While the market may be setting new highs on earnings reports this is a really tough week for selling premium. More than 450 companies report earnings this week and more than 2,000 more over the next three weeks.
Finding a company with a trending chart, decent options premiums and not reporting earnings before the August 21st option expiration is practically impossible. I looked at more than 750 charts and earnings schedules today and it was very frustrating. The market rally pushed the VIX down to 12 and squeezed all the volatility out of the premiums on those companies that were not reporting.
After the bell today IBM missed on revenue for the 13th consecutive quarter and immediately declined -$9. That equates to about -70 Dow points for tomorrow's open.
So far the earnings parade has been positive with more than 72% of companies beating on estimates. However, despite the good news and the new high on the Nasdaq there were more than 2:1 decliners over advancers today. I wrote in the Ultimate Investor newsletter today that we were walking on the edge of a cliff. With the FOMC meeting next week we could see profit taking occur at anytime.
Holding the Nasdaq up is the expectations for Apple to post strong earnings after the close on Tuesday. If Apple whiffs earnings in any way it could be real trouble for the market. I would love to see a blowout that creates another tech short squeeze but the majority of the shorts ran for cover last Friday when Google crushed the life out of those short GOOGL.
Our remaining July positions all expired gracefully with a really nice gain on the covered calls. Unfortunately I could not find any replacements today. All the good charts had earnings over the next couple of weeks.
The energy sector is the gift that keeps on giving with solid declines on any chart that is even remotely connected with the energy sector. I added plays on GLNG and SLB today.
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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 Position Changes
NSC - Norfolk Southern (Expired)
The Norfolk call spread expired profitable.
Short July $95 call, entry .75, expired, +.75 gain
Long July $100 call, entry .10, expired, -.10 loss
Net gain 65 cents.
RDUS - Radius Health (Called)
Radius Health was never in any doubt of being called away. We entered the position at $64 and it closed on Friday at $81.
Closed RDUS shares, entry $63.94, called $65.00, +1.06 gain.
Closed July $65 call, entry $2.90, called, +2.90 gain.
Net gain $3.96
INSY - Insys Therapeutics (Called)
Insys returned to its June highs over the last several weeks and could be a candidate for a new covered call on any pullback.
Closed INSY shares, entry $35.03, called $36.00, +.97 gain
Closed July $36 call, entry $2.15, called, +2.15 gain
Net gain $3.12
GLNG - Golar LNG Ltd (Bear Call Spread)
Golar is an LNG transportation company. They buy, sell and transport LNG all around the world. As of the end of April they operated 25 vessels including 19 tankers and 6 FRSUs. (Floating storage regasification units) These tale LNG from a tanker and convert it back into natural gas for buyers that don't have their own regasification units but need natural gas.
The problem is that a glut of LNG is appearing. While that may be good for the tanker model the cost to ship LNG may go down to make cargoes cheaper for the purchaser. Since Golar buys and sells LNG they could get squeezed. Shares of Golar are declining on the news and the general weakness in the energy market.
Earnings Aug 26th.
sell short August $45 call, currently $1.05, stop loss $44.45
Buy long August $50 call, currently .45, no stop loss.
Net credit 60 cents.
SLB - Schlumberger (Bear Call Spread)
Schlumberger reported earnings last week that beat the street on extreme cost cutting and layoffs but they also forecast another 35% cut in capex spending by exploration and production companies for the rest of 2015. With oil prices dipping under $50 intraday and likely to go lower SLB is fighting an uphill battle.
Sell short August $86 call, currently $1.09, stop loss $85.15
Buy long August $90 call, currently .30, no stop.
Net credit 79 cents.
New Covered Call Recommendations
New Aggressive Recommendations
New Long Term Recommendations
Existing Play Recommendations
Links to original play recommendation
BHI - Baker Hughes (Covered Call)
NSC - Norfolk Southern (Bear call Spread)
RDUS - Radius Health (Covered Call)
INSY - Insys Therapeutics (Covered Call)
XOP - Oil Exploration ETF (Bear call Spread)
JOY - Joy Global (Bear call Spread)
LULU - LuluLemon (Bear call Spread)
BOBE - Bob Evans Farms (Put Spread)
SPLK - Splunk (Put Spread)
ZOES - Zoes Kitchen (Covered Call)
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.