The high-profile meeting at the G20 led to a mutual agreement to restart talks at least on the surface.
China won the G20 round of bilateral talks by getting a reprieve for Huawei and agreeing to buy only a small amount of US crops. Despite the low key result the markets rallied to new highs because of the lack of new tariffs. This was one more problem off the market check list. The wall of worry has one less brick.
In addition, the Fed is widely expected to cut rates by as much as 50 basis points at the July meeting. Whenever the Fed has cut rates by 50 points without the country being in recession, the market rallied strongly in the following months, every single time.
We need the Fed to cut to help us avoid entering a recession. We saw the most earnings warnings in June since 2014. Earnings growth for Q2 is now expected to be flat. The manufacturing indexes are nearing contraction territory. The yield on the ten-year is now 1.95% and the lowest level since November 2016. ADP payrolls for June rose only 102,000.
All the signs are pointing to an economic slowdown, but the market is at record highs. That is purely the result of fed guidance.
If the Fed meets on July 30th and cuts 50 basis points, will that already be priced into the market? If they only cut 25 basis points would that produce a sell off?
The Q2 earnings cycle begins in two weeks. If the market continues to rally into the earnings and the results disappoint, if could be a rocky road through August. That is the month where markets go to die.
I missed the mark this week by recommending patience in the Option Investor commentary. Despite the bobble on Mon/Tue and low volume on Wednesday, the S&P closed at 2,996 and right at the round number resistance at 3,000. There are many analysts with 3000-3100 price targets for year end. Hitting those targets now could prompt some selling in order to protect the 19-20% gains so far in 2019. I am still recommending caution about being overly long at this point. As we reach those critical target levels, bad things can happen.
The Nasdaq barely made a new high by only 6 points.
The small cap Russell 2000posted a decent gain but failed to reach the high from Monday. The small caps are losing the momentum generated by the reconstitution on Friday. They could be a major drag on the market if the Russell falls back below 1,566.
I would continue to be cautious about being overly long. The volume will likely be less than 4 billion shares on Friday, and we could see either extreme boredom or high volatility. Be careful. There is always another day to trade.
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.
Current Position Changes
SMH - Semiconductor ETF (July Put Spread)
We closed the short side of the spread at the open on the 27th.
Closed July $90 Short Put, entry $1.34, exit .07, +1.27 gain.
Retain July $85 long put, entry .59, currently .02, no stop loss.
AAPL - Apple Inc (July Put Spread)
We closed the short side at the open on the 27th.
Closed July $160 short put, entry $2.04, exit .11, +1.93 gain.
Retain July $150 long put, entry $1.00, no value.
FIVE - Five Below (July Put Spread)
We had a left over long put and it was stopped out on the market rebound.
Closed July $110 long put, entry .60, exit .91, +.31 gain.
Previously closed July $120 short put, entry $2.00, exit $2.60, -.60 loss.
Net loss 29 cents.
TWLO - Twilio Inc (July Put Spread)
We had a left over long put that was stopped out on the market rebound.
Closed July $120 long put, entry .81, exit .25, -.56 loss.
Previously closed July $130 put, entry $1.80, exit $3.23, -1.43 loss.
Net loss $1.99.
NVDA - Nvidia (July Put Spread)
I misquoted a put spread two weeks ago mixing strikes and prices. I recommended we close it and reopen correctly last week. The broken play was closed at the open on the 27th.
Closed July $130 short put, entry .38, exit .20, +.18 gain.
Closed July $120 long put, entry .28, exit .14, -.14 loss.
Net gain 4 cents. I wish all busted plays ended with even a small gain.
ADBE - Adobe Systems (August Put Spread)
Adobe has been on fire since the market bottom in June. Wednesday was a close at a new high. Business is booming and this is a favorite stock for fund managers because it is highly liquid.
Earnings Sept 17th.
Sell short August $285 put, currently $2.68, stop loss $297.85.
Buy long August $270 call, currently $1.23, no stop loss.
Net credit $1.45.
FB - Facebook (August Put Spread)
We already have a position in Facebook but the stock is breaking out to a new high and nothing prevents us from doubling up with a new position.
Earnings July 24th and we will exit in advance.
Sell short August $180 put, currently $2.63, stop loss $189.75.
Buy long August $170 put, currently $1.23, no stop loss.
Net credit $1.40.
PXD - Pioneer Natural Resources (August Put Spread)
Pioneer has been trading mostly sideways since January as crude prices rose and fell multiple times. There is decent support at $140 and it is only a matter of time before Iran causes more trouble and prices lift again. I think worst case is that PXD continues sideways. If oil rebounds to $60, PXD will retest $160. That gives us a wide range. OPEC just extended the production cuts for another year and Venezuela is going to shut down some heavy oil production and reduce output of some of their top heavy grades.
Earnings August 6th.
Sell short Aug $130 Put, currently $1.80, stop loss $139.85.
Buy long Aug $120 Put, currently .75, no stop loss.
Net credit $1.05.
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.
AAPL - Apple Inc (July Put Spread 5/30)
Apple has been trashed severely since the high at $215 on May 1st. The stock is severely oversold and has arrived at support at $175. They do have problems with the China tariffs and slowing sales in China, which produced 17% of their revenue last year.
Shares are down -17% in a month and have lost $125 billion in market cap. This is very oversold and analysts are starting to recommend it again at these depressed levels. With further support at $170 we should see buyers hold this level.
Sell short July $160 Put, currently $2.21, stop loss $169.
Buy long July $150 Put, currently $1.12, no stop loss.
Net credit $1.09.
AAPL - Apple Inc (August Short Put 6/26)
Apple ha sbeen fighting resistance at $200 for two weeks. Eventually it is going to break. Earnings are July 30th so we have plenty of time for the premium to decay as shares rally into earnings. We will exit before July 30th.
Sell short August $180 put, currently $2.26, stop loss $193.35.
Buy long August $170 Put, currently $1.16, no stop loss.
Net credit $1.10.
BABA - Alibaba (August Put Spread 6/26)
Alibaba spiked on Wednesday after Steve Mnuchin said the china trade deal was 95% complete. With the G20 meeting with Trump and Xi on Saturday, there could be plenty of upside if the meeting produces positive results. Conversely, if the meeting turns into a verbal fistfight, shares could decline sharply.
Earnings August 14th.
Sell short Aug $155 put, currently $2.90, stop loss $163.85.
Buy long Aug $145 put, currently $1.30, no stop loss.
Net credit $1.60.
CRM - Salesforce.com (May Put Spread 3/21)
Salesforce.com is another stock that suffered badly after earnings on March 4th. Shares fell from $165 to $150. Over the last two weeks they have completely erased that drop and closed at a new high on Thursday. I wanted to sell a put on it but the premium is not strong enough so I am going to recommend a spread.
Earnings June 3rd.
Sell short May $155 put, currently $2.19, stop loss $160.65.
Buy long May $145 put, currently .94, no stop loss.
Net credit $1.25.
Update 3/28: CRM was hammered after 50 women filed suit against the company saying they built customized apps for prostitution site Backpage.com that allowed pimps and johns to be matched up with them for illicit sex. I have no view on this since it would be a little more personal than suing Microsoft because backpage servers ran Windows software. Customized apps could me a lot of different things to different people. Regardless, shares fell nearly $20 to stop us out.
Closed May $155 short put, entry $2.34, exit $4.00, -1.76 loss.
Retain May $145 long put, entry 1.16, currently $2.51, +1.35 gain. No stop loss.
Update 4/24: Salesforce rebounded sharply after the prior week dip and stopped us out of the long put side of the spread.
Closed May $145 long put, entry $1.16, exit $2.06, +.90 gain.
Previously closed May $155 short put, entry $2.24, exit $4.00, -1.70 loss.
Net loss 80 cents.
Update 5/15: The market crash caused CRM to break below initial support the prior week to stop us otu of the short put. The rebound on Friday stopped us out of the remaining long put.
Closed June $130 long put, entry .91, exit .84, loss 7 cents.
Previously Closed June $145, short put, entry $1.94, exit $2.28, -.34 loss.
CRM - SalesForce.com (June Put Spread 4/24)
We were closed out of our last position in CRM but I am going to try it again. Option premiums are high and there is strong support around $155 on the last three drops. At this point all the bad news should be prices into the stock. Shares spiked last week on news they bought SalesForce.org, a related company and SalesForce Investments. Basically, the parent company is reducing its complexity of having a handful of related businesses and instead fold them into the parent. SalesForce.org sold CRM services to schools, hospitals and non profits.
Earnings June 3rd. We will close before earnings.
Sell short June $145 Put, currently $2.73, stop loss $155.25
Buy long June $130 Put, currently 87 cents, no stop loss.
Net credit $1.86.
Update 5/8: The market crash caused CRM to break below initial support to stop the short side of the put spread.
Closed June $145, short put, entry $1.94, exit $2.28, -.34 loss.
Retain June $130 long put, entry .91, currently .94, stop loss $158.25.
CRM - Salesforce.com (July Put Spread 6/5)
Salesforce reported record earnings on Tuesday with billings that rose 25% to $2.76 billion and blowing past estimates for $2.21 billion. They raised full year guidance from $2.54-$2.56 to $2.88-$2.90. That was well above street estimates.
Shares gapped nearly $7 and closed at the high for the day. I am proposing a put spread at the June lows because they are not likely to return there.
Sell short July $145 Put, currently $2.13, stop loss $148.25.
Buy long July $135 Put, currently $.97, no stop loss.
Net credit $1.16.
FB - Facebook (July Put Spread 5/29)
Despite all the market volatility and negative headlines Facebook shares have held above $180 since May 14th. Sellers have been exhausted and everyone is waiting for the fine, rumored to be $3-$5 billion. That is chump change for Facebook and the big number is already priced into the stock.
Earnings July 24th.
Sell short July $165 put, currently $2.09, stop loss $178.
Buy long July $155 put, currently .99, no stop loss.
Net credit $1.10.
Update 6/12: We closed the long put at the open on Thursday that was left over from the June put spread.
Closed July $165 long put, entry $1.02, exit $2.47, +$1.45 gain.
Previously closed: July $165 short put, entry $2.19, exit $2.90, -71 loss.
Net gain 74 cents.
FB - Facebook (July Short Put 6/5)
Facebook crashed under the news of a potential probe by regulators. It was not something new but it was confirmation of prior rumors. The news and the market knocked Facebook back to $162 where it was met with heavy buying. Shares rose on Tuesday and Wednesday. This should be decent support. The 200-day average is $161.33 and $161 is also strong horizontal support.
We are currently long this put from a prior transaction. I am recommending we close it and go short.
Earnings July 24th.
Sell short July $155 put, currently $2.50, stop loss $160.50.
FIVE - Five Below (June Put Spread 4/24)
FIVE is on a rocket ride to new highs. Analysts are falling all over themselves to upgrade it with higher price targets. We know this vertical ramp will not last forever, but it is not showing any signs of slowing. I am hoping that is what it will do. We will finally see a top and then a sideways consolidation phase while the market decides where it wants to go for the summer.
Earnings June 26th.
Sell short June $130 Put, currently $3.00, stop loss $138.85.
Buy long June $120 Put, currently $1.50, no stop loss.
Net credit $1,50.
Update 5/8: Shares rolled over in a weak market to stop us on the short put.
Closed Jun $130 short put, entry $3.11, exit $4.50, -1.39 loss.
Retain June $120 long put, entry $1.65, currently $2.20, stop loss $140.65.
Update 5/22: We closed the leftover long put at the open on Thursday.
Closed June $120 Long put, entry $1.65, exit $3.70, +2.05 gain.
Previously closed June $130 short put, entry $3.11, exit $4.50, -1.39 loss.
Net gain 66 cents.
FIVE - Five Below (July Short Put 6/12)
Five Below dipped all the way to $118 in the market crash last week before rebounding back to $131. The 100-day at $127.75 is now support and shares are moving up.
Earnings Sept 4th.
Sell short July $120 Put, currently $1.95, stop loss $125.85.
Buy long July $110 Put, currently .70, no stop loss.
Net credit $1.25.
Update 6/26: No specific news but Five Below shares fell from $132 to $118 over four days to stop us out at $125.85.
Closed July $120 short put, entry $2.00, exit $2.60, -.60 loss.
Retain July $110 long put, entry .60, currently $1.35, +.75 gain, stop loss $121.25.
FL - Footlocker (June Call Spread 5/1)
Shares are heading lower at a high rate of speed. Basketball is about over and the court shoe selling season goes with it. When the big name players are not on TV every week, the enthusiasm for high dollar shoes fades. Shares closed at a 3-month low on Wednesday.
Earnings May 24th. We will exit before earnings.
Sell short June $62.50 call, currently $1.45, stop loss $60.25.
Buy long June $70 call, currently .40, no stop loss.
Net credit $1.05.
Update 5/15: Foot Locker rallied on Adidas earnings to stop out the short call side of the spread. Retain the long call side just in case the market turns bullish again.
Closed June $62.50 call, entry $1.30, exit $2.30, -1.00 loss.
Retain June $70 call, entry .27, currently .35.
Update 6/26: Expired Jun $70 short call, entry .27, expired, -.27 loss.
Previously closed, Jun $62.50 short call, entry 1.30, exit 2.30, -1.00 loss.
Net loss -73 cents.
MSFT - Microsoft (July Short Put 6/5)
Microsoft crashed back to $119 in the tech wreck, but they are still growing and generating free cash flow that puts them in the top ten on that metric. With new products in the works, new partnerships and a fantastic CEO, the market would have to return to its lows for Microsoft to trade below $120 again.
Sell short July $115 Put, currently $1.20, stop loss $118.50.
NVDA - Nvidia (July Put Spread 6/19)
Nvidia shares spiked on Tuesday and rose again on Wednesday. Analysts are jumping on this wagor before it pulls out of the gate.
The consensus is currently to buy the dip and get the best chip maker in the sector at a bargain price. Analysts believe the selloff is overdone.
Earnings August 15th.
Sell short July $130 put, currently $2.10, stop loss $144.35.
Buy long July $120 put, currently .90, no stop loss.
NVDA - Nvidia (August Put Spread - 6/26)
Last week I recommended the July $130/$120 put. That was a typo. It should have been the $140/$130. I am recommending we close that position at the open on Thursday.
Shares closed at a five-week high on Wednesday after Mnuchin said the China deal was 90% done. They had been holding at $155 for the last week. We already have a broken July put spread from last week and I am replacing it with the August spread.
Earnings August 15th.
Sell short Aug $140 put, currently $3.15, stop loss $149.85
Buy long Aug $130 put, currently $1.60, no stop loss.
Net credit $1.55.
SMH - Semiconductor ETF (July Put Spread 5/29)
The Semiconductor Index rose 49% since the December low but was crushed by the events in China. The worries over tariff issues and slowing demand have erased 18% and pushed the SMH back down to $98 and support for Q4. Huawei is trying to negotiate a settlement that will allow them to do business with the rest of the world. At these levels acquisition rumors are starting to make the rounds again. Cypress Semi spiked 12% on Thursday on acquisition interest.
I could be wrong, but I think we are at a tradable bottom on the Semiconductor Index. I am recommending a put spread in anticipation of some oversold buying. Shares were up today in a bad market.
Sell short July $90 Put, currently $1.49, stop loss $94.85
Buy long July $85 Put, currently 80 cents, no stop loss.
Net credit 69 cents.
STZ - Constellation Brands (July Short Put 6/5)
Constellation sold off hard on the initial news over the Mexican tariffs. They are rebounding equally as hard and should not retest their lows again. This was a knee jerk reaction and not a fundamental decision.
Sell short July $170 Put, currently $2.50, stop loss $179.50.
Update 6/26: Constellation shares decline to stop out the short side after Canopy Growth disappointed on earnings. Constellation owns 50% of Canopy. We were stopped at $181.50.
Closed July $170 short put, entry $2.93, exit $2.65, +.27 gain.
THO - Thor Industries (June Call Spread 5/1)
Thor posted a big miss on earnings and the rise in gasoline prices are going to weaken Q2/Q3 as well. Shares closed at a three-week low post earnings and are falling sharply. There is no excitement in the stock in a environment with high fuel costs.
Earnings June 5th.
Sell short June $70 call, currently $1.70, stop loss $68.15.
Buy long June $80 call, currently 30 cents. No stop loss.
Net credit $1.40.
Update 5/29: We closed the short June $70 call at the open last Thursday. The long call remains open but worthless.
Closed Jun $70 short call, entry $1.77, exit .17, +$1.60 gain.
Retain Jun $80 long call, entry .30, currently .05, no stop loss.
Update 6/26: Expired Jun $80 long call, entry .30, expired, -.30 loss.
Previously closed: Jun $70 short call, entry $1.77, exit .17, +1.60 gain.
Net gain $1.30.
TWLO - Twilio Inc (July Short Put 6/19)
Twilio has based for two weeks at $142 and began to move up on Wednesday to close at a new high. Needham initiated coverage on Tuesday with a buy rating and $165 price target. The analyst said Twilio was the leader in the communications-platform-as-a-service space.
"By leveraging its early market position, a highly efficient developer-led sales model and growing array of differentiated, higher-level functions on its platform. TWLO has delivered exceptional organic growth. As well, the company's recent move up the stack into the application space with its Flex contact center adds another, meaningful growth driver to its business," Valera wrote.
Earnings July 30th.
Sell short July $130 Put, currently 2.10, stop loss $138.35.
Buy long July 120 put, currently .90. No stop loss.
Update 6/26: The blacklisting of five more Chinese companies hit Twilio hard and shares fell to stop us out.
Closed July $130 short put, entry $1.80, exit $3.23, -1.43 gain.
Retain long July $120 long put, entry .81, currently $1.70, +.89 gain, stop loss $140.15.
UBNT - Ubiquiti Networks (July Put Spread 6/12)
Ubiquiti took a dive in early May but has been moving steadily higher since June 1st. Shares rebounded from $120 and roughly the 200-day average.
Earnings August 9th.
Sell short July $120 Put, currently $1.80, stop loss $127.50.
Buy long July $110 put, currently 85 cents, no stop loss.
Net credit 95 cents.
Update 6/19 : No specific news. Shares fell sharply on Friday to stop us out of the short side.
Closed July $120 short put, entry $1.98, exit $3.20, -1.22 loss.
Retain July $110 long put, entry $1.00, currently 66 cents, stop loss $134.
Update 6/26: The prior week we were stopped out of the short put leaving us with a long put at $110. That put was stopped when UBNT rebounded on 6/20. Shares immediately rolled over but support held.
Closed July $110 long put, entry $1.00, exit .35, -.65 loss.
Previously closed: July $120 short put, entry $1.98, exit $3.20, -1.22 loss.
Net loss $1.87.
URI - United Rentals (June Put Spread 4/24)
United posted earnings of $3.31 that beat estimates for $3.03. Revenue of $2.1 billion was also a beat. The company said we are about to enter our "busy season with the strongest service offering in our history, given the strategic investments we have made in our business, including acquisitions, to best support our customers." Shares spiked $12 and are still moving higher a week later after breaking over resistance at $137.
Sell short June $130 Put, currently $2.50, stop loss $134.50.
Buy long June $120 Put, currently $1.15, no stop loss.
Net credit $1.35.
Update 5/8: Shares of URI rolled over in a weak market to fall back below prior resistance and stop us out of the short put.
Closed June $130 short put, entry $2.40, exit $4.23, -1.83 loss.
Retain June $120 long put, entry $1.60, currently $1.90, stop loss $136.05.
Update 5/22: We closed the leftover long put at the open on Thursday.
Closed June $120 Long put, entry $1.60, exit $2.17, +.57 gain.
Previously closed: June $130 short put, entry $2.40, exit $4.23, -1.83 loss.
Net loss $1.26.
WSM - Williams-Sonoma (June Call Spread 5/1)
The retailer closed at a two month low and appears headed to retest support at $50. Shares rose on an earnings beat but quickly rolled over and the stock and sector are moving lower.
Earnings June 16th.
Sell short June $60 Call, currently $1.10, stop loss $57.50.
Buy long June $65 Call, currently $.40, no stop loss.
Net credit 70 cents.
Update 5/22: WSM rebounded from its long decline on positive earnings in the retail sector. We were stopped on the short call for a minor gain.
Closed June $60 short call, entry $1.28, exit .58, +.70 gain.
Retain June $65 long call, entry .38, currently .15. No stop loss.
Update 6/26: Expired June $65 long call, entry .38, expired, -.38 loss.
Previously closed June $60 short call, entry $1.28, exit .58, +.70 gain.
Net gain 32 cents.
ZEN - Zendesk (July Short Put 6/12)
Zendesk has solid support at $80 and rebounded to a new high on Monday. Shares pulled back with the market's light profit taking over the last couple days. However, the acquisition of Tableau by SalesForce.com should provide additional support.
Earnings July 30th.
Sell short July $80 Put, currently $1.60, stop loss $85.25.
Buy long July $70 Put, currently $.60, no stop loss.
Net credit $1.00.
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.