The S&P closed within 3 points of a new high but the markets are still showing no trend. We have entered the sell in May season but nobody is selling and very few traders are buying. Monday had the lowest volume in the last two weeks.

I personally have a cautious bias for being long the market but the constant push higher by the S&P keeps me from turning bearish. Eventually we are going to see a correction but it could be next week or next month or several months from now.

The Dow continues to fail at closing over resistance at 18,100 but it has traded over that level six times since late April. The range on the Dow continues to shrink but it just can't seem to break out. At some point investors will begin to wonder if they should be in the market if it tried for a month to clear that level and was unsuccessful.

We only lost one play last week and that is pretty good since the market slammed to some serious lows on Thursday. The biotech correction of -9% in just the first 4 days of the week was a major driver and that helped to knock us out of the Sarepta covered call.

Because of the low volume and lack of conviction in the market I am sticking with some additional call spreads but I did find a couple of short puts that should be relatively safe unless the market tanks.

Jim Brown

Send Jim an email

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

SRPT - Sarepta (Stopped)

The Sarepta covered call was going well for about a month and lightning struck last Thrusday as the biotech wreck crushed the Nasdaq on Thursday and caused us to be stopped out on SRPT. It was not stock specific but a sector correction.

Closed SRPT shares, entry $14.79, exit $12.85, -1.94 loss.
Closed May $15 call, entry $1.60, exit .65, +.95 gain.
Net loss 99 cents.

BHP - BHP Billiton (Update)

Don't forget the stop loss on the long BHP call. The call is currently up +$5.11 over our cost and I don't want to give that back. BHP is testing resistance and a breakthrough could give us another gain. I am planning on closing the play early next week if we are not stopped out this week.

Retain Long May $45 call, entry $1.79, currently $6.90, +5.11 gain
Maintain a stop loss at $50.35 and raise it if we get a brakeout to a new high.

BHI - Baker Hughes (Update)

The rise in oil prices is pushing Halliburton higher each day. As Halliburton stock rises the gain in our BHI shares rises. The takeout is for 1.12 Halliburton shares plus $19 cash. Today that is worth $74.10 with BHI at $69.13. I added a line to the portfolio graphic to account for the unrealized but implied gain in the transaction.

New Recommendations

HAL - Halliburton (Short Put)

Halliburton shares are rising steadily. That is thanks to rising oil prices plus the street likes the combination of HAL/BHI. The potential for crude prices to continue rising is very strong. The summer driving season is almost upon us with the kickoff on Memorial Day. Refiners will be shifting into high gear and crude inventories will decline. Once that starts happening we should see crude prices rise to a new level, probably in the $65 range.

I am not adding a stop loss initially because of the potential for volatility. The long term trend for oil is higher and that will be our stop.

Sell short June $48 put, currently $1.62, no stop loss

GBX - Greenbrier (Short Put)

Greenbrier shares plunged on no news in mid-April and whoever sold is really sorry now. Greenbrier is a rail car manufacturer. The government announced a new set of rules on tanker cars last Friday and all existing old model tankers have to be phased out within 3 years. Newer model cars have to be upgraded to the new standards within 5 years. All new cars have to meet the new standards upon delivery. Greenbrier already makes a tanker car that exceeds the new government standards so they are going to be running huge backlogs for the next five years. There are more than 100,000 tanker cars in operation today and only a very few meet the new standards.

I am recommending the $55 put but I think the $60 put would be just about as safe and the premium is $2.80.

Sell short June $55 put, currently $1.30, Stop loss $58.85

NOW - ServiceNow (Bear call spread)

ServiceNow reported earnings on the 17th and issued guidance that was "confusing" and "underwhelming" according to various analysts. The Q4 quarter was robust but the Q! quarter was lackluster. Many deals did not close and while they will eventually close in later quarters they weighed on the guidance. The company also complained about a stronger than expected hit from the strong dollar and said it would continue throughout 2015. Shares rebounded after a huge earnings drop but are now fading again as analysts lower their price targets. Support at $73.50 appears to be in danger.

Sell short June $80 call, currently $1.05, stop loss $77.25
Buy long June $85 call, currently .45, no stop.
Net credit 60 cents.

PRLB - Proto Labs (Bear call spread)

Proto Labs is a 3D printing company and the sector has been under pressure lately. 3D Systems (DDD) reported earnings last week and shares declined more than -20%. Proto Labs reported earnings that met estimates but guidance was weaker than expected. Piper Jaffray, Canaccord Genuity, Craig Hallum and Needham all downgraded the stock from buy to hold.

Sell short June $75 call, currently $1.20, stop loss $73.65
Buy long June $80 call, currently .55, no stop.
Net credit 65 cents.

Other Spreads to Consider (Bear call spread)

I am not recommending they did bubble to the top in my research. If you are looking for more trades, start here.

Symbol Credit Strikes

X - .34 - 26.00/28.00
LEN - .59 - 49.00/52.50
AAL - .53 - 52.50/55.00
LNG - .36 - 82.50/85.00
TWTR - .37 - 41.00/43.00

New Covered Call Recommendations


New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

BHI - Baker Hughes (Covered Call)

KORS - Michael Kors (Bear call Spread)

SRPT - Sarepta (Covered Call)

APOL - Apollo Education Group (Bear call Spread)

BHP - BHP Billiton (Bear call Spread)

LGF - Lions Gate Ent (Bear call Spread)

BBY - Best Buy (Bear call Spread)

BIG - Big Lots (Bear call Spread)

WMT - Walmart (Bear call Spread)

LOW - Lowes Co (Bear call Spread)

LEN - Lennar (Bear call Spread)

RCL - Royal Caribbean (Bear call Spread)

LOW - Lowes Co -reentry (Bear call Spread)

LGF - Lions Gate Ent - reentry (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.