The Nasdaq recovered from the prior week's losses to close at a five-month high.
The S&P is not far behind, but it has to close over 2,815 to really get the party started. Personally, I am surprised the market is doing so well given all the negative headlines in the market, but they say the market climbs a wall of worry.
Nearly two-decade lows in Chinese industrial production and the US markets rallied. Boeing gets taken to the woodshed for $30 billion in market cap and deliveries of their biggest seller halted and the market rallied. Nonfarm payrolls came in at 20,000 instead of 180,000 and the markets rallied.
The most surprising headline came on the China trade topic. The date for a potential meeting between Trump and Xi was pushed back into April "at the earliest" and the market did not crash. I felt sure that would be the kiss of death to have the meeting postponed, but anticipation held. How long it will hold is another story.
The key to the broader market is the S&P. The resistance at 2,815 is solid. The high today was EXACTLY 2815.00. If/When the S&P breaks above that level and closes above it the short covering and price chasing should begin. That is only 115 points from the closing high at 2,930.
The Nasdaq is leading the charge and closed at a five-month high on Wednesday. If the Nasdaq can post one more decent day and close above 7,650, we could be off to the races.
We were stopped out of all our positions for gains over the prior two weeks. I tried to add 6-7 positions and even had several additional positions written up, but I chickened out at the last minute. Even though it looks like we could be moving higher, it will be better to build the portfolio in steps rather than go all in on one day.
There are a lot of stocks with unsustainable gains and once the major indexes get to the old highs, we could see some serious profit taking on weak Q1 earnings. That is pretty optimistic, talking about returning to the prior highs, but when we get this close, they become like tractor beams pulling the indexes higher. Once there it could be like the dog chasing the car. Catching it could be dangerous.
Enter passively, exit aggressively!
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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.
Lines in blue were previously closed.
Current Position Changes
No Current Positions
UBNT - Ubiquiti Networks (May Short Put)
Major post earnings spike followed by a minor pullback last week with the decline in the Nasdaq. This put is way out of the money and we can put the stop loss just under the low for the week.
Earnings May 10th, must exit before earnings.
Sell short May $120 Put, currently $3.40, stop loss $134.65.
FB - Facebook (May Short Put)
Facebook shares are chopping around in the $170 range with solid support at $160. They are battling headlines about security and privacy and government intervention. I believe they have government stagnation in their favor. Lawmakers are too concerned about fighting each other than actually passing privacy laws.
Earnings May 1st, must exit before earnings.
Sell short May $150 Put, currently $2.04, stop loss $159.85.
SHOP - Shopify (May Short Put)
Shopify is on a roll. The prior week decline in a bad market barely dented the rise in the shares and they have sprinted $30 higher in the last five days. One analyst said the price could double.
Earnings May 14th, must exit before earnings.
Sell short May $180 Put, currently $5.50, stop loss $198.85.
MSFT - Microsoft (May Put Spread)
Microsoft is nearing one billion Windows 10 installations and it will not be long before they move to the next version. This is a money printing juggernaut. Shares are about to break out to a new high.
Earnings May 1st. Must exit before earnings.
Sell short May $105 Put, currently $1.13, stop loss $111.85
Buy long May $95 Put, currently .39, no stop loss.
Net credit 74 cents.
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.
Update 3/5: Adobe declined $12 on Monday to knock us out of the position with a decent gain. There was no specific news, but shares cratered with the market ahead of the SalesForce.com earnings.
Closed Mar $240 Short put, entry $3.56, exit $2.15, +$1.41 gain.
ADSK - Autodesk (Short Put)
Update 3/5: Autodesk snuck up on me. I missed exiting before the earnings on the 28th. According to the newsletter instructions we should always exit the morning before earnings. That exit would have been at $1.00. If you held over and waited for the stop loss to be hit on Friday, the exit would have been 15 cents. I am taking the worst exit to confirm with the newsletter policies.
Closed 3/1 Mar $135 short put, entry $2.27, exit $1.00, +$1.27 gain.
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.
Update 3/7: Shares fell $7 in a weak market as the outlook for China's economy turns even more negative. Shares fell 4% to stop us out.
Closed Apr $165 short put, entry $2.00, exit $1.46, +.54 gain.
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.
Update 3/5: We closed the put spread on March 1st when the premium had evaporated and the Russell momentum slowed.
Closed Mar $140 Short put, entry $1.08, exit .06, +$1.02 gain.
Closed Mar $134 Long put, entry .51, exit .03, -.48 loss.
Net gain 53 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.
Update 3/5: We closed the position on February 20th for a nice gain. Now that shares are weakening we may be able to open a new position in the near future.
Closed Mar $280 Short Put, entry $2.89, exit .25, +$2.64 gain.
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.
Update 3/7: Four days of market losses and two days of heavy losses on the Nasdaq pushed the chip sector lower and stopped us out of Nvidia.
Closed Apr $135 short put, entry $3.19, exit $2.01, +.18 gain.
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.
Update 3/5: We closed the position on February 20th for a nice gain. Like Netflix, now that shares are weakening we may be able to open a new position in the near future.
Closed Mar $190 Short put, entry $2.60, exit .04, +$2.56 gain.
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.
Update 3/5: Splunk dipped on Feb 21st to stop us out at $131.85. We had a good position in progress but would have been hit anyway five days later.
Closed Mar $115 Short put, entry $2.24, exit $1.72, +.52 gain.
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.
Update 3/5: Constellation issued some weak guidance on the 20th and shares collapsed $12 at 3:PM in the afternoon to stop us out.
Closed Apr $160 Short put, entry $2.40, exit $2.34, +0.06 gain.
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.