The Nasdaq has been leading the markets higher but it was a rough week until they found help.
The Nasdaq Composite closed within 6 points of a new high and the Nasdaq 100 did close at a new high. The Dow could not hold its gains and closed down for the 9th time in the last ten days. The S&P barely broke even with a 2 point gain.
However, the Nasdaq was joined by the small caps indexes and the biotechs on Wednesday leaving only the transports to languish in a pity party with the Dow.
If the small caps can continue to gain along with the Nasdaq the big cap indexes will eventually follow. What we saw today looked like some rotation out of the big caps into small caps. That would be great if it continues. It would take the pressure off the Dow to set new highs and add much needed breadth to the market.
We have about seven trading days before Congress goes home on recess until the 21st. Assuming there is no disaster in Washington over the next seven days the markets should be safe until the 21st. Unfortunately, the number one item on the calendar when they come back to work is the debt ceiling and the government funding for the rest of 2017. The politicians are already choosing up sides and sparing in the press so we know it will not be a peaceful approval.
This has the biggest chance to disrupt the market from an outside headline perspective. We are already in a period that is typically volatile and the week after April 15th is known for market declines because of the money extracted to pay taxes. Put the post April 15th decline in the market at the same time the debt ceiling fight hits the headlines and it could be a rocky two weeks.
The S&P is fighting resistance at 2,360 but expectations for a positive Q1 earnings cycle could help smooth the path higher. We have had very few preannouncements this cycle and earnings for Q1 are expected to grow 10.4%.
The Dow is fighting a bigger battle but did rebound from converging uptrend support. However, the 20750-20800 resistance is strong. The Dow will need a catalyst to get it moving higher. There are plenty of cross currents to keep investors confused but longer term the path should be higher. The current Dow chart is still negative despite the rebound from support.
The Nasdaq closed only 6 points from a new high but that 5,900 resistance was rock solid on the last attempt. The index came to a dead stop at that level for five days before collapsing. A breakout would be very market positive.
The Russell 2000 closed at a 7-day high and just below light resistance at 1,373. A push through to move over the 1,388 level would give the market a big lift.
The VIX has fallen back to 11 and near a three year low. Option premiums for April are almost invisible but I hesitate to use May options because late April is typically volatile with several days of sharp declines. We have to trade with what we are given and after this week we will have to move to the May strikes. We are already starting to run into challenges with earnings dates but like every other quarter we will find our way through the maze.
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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
URI - United Rentals (Stopped Long Side)
URI rebounded and hit our stop loss on the long put at $122.05 on Tuesday to close the position.
Closed Apr $105 long put, entry .74, exit $1.02, +.28 gain.
Previously closed: Apr $120 short put, entry $2.97, exit $4.10, -1.13 loss.
Net loss 85 cents.
PXD - Pioneer Natural Resources (Stopped Short Side)
Oil prices rose strongly for two consecutive days and PXD rebounded more than $10 to stop us out of the short call. We still have the long call but it is too far out of the money to expect it to recover unless there is a war in the Middle East. I considered reloading the short call but the premium has declined too far to make it worth the risk.
Closed Apr $200 short call, entry $1.68, exit $1.00, +.68 gain.
Retain Apr $215 long call, entry .55, no stop loss.
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
TSLA - Tesla Inc (Call Spread)
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.
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.
April expiration is the 21st. May expiration is the 20th.
New Covered Call Recommendations
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.
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.
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.
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.
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.
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.
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.
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.
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.