Market volatility is rising as geopolitical events, political events and earnings events combine to roil the market.
The VIX has traded at or near 16 several times in the last week as different events combined to give investors a headache. Goldman Sachs, Johnson & Johnson and IBM tanked the Dow for more than -200 points after a +183 point rally on Monday. There are additional Dow stocks reporting this week but they do not have the size to cause a material movement in the Dow.
However, we are moving closer to the government funding battle in Washington next week and the term "partial government shutdown" is being mentioned every day. Lawmakers are not even back from the Easter recess and the partisan headlines are already spewing.
There are two more carrier strike forces headed for the Sea of Japan and offshore North Korea. The Secretary of State is blasting Iran and the nuclear deal and Secretary of Defense is in Saudi Arabia to discuss Iran and the various conflicts in the region. There are plenty of potential events to keep investors from being overly bullish.
The Dow fell -113 points to close at a new 2-month low at 20,400. Multiple support levels have broken and in a perfect technical world, the index would be targeting 19,750. Technically, it is not perfect because the last -200 points were caused by earnings headlines, where the knee jerk declines tend to be bought.
This is still a bearish chart and I do not have enough lipstick to color it bullish. It is what it is regardless of the reasons that put it there.
The S&P is not as bearish as the Dow but it is close. The S&P did not make a new low but it did close under 2,340 with prior support at 2,350 now resistance. A further drop to close below Thursday's close at 2,329 would be a solid sell signal. Like the Dow, the chart is bearish but there is some minimal support at that 2,329 level.
The Nasdaq remains the strongest index with a close right in the middle of its recent range. Resistance is 5,915 and support 5,800. Next week is tech earnings week and the Nasdaq could lead us out of the congestion if the earnings are good.
Despite the Nasdaq holding its gains the market is a lot sicker than it appears. More than 75% of the stocks on the S&P-1500 have declined more than 10% from their recent highs. The indexes are being artificially inflated by a few large stocks while the rest of the market slowly corrects. If those big caps roll over we could decline sharply.
The funding battle for next week could force the market to new short-term lows if it appears we are headed for a partial shutdown. I believe it will be a buying opportunity but not until the crisis is resolved.
The volatility has inflated premiums somewhat but now we are heading into the heart of the earnings cycle and 75% of optionable stocks report earnings over the next four weeks. Unless you are a short-term day trader using weekly options there are very few stocks to choose from. The majority of those that do not have earnings in the next four weeks have broken charts. Once a quarter we go through this period where the pickings are slim for 2-3 weeks. However, even if the earnings were not a problem, I would not be loading up on positions ahead of next week's funding battle. We should be patient and trade only when we have a reasonable chance of success.
I know it is frustrating not to be in the market but it is more frustrating to be in the market and losing money.
Be patient with your entries and keep your stop losses tight.
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
JACK - Jack in the Box (Closed short side)
JACK shares fell $6 in four days to stop us out of the short side of this put spread at $99.75. There was zero news to account for the move.
Closed May $95 short put, entry $1.90, exit $2.30, -.40 loss.
Retain May $85 long put, entry .54, currently .35. no stop loss.
ACIA - Acacia (Stopped Short Put)
ACIA shares fell through support on Tuesday at $53 to stop us out of the short put position. There was no news to trigger the decline. Fortunately, we broke even on the position.
Closed: May $45 short put, entry $1.55, exit $1.55, no gain.
SLCA - US Silica (Covered Call)
SLCA shares imploded over the last week along with the price of oil. On Wednesday alone, crude prices fell -$1.83 to knock -$2.34 off the price of SLCA. I am not the least bit worried about SLCA long term. Sand prices have doubled over the last six months and they could double again over the next year. The decline in SLCA shares was directly related to the fall in oil prices and that trend is about over. Refiners are back at work and crude inventories are going to start declining rapidly as they gear up for summer blend fuels. I would not have any problem selling a call or put at this level at this point on the calendar.
We do not have a stop loss on the SLCA covered call because of the calendar bias for oil prices to rise starting in late April through July.
No change in the position.
TMUS - T Mobile US Inc (Short Put)
T Mobile has a nice chart with a close at a 52-week high on Wednesday. The 50-day average has been support for months and we can set our stop loss just under that level. TMUS just spent $8 billion in a FCC spectrum auction this week in order to expand its coverage. They quadrupled their holdings of low-band spectrum and now have more per customer than any other mobile provider.
Earnings May 16th. (before expiration)
Sell short May $60 put, currently $1.00, stop loss $63.25
New Covered Call Recommendations
MU - Micron Technology (Covered Call)
Micron reported better than expected earnings and raised guidance. Shares spiked then rolled over in the semiconductor meltdown last week. They are starting to rise again. The company said memory prices were up an average of 20% last quarter and they expected prices to continue to rise due to a shortage in the market.
Earnings June 22nd.
Buy-write May $27 call, currently $27.25-$1.25, stop loss $25.25
Gain if called $1.00.
Other Potential Plays (Spreads, Covered Calls, Naked Puts)
These are not official plays but a good place to start if you are looking for something else to trade.
May expiration is the 20th.
Existing 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.
ACIA - Acacia Communications (Short Put)
ACIA appears to have bottomed at $50 and has been trending slowly higher until today. The trend has been solid despite some volatility in the market. Today was the exception but it did try to rally in the afternoon.
Earnings May 25th.
Sell short May $45 put, currently $1.35, stop loss $49.50.
ACOR - Acordia Therapeutics (Covered Call)
Acordia is surging higher despite the volatility in the biotech sector. The stock closed at at 10-month high on Wednesday in a weak market. Volatility in the options suggest there may be something going on behind the scenes. They could be ripe for an acquisition.
Earnings May 16th.
Buy write ACOR April $28 call, currently $4.10, stop loss $24.35
Update 3/22/17: The Tuesday market crash also knocked us out of the Acordia covered call for a breakeven.
Closed ACOR shares, entry $28.30, exit $25.85, -$2.45 loss.
Closed Apr $28 call, entry $5.04, exit $2.70, +2.34 gain.
Net loss 11 cents.
AMD - Advanced Micro Devices
AMD was left for dead multiple times over the last several years. They have reinvented themselves and are becoming an actual competitor for Intel and Nvidia. They beat on earnings and have several new products in the delivery stream.
Earnings May 2nd.
Buy-write Mar $14 call, currently $13.56 and $.80, stop loss $11.85
Gain if called $1.24
Update 3/22/17: AMD closed on Friday at $13.49 and we had sold a $14 call. That call expired worthless and we need to resell an April call. Shares ar moving slowly higher and you have the option of selling the April $14 call for 97 cents with AMD at $14.10 or selling the $15 call for 58 cents and hoping to get an additional 90 cents of stock appreciation over the next three weeks. I am recommending the $14 call because the higher premium provides a little more insurance against a dip. Support is $13.
Expired Mar $14 call, entry .90, expired, +.90 gain.
Sell short Apr $14 call, currently .97, stop loss $12.85.
Update 4/12/17: AMD took a beating from Goldman with a sell rating and $11 price target. Shares have declined to $12.75 and our short call is worthless. I am recommending we close the April call and sell a May call.
Close Apr $14 short call, entry .95, currently .08, +.87 gain.
Sell short May $13 call, currently $1.06, no stop loss.
Previously closed: Mar $14 call, entry .90, expired +.90 gain.
BA - Boeing (Call Spread)
Boeing has been a star performer since October. They are up over $50 in that period with a $20 spike since the beginning of February. They appear to be topping out and the Dow is weakening. With the Fed meeting, debt ceiling and the tax cut proposal moving farther into the future every day, the Dow is likely to continue to weaken. Those stocks that led the charge higher are going to give back some of those gains.
Earnings April 26th.
Sell short April $190 call, currently $1.41, stop loss $185.85
Buy long April $200 call, currently .27, no stop loss.
Net credit $1.14
DLTR - Dollar Tree (Put Spread)
Dollar Tree is choping around between $75-$80 and the $72.50 put strike has some decent value. DLTR has not touched $72.50 since Nov 2015. I am going to use a wide stop on this that will be pretty close to the strike just to avoid the choppiness.
Earnings May 17th.
Sell short April $72.50 put, currently $1.70, initial stop loss $73.50
Buy long April $60 put, currently 35 cents. No stop loss.
Net credit $1.35.
DPZ - Domino's Pizza (Call Spread)
Domino's has topped out at $190 and has been trading sideways between $182-$190 for two months. With the potential for a market decline in April, I am going with a call spread because I believe it will be hard for DPZ to punch through resistance in a weak market. There are a lot of gains from January that have not yet been captured and that could produce weakness if the market starts to wobble.
Earnings May 30th.
Sell short May $200 call, currently $1.60, stop loss $191
Buy long May $220 call, currently .40, no stop loss.
Net credit $1.20.
INCY - Incyte Corp (Put Spread)
Incyte has a great pattern of gaps higher after earnings and no material retracements after the last two events. Shares spiked from $120 to $130 after earnings in late February and are close to a new high on Wednesday. There are no signs of sellers in this stock.
Earnings May 16th.
Sell short April $125 put, currently $2.40, stop loss $131.50
Buy long April $115 put, currently .90, no stop loss.
Net credit $1.50.
ITCI - Intra Cellular Therapies (Covered Call)
Shares were very volatile with earnings on March 1st but have shaken off that volatility and are moving nicely higher. I picked ITCI because of the nice trend. The call is well out of the money but the trend id likely to continue and we can pocket some gains from the rise in the stock price.
Earnings June 1st.
Buy write ITCI April $17.50 call, currently $15.42 and $1, stop loss $13.85.
Gain if called $3.08.
Update 3/22/17: The Tuesday market crash also knocked us out of the ITCI covered call.
Closed ITCI shares, entry $15.40, exit $13.85, -1.55 loss.
Closed Apr $17.50 call, entry $1.00, exit .80, +.20 gain.
Net loss $1.35.
JACK - Jack in the Box (Put Spread)
JACK is recovering from a post earnings beating and should return to the $110 level before the May earnings. Analysts have started to talk positive about JACK as a survivor in the current restaurant recession.
Earnings May 17th.
Sell short May $95 put, currently $2.00, stop loss $98.15
Buy long May $85 put, currently $.50, no stop loss.
Net credit $1.50
NFLX - Netflix Inc (Put Spread 3/08)
I hate to keep going back to the same stocks but Netflix consistently has some of the highest option premiums and a relatively stable trend. While we cannot predict the future, I think Netflix has more upside than downside in the weeks ahead.
Earnings April 19th.
Sell short April $130 put, currently $2.60, stop loss $138.35
Buy long April $115 put, currently .57, no stop loss.
Net credit $2.03.
NFLX - Netflix (Put Spread 3/15)
I hate to keep going back to Netflix for a play nearly every week but they have a trend and great option premiums. The only negative about Netflix is that the premiums do not decline until the last couple weeks of the cycle. They do not decay much until they get close to expiration. This strike is well out of the money and hopefully we will not get stopped. One reason the premium does not decline is that earnings are 3 days before expiration. We will need to exit this position early.
Earnings April 18th.
Sell short April $135 put, currently $2.45, stop loss $139.75
Buy long April $120 put, currently .55, no stop loss.
Net credit $1.90.
NFLX - Netflix (Put Spread 3/22)
I am going to have to start calling this the weekly Netflix spread. They simply have the best premiums well out of the money and I am going to continue to take advantage of it.
Earnings April 19th.
sell short Apr $130 put, currently $2.18, stop loss $136.45
Buy long Apr $120 put, currently .83, no stop loss.
Net credit $1.35.
NLNK - Newlink Genetics (Covered Call)
NLNK beat the street on earnings and revenue with a strong report. On Wednesday they announced two abstracts on new drugs will be presented on April 4th at the AACR conference in Washington. These will more than likely be positive for the company.
Earnings May 30th.
Buy-write Apr $17 call, currently $16.78-$2.05, stop loss $13.85.
Gain if called $2.17
PANW - Palo Alto Networks (Put Spread)
Palo Alto posted better than expected earnings but revenue of $422 million missed estimates for $430 million on "execution issues." That was not explained and the stock was crushed. Shares found support at $115 and have been moving sideways for over two weeks. It is time for the shares to begin ticking higher. After this long, it is doubtful that they will move significantly lower. They have had plenty of time and $115 was solid support.
Earnings May 30th.
Sell short April $110 put, currently $1.50, stop loss $113.85.
Buy long April $100 put, currently .45, no stop loss.
Net credit $1.05.
Update 3/22/17: Palo Alto was another casualty of the Tuesday market crash. The stock broke month long support to stop us out at $113.85. The long put is still open and actually has a good chance of increasing in value.
Closed Apr $110 short put, entry $1.30, exit $2.00, -.70 loss.
Retain Apr $100 long put, entry .26, currently .25, no stop loss.
PII - Polaris Industries (Put Spread)
Polaris has a choppy uptrend with resistance at $90 but it has not touched support at $80 since December. The choppy chart is why the premiums are higher than normal.
Earnings April 25th.
Sell short April $80 put, currently $1.50, stop loss $83.85
Buy long April $70 put, currently .50, no stop loss.
Net credit $1.00.
Update 3/8/17: Polaris crashed with the market at the open on Monday to stop us out at $84.65 on the short side of our spread. I am recommending we reload it with a lower put. The $80 put is too close to the stock price and the market is weakening. It may only be temporary but we should be cautious.
Closed Apr $80 short put, entry $1.65, exit $2.50, -.85 loss.
RELOAD: Sell short Apr $75 put, currently 70 cents, stop loss $83.50
Retain Apr $70 long put, entry .65, currently .35.
Update 3/22/17: Polaris plunged $5 in Tuesday's market crash and stopped us out on the remaining short put. We still have a long April $70 put but it is well out of the money. I debated on closing it today for the 25 cent premium or letting it ride for another week. If PII breaks support at that $83 level, it could retest $80 and we could close the put next week. However, that is another week of premium deflation unless PII was todecline sharply. Because the stock did not rebound today, I elected to retain it.
Closed Apr $75 short put, entry .85, exit .45, +.40 gain.
Retain Apr $70 long put, entry .60, currently .25. No stop loss.
PXD - Pioneer Natural Resources (Call Spread)
Crude oil fell 5% on Wednesday to $50 and the lowest level in 2017. Energy stocks were crushed with PXD losing nearly $10. For various reasons oil is not likely to rebound strongly and energy equities are even less likely to rebound suddenly.
Earnings May 9th.
Sell short April $200 call, currently $1.95, stop loss $192.50
Buy long April 215 call, currently 65 cents, no stop loss.
Net credit $1.30.
SLCA - U.S. Silica Holdings (May Covered Call)
SLCA has found a bottom along with oil prices. Now that refineries are restarting and producing summer fuel blends, oil inventories will decline and prices should rise. This will continue to lift the energy sector. SLCA produces sand for fracking oil wells. Sand prices have doubled over the last 12 months and are expected to go up another 25% by fall. Some analysts are predicting a sand shortage late this year and early 2018. That will lift prices even higher.
Earnings May 24th.
SLCA has solid support at $43 when oil was crashing throughout March. If we are not called we will sell a new call.
Buy write SLCA May $50 call, currently $47.84-$2.25, no stop loss.
Net gain if called $4.41.
SWKS - Skyworks Solutions (Put Spread)
Skyworks closed at a new high as speculation over the iPhone 8 continues to lift all the component suppliers. Skyworks also benefits from phones being manufactured by other companies besides Apple. They are in the sweet spot of mobile technology.
Earnings April 20th.
Sell short Apr $90 put, currently $1.50, stop loss $93.50
Buy long Apr $80 put, currently .30, no stop loss.
Net credit $1.20.
SWKS - Skyworks Solutions (Closed Short Put)
We were stopped out of the short side with SWKS crashed with the Nasdaq on Monday at the open. I am recommending we reload with the same strike. The stock is moving up again and closed near its highs.
Closed Apr $90 short put, entry $1.82, exit $1.85, -.03 loss.
RELOAD: Sell short Apr $90 short put, currently $1.10, stop loss $93.50
Retain Apr $80 long put, entry .32, currently .15.
Update 3/22/17: Skyworks was another casualty of the Tuesday market crash and our short put was stopped out. We have a long April $80 put but unless lightning strikes it will expire worthless.
I considered reshorting the Apr $90 put but the bid/ask spread is 40 cents .60/.100. If we were stopped again it would be a loss for sure. That is available if a reader wants to take the chance in this market with SWKS at $97.
Closed Apr $90 short put, entry $1.20, exit .90, +.30 gain.
Retain Apr $80 long put, entry .32, currently zero.
TSLA - Tesla Inc (Put Spread) 3/22
Shares of Tesla rallied last week on the Autocar article on the Model Y and then faded somewhat in the market crash on Tuesday. Since the company is doing a secondary for far less than investors expected, the stock is not likely to decline below support.
Sell short Apr $230 put, currently $2.00, stop loss $239.50
Buy long Apr $215, currently .77, no stop loss.
Net credit $1.23.
TSLA - Tesla Inc (Call Spread) 3/29
We have an April put spread on Tesla. With the potential for a market hiccup over the next four weeks I am adding a call spread to capitalize from any decline.
Earnings May 17th.
Sell short April $295 call, currently $2.94, stop loss $287.50
Buy long April $310 call, currently $1.13, no stop loss.
Net credit $1.81.
URI - United Rentals (Put Spread)
URI has been a post election favorite and the stock broke out of a month long consolidation to close at a new high on Wednesday.
Earnings April 26th.
Sell short Apr $120 put, currently $2.50, stop loss $125.85
Buy long Apr $105 put, currently .95, no stop loss.
Net credit $1.55.
Update 3/8/17: Somebody wanted out of URI in a hurry. After gapping up more than $1 to $130 at the open today the stock rolled over and fell to a 2-week low at $124. We were stopped out at $125.85. There was absolutely no news and that makes me nervous about trying to reload the position.
This could be a sign the broader market is about to decline. Several stocks that had been winners suddenly headed south on Wednesday. We will keep the long put and see if the direction stabilizes by next week.
Closed Apr $120 short put, entry $2.97, exit $4.10, -1.13 loss.
Retain Apr $105 long put, entry .74, currently $1.00.
VIX - Volatility Index (Call Spread)
The VIX has been slightly elevated over the last several days to close near 12 today. If we were to get a major downdraft, I would like to capture that by selling a call spread. We are going to enter the spread with a VIX trade at $18. There will be no stop loss because it rarely stays high for more than a couple days.
With a VIX trade at $18,
Sell short Mar $20 call, estimated premium $2.00, no stop loss.
Buy long Mar $30 call, estimated premium 40 cents, no stop loss.
Estimated net credit $1.80
Update 2/8/17: The market refuses to decline and the VIX refuses to rise. Both of those facts will eventually reverse. I profiled a March call spread in the VIX in the prior newsletter. With time expiring quickly, I am revising that to use April strikes.
With a VIX trade at $18
Sell short Apr $20 call, estimated premium $3.00, no stop loss.
Buy long Apr $30 call, estimated premium 50 cents, no stop loss.
Update 3/8/17: We have a speculative call spread on the VIX to be executed on a spike to $18. Since I added that potential position several weeks have passed and the April strikes were sneaking up on us. I modified the recommendation to use the May strikes if/when the VIX spikes to $18.
With a VIX trade at $18
Sell short May $20 call, estimated $3.00, no stop loss.
Buy long May $30 call, estimated 50 cents, no stop loss.
Update 4/12/17: We have a pending call spread on the VIX with a spike to 18. The VIX closed right at 16 on Wednesday and could hit 18 over the next couple of sessions. We have had this recommendation in place for several weeks and the May strikes are now too close on the calendar. I am changing the recommendation to use June strikes.
With a VIX trade at $18
Sell short June $20 call, estimated $3.00, no stop loss.
Buy long June $30 call, estimated 50 cents, no stop loss.
WDC - Western Digital (Cash Secured Put)
WDC posted good earnings and spiked to more than $80 but then saw a four-week decline. After hitting a low of $73 on the 24th, they announced a new storage 256gb storage chip for the iPhone and iPad and shares took off rising $5 over three days.
Earnings April 26th.
Sell short Apr $70 put, currently $1.01. Stop loss $74.25.
Update 3/22/17: Western Digital was another casualty of the Tuesday market crash. We were stopped at $74.25 on the short $72.50 put. This was the second strike on selling a short put on WDC. Call me crazy but I am going to try it again. The intraday dip at the open this morning hit $71.38 and then rebounded to $75. That should have cleared any sell stops today. It also inflated the premiums to give us another chance.
Closed Apr $72.50 short put, entry $1.27, exit $1.80, -.53 loss.
Sell short Apr $70 put, currently $1.01, stop loss $72.85.
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.