So far, the S&P 500 companies are beating earnings expectations by a wide margin. That is not what analysts had expected. There are still a few random disasters but overall earnings are positive.

IBM may spoil the party for Tuesday after they beat on earnings, missed on revenue and guided lower after the bell on Monday. Shares were down about $7.50 or approximately -58 Dow points. However, even with that anchor the Dow futures are only down about -26 points at 9PM.

About 71% of the S&P companies that have reported have beaten on earnings and 50% on revenue. The average beat is about 6.6% and that is well over the recent average of 4.4%. Apparently earnings expectations were far too low. At the beginning of the cycle earnings were estimated to decline -5.1%. Today that has risen to about -4.3% for the full quarter.

This relative outperformance is allowing the markets to creep higher. Today's gains were minimal ahead of the IBM report and there are still nine more Dow stocks to report over the next three days. Assuming those reports are not as bad as IBM's we could see the indexes continue to climb.

There are no major economic reports until Thursday so all attention will be focused on earnings all the time.

Crude prices declined again and should continue to decline and that will be a drag on the market. The energy ETF XLE declined -2% today but the Oil Exploration ETF fell -4%. The pressure came from falling prices for Brent oil overseas.

I would like to see the markets continue to trend higher because it will give us some decent opportunities to add some more naked puts. The volatility is just high enough to keep the premiums inflated but not severe enough to cause a lot of fluctuation in the stock prices.

I did not recap individually the left over options that expired. They are the bottom half of the second portfolio graphic.

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

ARWR - Arrowhead Research (Close)

We have a covered call on Arrowhead that we started in late September when the stock was $7.61. That was almost the high point and it declined $2 over the next week. For the last three weeks, it has moved sideways and the call expired on Friday. I would normally write a new call on the stock but the flat line performance has removed all the premium from the next month calls. Also, Arrowhead has earnings on November 3rd and given the high volatility in biotechs recently I am worried about holding over that event. I am recommending we close the remaining stock position.

Expired Oct $7 call, entry $1.20, expired, +$1.20 gain
Close ARWR shares, entry $7.61, currently $5.25, -2.36 loss
Net loss $1.16.

LEN - Lennar (Stopped)

Lennar shares crashed on the 14th on no negative news. Morgan Stanley had just upgraded Lennar and Toll Brothers but sellers appeared anyway. We were stopped out of the position at $48.65 and about 20 cents over the low for the week. I looked at reentering this position today but the puts have declined to almost nothing and it is not worth the risk.

Closed Nov $45 put, entry .74, exit .67, +.07 gain

DY - Dycom Industries (Closed/Reenter)

Dycom collapsed for no reason on Tuesday and stopped us out at $73.55. The low for the week was $73.05. After three days of rebounds I am recommending we reenter the put position. Dycom is only a couple dollars from a new high and a positive market could propel it to that level.

Sell short Nov $70 put, currently 95 cents. Stop loss $73.75
Closed Nov $70 Short put, entry $1.32, exit $1.80, -.48 loss.

New Recommendations

QIHU - Qihoo 360 Technology (Naked Put)

Qihoo has broken out of a slump and has rebounded from the September low at $41.64. Shares have resistance at $65, which is well above today's close at $56.49. The acquisition binge by Alibaba and better than expected economic numbers from China are lifting all the Chinese stocks.

Earnings Dec 1st.

Sell short Nov $50 put, currently $1.00, stop loss $52.85

NFLX - Netflix (Naked Put)

Netflix appears to have found support at $96 and rebounded +$2.70 today in a relatively flat market. The post earnings sell off was way overdone and I believe most of the selling is over. Bargain hunters are starting to appear. Earnings 1/13/16

Sell short Nov $90 put, currently $1.65, stop loss $96.25

New Covered Call Recommendations

DAL - Delta Airlines (Covered Call)

Delta closed at a ten-month high today and is close to a new high. Falling oil prices, a glut of used wide body jets available for purchase and rising traffic patterns is pushing Delta higher. This call is $1.27 in the money so we have decent insurance against an unexpected decline.

Earnings Jan 13th.

Sell Nov $49 call, currently $2.37, stop loss $47.85

New Aggressive Recommendations


New Long Term Recommendations


Existing Play Recommendations

Links to original play recommendation

BHI - Baker Hughes (Covered Call)

EOG - EOG Resources (Bear call Spread)

TIF - Tiffany (Bear call Spread)

OXY - Occidental Petroleum (Bear call Spread)

QCOM - Qualcomm (Bear call Spread)

ARWR - Arrowhead Research (Covered Call)

BHP - BHP Billiton (Naked Put)

LEN - Lennar (Naked Put)

RH - Restoration Hardware (Naked Put)

DRI - Darden Restaurants (Bear call Spread)

DY - Dycom Industries (Naked Put)

QUNR - Qunar Cayman (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.