After the president's success in Singapore, tariffs faded from the headlines for a couple days.

Unfortunately they came back again on Thursday. The White House said they were still on track to enforce sanctions against China but there would be less than the 1,300 products they had initially targeted. This put a cloud over the market as investors waited for the retaliation from China.

Considering the help China's Xi gave to get Kim Jong Un to the summit and the rescue of ZTE, investors had thought the relations were back on the right track and the sanctions would be postponed until a trade deal could be worked out. Getting the new product list on Thursday killed that idea.

The residue from the FOMC meeting was also in the air. The suddenly hawkish statement ratcheted up worries about a fourth rate hike in December. Add in the strong retail sales, a 44 year low for jobless claims and GDP estimates rising to 4% and a fourth hike is almost guaranteed.

These factors weighed on the market and the S&P futures are down -5 again on Thursday night. The Dow and S&P are both stuck under strong resistance and they are not likely to break out until next week, if at all.

The weekend event risk is back with all the players in Washington this weekend. The IG report on the FBI conduct was negative and this could prompt executive action that could roil the public and the markets.

Until the Dow can move over the 25,400 level and the S&P at 2,792 the market is at risk of another decline. The tech stocks and small caps have been adding to their gains but both indexes are now overbought and at risk for a decline.



The decline in the VIX and the stall at resistance for the Dow and S&P plus the expiration of the June options has drained all the premium out of the July strikes. It is too early to switch to August but we may have to do it next week.

I am still not comfortable recommending covered calls even though the small cap stocks are doing well. The market is too unstable and there are too many daily headlines. Look at the optional play graphics for covered call possibilities.

Enter passively, exit aggressively!

Jim Brown

Send Jim an email



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.

Lines in blue were previously closed.

Current positions



Current Position Changes


LULU - Lululemon (Short Puts)

LULU had exploded higher and I recommended closing both short puts on Friday. Both were profitable.

Closed June $90 short put, entry $1.78, exit .01, +$1.77 gain.

Closed June $92.50 short put, entry $1.59, exit .03, +$1.56 gain.



LLL - L3 Technologies (Short Put, Put Spread)

The potential nuclear disarmament deal with North Korea caused all defense stocks to decline and we were stopped out of the short put and the short put side of the spread. Closed July $190 short put, entry 1.35, exit 1.96, -.61 loss.

Closed July $185 short put, entry $2.20, exit $1.15, +$1.05 gain.
Retain July $175 long put, entry .95, currently .25.



New Recommendations


LRCX - Lam Research (July Call Spread)

Lam disappointed on earnings and fell from $200 to $181. Support broke today and it could have a lot further to go.

Earnings July 26th.

Sell short July $200 call, currently $1.65, stop loss $159.
Buy long July $210 call, currently .65, no stop loss.
Net credit = $1.00.



SHOP - Shopify (July Put Spread)

Shopify had decent earnings but still consolidated the last week. Thursday's gain closed at a new high. Stocks that make new highs tend to continue making new high.

Earnings August 1st.

Sell short July $150 put, currently $2.15, stop loss, $158.75.
Buy long July $140 put, currently $1.15, no stop loss.
Net credit $1.00.



FB - Facebook (July Short Put)

Facebook has shaken off all the volatility from the privacy scandals and closed at a new high on Thursday. The stock could continue higher for the short term on the higher high creates another higher hand syndrome.

Earnings July 25th.

Sell short July $185 Put, currently $1.35, stop loss $191.



New Covered Call Recommendations


No New Covered Calls

With the market still undecided about direction and suffering major intraday swings, I am still very cautious on covered calls. I did not find anything I would put my money on again this week.


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.

July expiration is the 20th.

Earnings dates are never guaranteed. Sometimes the dates change 2-3 times depending on various factors. In most cases the dates are provided by a third party like Zacks and they are using predictions based on the prior earnings. If a company reports on Wednesday Jan 24th then they expect them to report on a Wednesday around the 24th in April. The majority of the time they are close and once we move nearer to April, the company will announce when they are going to report and the calendar is updated. If you are in a position, you should always check at least weekly to see if an earnings date has been posted.




Couch Potato Portfolio.



New Couch Potato Recommendations.

No new Couch Potato plays this week. The tech sector has gone directional and everything is breaking out of its range. The Dow industrials are dormant with a bearish outlook. Option premiums have declined on the uncertainty and there is nothing to play.

We got lucky on Tesla and the stock has surged into profitability. The option expires on Friday to be sure and close it at the open.


Couch Potato Play Updates

ADBE - Adobe Systems - Company Profile

Comments:

Adobe reported earnings after the bell and fell $8 in afterhours. This is not even close to our remaining puts so all options will expire worthless.

Original Trade Description: May 17th

Adobe Systems Incorporated operates as a diversified software company worldwide. Its Digital Media segment provides tools and solutions that enable individuals, small and medium businesses, and enterprises to create, publish, promote, and monetize their digital content. Company description from FinViz.com

Adobe spiked higher on great earnings and ran into resistance at $230-$240. The choppy market has prevented the stock from moving higher over the last week. Adobe could be forgotten and left to wander between $235-$245. It does not seem to be able to move higher but there is enough interest to keep it from selling off.

Earnings June 14th. We will have to exit this position a week early.

Position 5/18/18: June options:
Short $250 call @ $2.69, exit 5/22 @ $3.92, -1.37 loss.
Long $260 call @ $1.00. See portfolio graphic for stop loss.
Short $220 put @ $2.20. See portfolio graphic for stop loss.
Long $210 put @ .97. See portfolio graphic for stop loss.
Net credit $2.78.

Position 5/25:
Short June $265 call @ .97, see portfolio graphic for stop loss.



BA - Boeing - Company Profile

Comments:

We were stopped again on the short call when shares spiked on news China had made an offer to ease the trade war tensions. We escaped for a small gain.

Original Trade Description: May 10th

Boeing is the largest plan builder on the planet with more than $1 trillion in backorders. The reinstatement of sanctions on Iran could cancel a $20 billion sale already in progress. Those headlines should keep a lid on the upside. Boeing has been trading in a narrow range for the last two months on the tariff headlines.

Update 5/17: China offered the U.S. a trade package that would cut the deficit by $200 billion a year. That would include buying a lot more aircraft from Boeing. The news came well after the afterhours session closed. I lowered the stop loss in case there is a big spike tomorrow. Boeing has been in the dumps on tariff fears.

Update 5/24: We were stopped at the open as expected last Thursday. The idea that China might be buying a lot more planes caused a $21 spike. We actually escaped that stop loss with a gain. I am going to recommend we replace that short call with a new $380 call. That is $20 OTM and relations with China are deteriorating rapidly after the directive to lookat import restrictions on cars and no deal on reopening ZTE. China has six major auto brands but none of them actively export to the USA. However, a couple of them were planning on starting an export program and the president's directive was another shot across the bow. I doubt we are going to see the China tariff problem resolved in the next 22 days.

Position 6/11/18:
Short June $375 call @ $1.26, exit 5/18 @ .65, +.61 gain.
Long June $400 call @ $0.20.
Short June $310 put @ $1.82.
Long June $285 put @ $0.63.
Net credit $2.25.

Position 5/25:
Short June $380 call @ $.99, see portfolio graphic for stop loss.



NVDA - Nvidia - Company Profile

Comments:

No changes on Nvidia this week. The stock retested the top of its range again on Thursday. Unless there is a $17 spike at the open all options will expire worthless.

Original Trade Description: May 24th

NVIDIA Corporation operates as a visual computing company worldwide. It operates through two segments, GPU and Tegra Processor. The GPU segment offers processors, which include GeForce for PC gaming and mainstream PCs; GeForce NOW for cloud-based game-streaming service; Quadro for design professionals working in computer-aided design, video editing, special effects, and other creative applications; Tesla for AI utilizing deep learning, accelerated computing, and general purpose computing; GRID provides power of NVIDIA graphics through the cloud and datacenters; DGX for AI scientists, researchers, and developers; and cryptocurrency-specific graphics processing units. The Tegra Processor segment provides processors designed to enable branded platforms - DRIVE and SHIELD; DRIVE automotive computers and software stacks, which offer self-driving capabilities; SHIELD devices and services designed for mobile-cloud in home entertainment, AI, and gaming applications; and Jetson TX 2, an AI computing platform for embedded use. The company's products are used in gaming, professional visualization, datacenter, and automotive markets. NVIDIA Corporation sells its products to original equipment manufacturers, original device manufacturers, system builders, add-in board manufacturers, retailers/distributors, Internet and cloud service providers, automotive manufacturers and tier-1 automotive suppliers, mapping companies, start-ups, and other ecosystem participants. Company description from FinViz.com

Nvidia spiked after earnings then faded $20 to the low at $240 on Tuesday. While I think Nvidia is a great stock, it may be trapped inthis range from $240-$260. With the market weak and the semiconductor sector weak, it may be tough for Nvidia to simply continue the move higher.

Position 5/25:
Short Jun $265 call @ $1.82, exit 5/31, 1.85, -.03 loss.
Long Jun $280 call @ .42.
Short Jun $230 put @ $1.61.
Long Jun $215 put @ .41.
Net credit $2.60.



TSLA - Tesla Motors - Company Profile

Comments:

Tesla continued to race higher after Elon Musk said they would "likely" hit their long-term production guidance for 5,000 cars per week by the end of the month. Our long call is highly profitable. Be sure to close it at the open on Friday.

Original Trade Description: May 31st

Tesla, Inc. designs, develops, manufactures, and sells electric vehicles, and energy generation and storage systems in the United States, China, Norway, and internationally. The company operates in two segments, Automotive, and Energy Generation and Storage. The Automotive segment offers sedans and sport utility vehicles. It also provides electric vehicle powertrain components and systems to other manufacturers; and services for electric vehicles through its company-owned service centers, Service Plus locations, and Tesla mobile technicians. This segment sells its products through a network of company-owned stores and galleries. The Energy Generation and Storage segment offers energy storage products, such as rechargeable lithium-ion battery systems for use in homes, commercial facilities, and utility grids; designs, manufactures, installs, maintains, leases, and sells solar energy systems to residential and commercial customers; and sell renewable energy to residential and commercial customers. Company description from FinViz.com

Tesla should be releasing some positive manufacturing data over the next two weeks and shares should rise. There is a strong bottom in place at $275.

Position 6/1/18:
Short June $310 call @ $1.50, exit $2.87, -1.37 loss.
Long June $340 call @ .23.
Short June $260 put @ $1.96.
Long June $230 put @ .50.
Net credit $2.73.



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.


ANET - Arista Networks (July Short Put 5/23)

Arista Networks is a solid competitor to Cisco Systems. Analysts believe Cisco's weak performance in the Q1 earnings was due in part to the surge in acceptance of Arista's products. The huperscale cloud companies like Facebook, Microsoft, etc are buying millions of dollars of high performance switches from companies like Arista rather than pay for the top of the line Cisco equipment. In this business performance and price both matter.

Earnings Aug 3rd.

Sell short July $230 Put, currently $3.40, stop loss $246.25.

Update 6/7: Arista was looking weak last Wednesday and I recommended we close the position while it was still positive. It turned out not to be a problem and the stock rocketed higher.

Closed July $230 short put, entry $3.78, exit $3.00, +.78 gain.


COST - Costco (June Put Spread 5/16)

Costco surged to a new high on Wednesday after Raymond James said very nice things about the new Costco store in France. Costco is Amazon proof!

Earnings June 6th.

Sell short June $190 put, currently $1.87, stop loss $194.65.
Buy long June $180 put, currently .74, no stop loss.
Net credit $1.13.

Update 6/7: Costco changed their earnings date and we had to exit the spread early last week to avoid their earnings.

Closed Jun $190 short put, entry $1.81, exit $1.20, +.61 gain.
Closed Jun $180 Put, entry .64, exit .33, -.31 loss.
Net gain 30 cents.


CP - Canadian Pacific (July Short Put 5/30)

Shares broke out to a new high on Wednesday and the momentum appears to be increasing.

Earnings July 17th.

Sell short July $175 put, currently $1.30, stop loss $184.50.


DQ - DAQO New Energy (June Short Put 5/2)

DQ has been trading sideways since they dropped in early April on a secondary offering announcement. There is a minor upside bias and it could be getting ready to move higher. The low volatility in DQ will let us use a tight stop and the premium is decent with a low margin requirement.

Earnings May 30th.

Sell short June $45 put, currently $1.60, stop loss $50.50.

Update 5/30: We closed the short put at the open last Thursday. Dang good thing with the $8 decline today.

Closed June $45 short put, entry 1.65, exit .20, +1.45 gain.


FB - Facebook (July Short Put 5/30)

Facebook closed at a 4-month high as all the privacy issues appear to be in the rear view mirror. With the Nasdaq nearing a new high the FAANG stocks should do well.

Earnings July 25th.

Sell short July $175 put, currently $1.63, stop loss $183.65.


LLL - L3 Technologies (July Put Spread 5/23)

The defense company suffered a massive drop from $216 to $180 the week before earnings and there was no company specific news. Shares are rebounding and should cross resistance at $197.50 in the coming days. Once back over $200 it should attract some of the old money that was knocked out on the dip.

Earnings Aug 1st.

Sell short July $185 put, currently $2.15, stop loss $192.50.
Buy long July $175 put, currently $1.05, no stop loss.
Net credit $1.10.


LLL - L3 Technologies (July Short Put 6/7)

The May dip is being quickly erased and the pauses for profit taking have been minor. There is no fundamental reason for the rebound to fail.

Earnings July 31st.

Sell short July $190 put, currently $1.20, stop loss $197.


LULU - Lululemon (June Short Put 5/2)

LULU is on fire. The stock spiked in early April and just keeps climbing a little bit every day. With this kind of relative strength we can use a tight stop loss. You know there are investors just waiting for a dip so they can buy this stock. I have wanted an entry point to go long in OIN for the last two weeks but it never worked out.

Earnings June 27th.

Sell short June $90 put, currently $1.75, stop loss $96.50.

Update 5/9: LULU shares collapsed after a news headline about a girl getting second degree burns wearing yoga apparel for a MRI. However, although that headline was new the news was not. MRI facilities all over the country have signs and warnings posted about NOT wearing yoga apparel during a MRI. The lycra and spandex for sports have tiny metal threads that inhibit bacteria growth and body odor. Unfortunately, those threads heat up in the MRI. It is like sticking aluminum foil in a microwave.

The shares recovered immediately and I am recommending we reload the position.

Closed June $90 short put, entry $2.18, exit $2.75, -.57 loss.

Reload:
Sell short June $90 put, currently $1.80, stop loss $96.45.


LULU - Lululemon Athletica (June Short Put 5/16)

LULU is in rebound mode after the big stumble on May 4th that stopped us out of the last position. The company made a new high on the Macy's earnings.

Earnings June 27th.

Sell short June $92.50 put, currently $1.56, stop loss $98.50.


MCK - McKesson (July Short Put 6/7)

McKesson is rebounding from a higher low from the March bottom. Shares are recovering slowly.

Earnings August 21st.

Sell short July $135 put, currently $1.05, stop loss $141.00.


NFLX - Netflix (June Short Put 5/9)

We already have a short put on Netflix but with premiums so high, it is tough to pass up.

Earnings July 16th.

Sell short June $300 put, currently $3.50, stop loss $318.65.

Update 6/7: We closed the short put at the open on Thursday to end a profitable position.

Closed June $300 short put, entry $3.40, exit .23, +$3.17 gain.


NFLX - Netflix (July Short Put 5/23)

Netflix is back! After posting monster earnings and subscriber growth, the shares spiked then faded in a bout of post earnings depression. That is over and Netflix soared $13 to a new high on Wednesday. That leaves very strong support at $325.

Earnings July 16th.

Sell short July $300 put, currently $5.20, stop loss $325.75.


NVDA - Nvidia (July Short Put 5/30)

Nvidia has not lost its mojo. The stock seased over resistance on Wednesday and could be making a ne whigh soon if the Nasdaq continued to remain positive.

Earnings August 9th.

Sell short July $225 put, currently $2.27, stop loss $243.85.


NVDA - Nvidia (July Short Put 6/7)

Nvidia has broken above resistance and closed at a new high on Wednesday. There was a minor decline with the Nasdaq on Thursday The most recent analyst was targeting $400 for the stock in a year.

Earnings August 9th.

Sell short July $240 put, currently $2.30, stop loss $254.50.


PANW - Palo Alto Networks (June Short Put 5/2)

PANW closed at a new high on Wednesday in an ugly market. The stock has been creeping up slowly over the last several weeks despite the market volatility. This shows good relative strength.

Earnings May 28th.

Sell short June $175 put, currently $2.99, stop loss $189.50.


PANW - Palo Alto Networks (June Short Put 5/9)

Shares are exploding higher in a positive market. They should rest soon but there is plenty of room between the current price and our put strike.

We already have a position in PANW. If you do not want to double up on the singl estock risk, please pick another play.

Earnings May 28th.

Sell short June $185 put, currently $3.00, stop loss $197.50.

Update 5/16: We were stopped on both of our PANW puts last week. The low for the week was 197.35 and that was exactly the low on Tuesday when the market posted that huge intraday drop.

Closed June $175 Short Put, entry $2.99, exit $2.50, +.49 gain.

Closed June $185 Short Put, entry $3.40, exit $4.15, -.75 loss.

Net loss 26 cents.


RH - Restoration Hardware (June Short Put 5/2)

RH gave some strong guidance when they announced earnings on the 27th. Shares have rocketed higher and appear to be headed for a retest of the highs at $105.

Earnings June 27th.

Sell short June $85 Put, currently $2.75, stop loss $92.50.


RHT - Red Hat (July Short Put 5/23)

Red Hat had a very good run in early May and then collapsed back to $160. This level was tested as support twice and held both times. If RHT can move over $165, it could retest the highs.

Earnings June 27th.

Sell short July $150 put, currently $2.70, stop loss $159.25.


VMW - VMWare (June Put Spread 5/9)

VMWare surged to a new post January high on Wednesday after an analyst said the stock could rise another 30% to $175 in the coming weeks. The stock weathered the post Icahn position depression cycle with a $7 decline and has now erased that loss. Carl acquired just under a 5% stake and is likely to resist a reverse merger with Dell. Icahn has battled with Michael Dell in the past and lost so it is personal for Carl and likely to be dramatic.

Earnings May 31st.

Sell short June $125 put, currently $2.35, stop loss $133.65.
Buy long June $115 put, currently $1.05, no stop loss.
Net credit $1.30.

Update 5/23: The Carl Icahn rally ended and after a week of sideways movement the stock finally triggered the stop loss at $137.00 on Monday. Since the long put is $23 OTM with only 3 weeks until expiration, I am recommending we close it.

Closed June $125 short put, entry $1.70, exit $2.25, -.55 loss.
Close June $115 long put, entry .75, currently .66, -.09 loss.

Update 5/30: We closed the left over put at the open last Thursday.

Closed June $115 long put, entry .75, exit .62, -.13 loss.
Previously closed June $125 short put, entry $1.70, exit $2.25, -.55 loss.


WYNN - Wynn Resorts (June Short Put 5/9)

Elaine Wynn has won the support of all three investor proxy advisory firms for her "Campaign for Change" slate of board nominations. She is trying to evict all the old board members loyal to Steve Wynn in hopes of avoiding serious problems with the probes into moral fitness by Nevada and Massachusetts. Ironically, Steve tried to prevent her from voting in years past and muted her as a stockholder. Now ISS, Eagan-Jones and Glass Lewis have all recommended investors vote with Elaine. Shares soared on the news.

Earnings July 26th.

Sell short June $180 put, currently $1.40, stop loss $189.50.

Update 5/16: Wynn shares crashed back to earth with the Nasdaq to stop us out on Tuesday. No specific news. Just a bout of profit taking in the market.

Closed June $180 short put, entry $1.39, exit $2.07, -.68 loss.


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.