Despite positive news on the China trade talks, the indexes have been weak.
This is the typical late February post earnings depression and conflicting headline storm. It has been a rocky week, but Friday is shaping up to be positive. The S&P futures are up +12.50 on no particular reason. The key level to watch is 2,815 on the S&P and solid resistance from Oct/Nov. That would be a 30-point jump from Thursday's close. While that is not likely to happen on Friday, a good short squeeze could set us up for a continued gain on Monday.
I am not producing a full newsletter tonight. We took my oldest son to the ER on Monday morning and they admitted him instantly. He almost died. Five transfusions and four days later he was released this afternoon. It was a traumatic week. My mind is not in the market this evening for obvious reasons. I will produce a full newsletter this weekend. Thank you for your patience.
I did update the stops and stop losses in the portfolio.
Enter passively, exit aggressively!
Send Jim an email
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.
Lines in blue were previously closed.
Existing Option Writer Positions (Alpha by Symbol)
THESE ARE NOT CURRENT RECOMMENDATIONS. These are prior recommendations that are still active in the portfolio. Do NOT act on the plays described in this section. This is the archive of prior recommendations in the current portfolio.
ADBE - Adobe Systems (Mar Put Spread 2/10)
I play Adobe a lot because they normally have a positive trend and huge option premiums. Shares are right on the verge of a new four month high. I am recommending the $240 put but you could move to the $230 put for a little safer position.
Earnings March 14th.
Sell short Mar $240 Put, currently $3.70, stop loss $249.25.
BABA - Alibaba (Short Put 2/20)
Shares are trading right at post earnings resistance highs and could move higher at any time. The trade talks in Washington could have an impact if they conclude successfully. Shares spiked Tuesday after the company said it increased its stake in China International Capital Corp, the top domestic bank in Hong Kong, by 117 million shares. This makes their total stake worth $230.61 million and they are now the second largest shareholder. This suggests they have some longer-term plans for the bank.
Earnings May 1st.
Sell short Apr $155 put, currently $2.30, stop loss $163.25.
IWM - Russell 2000 ETF (Mar Put Spread 1/31)
The Russell just broke out over some decent resistance and appears to be starting a new leg higher. The tech rally has lit the fuse and the small caps will begin reporting next week. The Chinese trade deal appears to be progressing and the Fed is on hold for the time being. The "mostly" positive earnings have erased some of the fears about a recession. The market should move up from here, but we still have the slower earnings growth to deal with over the next several weeks. With the breakout, this could be a good spot to put on a low volatility spread.
Sell short Mar $140 Put, currently $1.05, stop loss $144.85.
Buy long Mar $134 Put, currently .55, no stop loss.
Net credit 50 cents.
NFLX - Netflix (Mar Short Put 1/31)
Netflix beat on earnings and posted strong guidance but it was not enough for some traders. Shares have declined from $360 to $340 but they are ticking slowly higher. All the bad news is priced in and with their new price increase the CEO said the cash burn would stop in 2020. By then they will have another 50 million or more subscribers at $10 a month and nearing a total of 200 million. That is $2 billion a month in basic revenue. Shares should move higher from here market permitting
Sell short March $280 Put, currently $2.66, stop loss $317.50.
NVDA - Nvidia (Short Put 2/20)
Nvidia lowered guidance in late January and shares fell from $160 to $131 overnight. They reported earnings on February 14th that was slightly better than their lowered guidance. Shares rallied back over $160. Analysts believe all the bad news is priced in and shares should rise from here. There may be some post earnings depression, but it will probably be bought by those investors that missed the drop to $131.
Earnings May 16th.
Sell short Apr $135 Put, currently $2.43, stop loss $143.65.
PANW - Palo Alto networks (Mar Short Put 1/31)
Shares are moving up nicely from the December low and the stock received three upgrades last week. UBS moved from neutral to buy and BMO Capital moved from market perform to outperform. Wedbush upgraded from neutral to outperform and raised the price target from $225 to $265. Analysts believe the continued flurry of cyber attacks will not decline and only get worse over time. The demand for Palo Alto products is only going to grow.
Earnings February 28th.
Sell short March $190 Put, currently $2.54, stop loss $203.85.
SPLK - Splunk (Mar Short Put 2/10)
Splunk is a rapidly growing cloud security company that uses AI and machine learnings to allow users to collect, index, search, explore, monitor, correlate, and analyze data regardless of format or source. Shares are making new highs after a rough Q4 .
Earnings February 28th.
Sell short March $115 Put, currently $2.25, stop loss $124.25.
STZ - Constellation Brands (Short Put 2/20)
We just concluded a position on Constellation and the stock still looks like it is headed higher. I have to reach out to an April position to get any premium, but we will close it long before expiration. Earnings are April 10th so we will be out well before then.
Earnings April 10th.
Sell short Apr $160 Put, currently $2.15, stop loss $170.85.
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.