian Solar (Covered Call)

DHI - DR Horton (Put Spread)

TDC - Teradata Corp (Put Spread)

INFA - Informatica (Put Spread)

INTC - Intel (Put spread)

CREE - Cree Inc (Put spread)

ACAT - Arctic Cat (Put spread)

MSFT - Microsoft (Put spread)

RKT - Rock-Tenn (Put spread)

CSCO - Cisco Systems (Put spread)

VA - Virgin America (Put spread)

CDW - CDW Corp (Put spread)

FIVE - Five Below (Bear call spread)

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.