The market can't decide which direction it wants to go and the volatility index is heading back to 12. This is a wait and see market and everybody but the shorts are waiting patiently on the sideline.

Monday's rally was just one more short squeeze with the futures up +10 points ahead of the open. Quite a few traders were positioned for Greece to self-destruct when the ECB cut their banks off on Monday from further emergency assistance. Greece magically made a proposal appear and the cliff dive was postponed for another week. Shorts were squeezed again and the markets gapped higher.

It should be noted that the S&P only closed ONE point higher than Thursday's close and the Dow only closed FOUR points higher. All that was accomplished was erasing the loss from Friday's decline. That drop on Friday was traders positioning themselves for a bigger drop if Greece really did fall off the cliff.

The EU Finance Ministers now have a limited proposal to consider and Greek banks will live for another week. The ECB was prepared to cut them off Monday afternoon if there was no progress in the talks. The ECB had loaned them 87.5 billion euros to keep the doors open and rumors were making the rounds Monday afternoon that the ceiling had been raised to 100 billion. With more than 1 billion leaving Greek banks every day that should give them the rest of the week and of course the ECB can cut them off at any time.

The next hurdle will be the EU Finance ministers meeting on Thursday. If they deem the proposal insufficient, which they probably will, they will counter propose to Greece and the entire problem moves into the weekend.

The real deadline is June 30th when the existing 7 billion in bailout funds held in escrow for Greece expires and the 1.5 billion payment due to the IMF goes into default. Making a proposal over the weekend just bought Greece a few more days but the clock is still ticking.

The problem with the Nasdaq and Russell breaking out to new highs is the complete collapse of option premiums. Nobody seems to be worried about a market drop but they are also not confident we are going to rally higher. With the VIX near 12 and four weeks left in July the premiums were very small. I did find some decent covered calls on stocks making a strong move but that was it. The broader market has flat lined with stocks rebounding on the short squeezes but then giving back the gains the next day. With no material direction in the broader market it is very hard to find plays worth the risk. There are plays but I hate to risk $2-$3 to make 50 cents.

Once the market finds a direction, the choices should increase.

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

GPRO - GoPro (Stopped)

GoPro shares rolled over hard today on the drop in chip supplier Ambarella. AMBA shares fell -$25 on a short call by noted short seller Citron. Since Ambarella is the primary supplier to GoPro it apparently rubbed off on the GoPro shares. We were stopped out at $54.85 and just over the low for the day.

Closed July $47 put, entry .92, exit 1.45., -.53 loss.

Z - Zillow (Stopped)

Zillow shares rallied on Friday on an analyst upgrade and the sale of Active Rain to the Ben Kinney Companies. Active Rain is a social networking, blogging, and training platform for the real estate industry. No price was given. Analysts felt the sale of non-core assets was positive. We were stopped out at $90.15. I am recommending we close the long $105 call while it still has value. I seriously doubt it will finish in the money over the next four weeks.

Closed July $95 call, entry $1.76, exit $1.45, +.32 gain.
Close existing July $105 call, entry .36, currently .15, -.21 loss.

Expired/Called Positions

The June positions in the portfolio graphic shaded in blue either expired or were called away at expiration. The SRPT and RDUS covered calls worked out really well.

None of our leftover calls from broken spreads finished near the money and all expired worthless.

New Recommendations


New Covered Call Recommendations

RDUS - Radius Health

Radius will not decline. The stock has been on a rocket ride higher after the results of its bone density drug knocked the ball out of the park. The results were positively stellar. As proof of its relative strength Maxim Group cut it from buy to hold today and the stock rallied +$3. The CEO was on CNBC this afternoon and he had nothing but positive things to say about the drug results and the outlook. Granted the stock has spiked significantly over the last week but it will probably make a new high again on Tuesday.

Earnings August 12th.

Buy-write RDUS July $65 call, currently $63.05-$2.75, stop loss $58.45
Gain if called $4.70

INSY - Insys Therapeutics

Insys split 2:1 back on the 8th and has been moving steadily higher ever since with every day a new high. Earlier this month Insys submitted a new drug application (NDA) to the FDA for Dronabinol, an oral drug to treat AIDS-assiciated anorexia, and nausea and vomiting in cancer patients undergoing chemotherapy. Expectations are high for this drug.

Earnings August 11th.

Buy-write INSY July $42.50 call, currently $41.16-$1.85, stop loss $36.65
Gain if called $3.69

Unofficial Suggestions

Looking for More Plays?

I did not use these plays today but they will make a good starting place if you are looking for something else to trade.

Naked Put

Symbol Price Strike Premium

SRPT - $30.76 - $28.00 - .90

Covered Calls

Symbol Price Strike Premium Gain if called

AAL - $43.03 - July $44 - 1.03 - $2.00
THRX - $19.45 - July $20 - .65 - $1.20
CLDX - $26.73 - July $27 - 1.25 - $1.52
EXAS - $30.69 - July $31 - $1.25 - $1.56
CLDN - $2.32 - Aug $2.50 - .15 - .33

QURE - $33.25 - July $35 - $1.55 - $3.30
QURE announced strong results and guidance

New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

BHI - Baker Hughes (Covered Call)

NOW - ServiceNow (Bear call Spread)

PRLB - Proto Labs (Bear call Spread)

SRPT - Sarepta Therapeutics (Covered Call)

RDUS - Radius Health (Covered Call)

AAL - American Airlines (Bear Call Spread)

HLF - Herbalife (Short Put)

NSC - Norfolk Southern (Bear call Spread)

Z - Zillow (Bear call Spread)

GPRO - GoPro (Short Put)

SRPT - Sarepta (Covered Call)

FEYE - FireEye (Covered Call)

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.