Thursday, July 20, 2017  1:56:23 AM

Let the Price Chasing Begin

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
With all the major indexes breaking out to new highs, shorts should be running to the exits.

Anyone doubting the breakout and trying to remain short is in a lot of pain. Those who have been timid about adding to long positions are probably rethinking that strategy. Portfolio managers holding cash and watching their peers rack up gains are likely to be chasing prices higher to protect their returns and their jobs.

However, just because we hit the jackpot on Wednesday with all the indexes closing at record highs, it does not mean the Aug/Sep weakness has been cancelled. These are the two worst months of the year and nothing has changed. The term "worst" is relative. Normally that means a decline of some sort. This period is known for steep corrections and October is known as the bear killer month because Q4 lows are normally made in early October.

This year with earnings in rally mode, "worst" could mean slower gains or another couple months of choppy performance without an actual correction.

We will not know until it happens. Summer doldrum rallies are rare but they do happen occasionally. With the constant headlines out of Washington, multiple geopolitical hotspots and the impending budget crisis and debt ceiling hysteria there are multiple reasons for late summer weakness. Fortunately, lawmakers will be gone for 4 weeks starting in early August. That could dampen the headlines and give investors some relief.

Volatility is still nonexistent. There was almost no premium to be found on August strikes and given what I explained above, we certainly do not want to be writing September options this far in advance of what could be a week period. As we get closer, we could find some call spread candidates.

We are still fighting the Q2 earnings cycle that eliminates about 80% of available candidates with earnings before the August expiration. That narrows the field significantly.

The Nasdaq led the charge today with a gap open and then a surge to a 40 point gain. The big cap techs were back in action although several slipped at the close. Tesla and Nvidia closed negative and Apple and Microsoft were only fractionally positive.

The Dow recovered from the earnings related drop on Tuesday and squeezed out a new high by just 3 points. It still counted and we should give the index an A for effort.

The S&P gapped higher and closed at the third record higher in the last four days. The 13-point gain left no doubt that a breakout had occurred.

The Russell 2000 sprinted for a huge 14-point gain thanks to the recovery in the financial sector and the tech stocks. This is a major move and if the Russell can hold these gains and add to them, it would be very bullish for market sentiment.

I would recommend not being overly long in this environment. We could have several days of consistent gains but August is looming and the headline threat is real. Nurse any existing long positions and try to avoid adding new positions at record highs. I know stocks making new highs tend to keep making new highs but that does not always apply in the summer months.

Kids go back to school in 3-4 weeks so investors will be trying to cram some last minute vacation time into those weeks. That means volume is going to be light. There is currently no volatility with the VIX closing at a 24-year low on Friday. When volatility returns it seldom arrives slowly. It tends to arrive suddenly and violently. Be prepared.

Enter passively, exit aggressively!

Jim Brown

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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

Covered Calls

Current Position Changes

LXRX - Lexicon Pharma (Covered Call Stopped)

Lexicon declined to our stop loss of $15.65 on Thursday and stopped us out of the position. That was the low for the week.

Closed LXRX shares, entry $15.20, exit $15.65, +.45 gain
Closed July $15 short call, entry $1.90, exit $1.00, +.90 gain.
Net gain $1.35.

COST - Costco (Put Spread)

Costco tried to rally but has fallen back to support at $151 with no gain in a bull market. I am afraid the next move is lower since the rebound failed. Close the position.

Close Aug $145 short put, entry $1.16, currently $1.09, +.07 gain.
Close Aug $135 short put, entry .30, currently .17, -.13 loss.
Net loss 6 cents at today's closing prices. Thursday's open will change.

New Recommendations

URI - United Rentals (Call Spread)

United reported earnings after the close of $2.37 that beat estimates for $2.31. Revenue of $1.6 billion beat estimates for $1.55 billion. They guided for full year revenue in the $6.25-$6.40 billion range. That was up from the prior guidance of $6.05-$6.25 billion and above analyst estimates for $6.23 billion. Shares rose $4 in afterhours to $122, which has not been factored into the options yet.

I am recommending the $135/$145 calls because there is strong resistance at $125-$126 and post earnings depression will probably prevent a breakout.

With the stock rising $4 in afterhours I am betting the call premiums will spike at the open. The values below are my estimates only.

Sell short Aug $135 call, est $1.70, stop loss $128.25.
Buy long Aug $145 call, est .35, no stop loss.
Net credit estimate $1.35.

New Covered Call Recommendations

NTNX - Nutanix Inc

Goldman added the stock to their conviction buy list saying there was a 53% upside potential. Goldman called Nutanix a '"hyperconverged infrastructure company," a "once-in-a-decade tech infrastructure story," as they see strong adoption of the technology among chief information officers. Based on a survey Goldman did in June they found that 18% of CIOs expected to move to this technology over the next two years with Nutanix the leader in the field. They also said the company could easily be an acquisition target because of their size and revolutionary technology. Shares have risen sharply since the upgrade.

Earnings August 24th.

Buy-write Aug $25 call, currently $24.41 - $1.40, initial stop $21.65.

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.

August expiration is the 18th.

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.

AAOI - Applied Optoelectronics (July Short Put)

AAOI continues to defy skeptics and the stock seems to gain strength on every negative headline. With earnings expectations at $5 and a PE of 20 that would put the stock at $100 but nobody is projecting the price that high. They are not doing the match or they simply do not believe the numbers.

Earnings Aug 3rd.

Sell short July $50 put, currently $1.40, stop loss $59.50.

AMBA - Ambarella (Short Put)

Ambarella crashed in early June from $65 to $48 and has been holding at the $48-$50 level for the last three weeks despite the wild gyrations in the Nasdaq. Since it is not going down, the logical assumption would be there is a rebound coming.

Expected earnings August 30th.

Sell short Aug $45 put, currently 95 cents, stop loss $47.95

Update 7/5/17: Ambarella crashed at the open on Monday as the chip sector continued its decline. Shares recovered but we were stopped out at $47.95.

Closed short Aug $45 put, entry 95 cents, exit $1.53, -.58 loss.

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.

Update 5/3/17: AMD shares imploded after earnings and declined -$3.50. There was a minor rebound today but not enough to reflate call premiums. We have sold 3 calls on AMD over the last two months. I am recommending today that we close the current $13 call and buy a May $10 put to protect us from further declines. I believe AMD will turn around because of their new Ryzen 7 server processor. We just need to wait until the stock rebounds slightly to sell another call. We have received $2.70 in call premiums to date compared to the $3.39 decline in the stock price so we are still in good shape.

Close May $13 short call, entry .97, currently .04, +.93 gain.
Buy May $10 put, currently 35 cents, no stop loss.

Update 6/7/17: Our patience paid off and AMD is soaring again. We already wrote three calls on AMD and it is time to do it again. Shares have gained nearly $2 over the last week.

Estimated earnings July 31st.

Sell short July $13 call, currently 70 cents. No stop loss.

BZUN - Baozun (July Covered Call)

Baozun dipped with the Nasdaq and is now recovering. They are breaking through the 2-week resistance and should return to the higher levels from before the crash.

Earnings August 15th.

Buy-write BZUN July $22.50 call, currently $21.58-$1.00, stop loss $19.45

CLVS - Clovis Oncology (July Short Put or Put Spread 5/18/17)

Clovis has a decent chart with a rebound forming out of the early May dip. They posted a gain of nearly $1 despite the market crash.

I am reaching out to July strikes so I can get some decent premium well out of the money.

I like this as a naked cash secured put. The premium of $2.55 is excellent and it is $15 out of the money. If you want to turn it into a spread then add the $22.50 put as a long.

Earnings August 2nd.

Sell short July $35 put, $2.55. stop loss $41.45


Buy long July $22.50 put, currently .85, no stop loss.
Net credit $1.70

CLVS - Clovis Oncology (July Short Put 5/25/17)

Option premiums are extremely high for Clovis because of the ASCO meeting next week. The bar is high and Clovis will be making four presentations on their main cancer drug Rucaparib. They are expected to show strong progress in the clinical trials. Shares are rising and closed at a 4-week high on Wednesday.

Earnings August 2nd.

Sell short July $40 put, currently $3.20, stop loss $47.35.

CLVS - Clovis Oncology (July Short Put 6/7/17)

I know we already have two Clovis positions but the premiums are too fat to pass up. With the ASCO conference highlighting all the good cancer stocks, Clovis is breaking out to a two month high.

If you already have a Clovis position you might want to pass on this one. If we stack up several and have one big decline we can be stopped out of all of them at one time.

Earnings August 2nd.

Sell short July $45 put, currently $3.20, initial stop loss $51.65.

COST - Costco (July Put Spread)

Costco shares spiked on an earnings beat, rested one day and are heading higher. Analysts are giddy about Costco's prospects.

Earnings Aug 25th.

Sell short July $175 put, currently $1.55, stop loss $177.35
Buy long July $165 put, currently .45, no stop loss.
Net credit $1.10.

Update 6/21/17: Costco crashed from $180 to $162 over four days as a result of Amazon buying Whole Foods. We were stopped out on the first day by the initial gap lower. Fortunately the long put is up 1,000% in value and we can escape with a breakeven.

Closed July $175 Put, entry $1.42, exit $5.50, -4.08 loss.
Close July $165 long put, entry .37, currently $4.10, +3.73 gain.

COST - Costco (Put Spread 7/12)

This is a risky position. Costco has fallen $30 in the last 3 weeks after Amazon announced the acquisition of Whole Foods. Even though the acquisition will more than likely not be final until Q1-2018, Costco has been killed. I personally do not believe it would have any impact to their business until 2019 at the earliest. I am a strong buyer of Costco at this level, but I have already been blown out of two positions where I bought the dip. Support is $150 and the stock is holding at $151. Eventually, somebody is going to upgrade them on price and this stock will turn into a rocket. Until that happens, there is always the risk of another decline.

Earnings August 25th.

Ssell short Aug $145 put, currently $1.62, stop loss $147.85.
Buy long Aug $135 put, currently .50, no stop loss.
Net credit $1.12.

EOG - EOG Resources (July Put Spread)

EOG reported earnings this week and said it was going to increase production 18% and increase cash flow even at $47 oil. EOG is known as the "Apple of the oil patch" because of the apps they created for their workers phones. It is like having a control room in your pocket according to the CEO. Shares spiked to $95 on the news.

Earnings August 7th.

Sell short July $85 put, currently $1.02, stop loss $89.50
Buy long July $70 put, currently .30, no stop loss.
Net credit 72 cents.

Update 5/31/17: The sell the news event on the OPEC announcement caused oil prices to drop 5% on Thursday and stopped out the short side on the EOG position for a breakeven. The long side is still open and once oil prices begin to rebound we will sell a new put. I am going to make the recommendation now to reload the short with an EOG trade at $92.50.

Closed July $85 put, entry $1.18, exit $1.18, no gain.
Retain July $70 long put, entry .23, currently .08. No stop loss.

With an EOG trade at $92.50

Sell short July $85 put, stop loss $87.85.

Update 6/28/17: (New short put)

We currently have a left over July $70 long put. Energy equities appear to have bottomed so I am recommending we sell another July put short.

Earnings August 7th.

Sell short July $85 put, currently .73, stop loss $86.75.
Retain July $70 long put, entry .23, no stop loss.

Update 7/12/17: EOG and the entire energy sector crashed last week when oil prices fell $3 in 3 days. We were stopped out on the short side of the EOG spread.

Closed short July $85 put, entry 65 cents, exit 69 cents, -.04 loss.
Retain long July $70 put, entry 23 cents, currently zero.

EPZM - Epizyme (May/June Covered Call)

This is a crazy play but the premiums are there. The stock is $16.65 and the May $17.50 call is $1.65 with one day until expiration. If that premium still exists at the open on Thursday, I would sell the May call. If the call expires as expected, immediately sell the June $15 or $17.50 call depending on there the stock opens on Monday. If it is over $15.50 then sell the $17.50 call. If it is under $15.50 sell the $15 call.

Earnings August 7th.

Buy-write EPZM May $17.50 call, currently $1.65, stop loss $14.85.

If not called on Monday:

Sell short June $17.50 call, currently $3.00 if EPZM is over $15.50.


Sell short June $15.00 call, currently $4.30 if EPZM is under $15.50.

Stop loss $13.85.

Update 5/23/17: This was a double play. The May premiums were still high last Wednesday and I recommended selling a May call at the open on Thursday and then reloading the call on Monday depending on where the stock was priced between the $15 and $17.50 strikes. The play did not go exactly as planned but it worked out in our favor.

The premiums collapsed from $1.65 to 30 cents at Thursday's open, which was not surprising because the stock dropped $2 at the open. The plan was entered at $15-0.30 using the $17.50 May strike. Unbelievably, the stock spiked to $18.50 on Friday and closed at $17.90 to call us out on the position for a $2.80 gain.

The plan was to reload the position on Monday. The stock opened at $17.85 and the $17.50 call at $3.30. As long as EPZM remains above $16 we have a great position in progress.

Called EPZM shares, entry $15.00, exit $17.50, +$2.50 gain.
Called May $17.50 call, entry .30, called, +.30 gain. Net gain $2.80

Position 5/22/17:
EZPM shares, entry $17.85, stop loss $14.85.
June $17.50 call, entry $3.30, stop loss $14.85

Update 5/31/17: Our luck ran out on EPZM. The stock finally picked a direction and it was straight down. We were stopped out of the second position on Tuesday for a minor loss. We still gained $2.05 on the combination of the two positions.

Position 5/22/17:
EZPM shares, entry $17.85, stopped $14.85, -3.00 loss.
June $17.50 call, entry $3.30, stopped $.90, +2.35 gain.
Net loss 75 cents.

Previously closed:
Called EPZM shares, entry $15.00, exit $17.50, +$2.50 gain.
Called May $17.50 call, entry .30, called, +.30 gain.
Net gain $2.80

EXEL - Exelixis Inc (June Covered Call)

EXEL reported earnings of 5 cents that beat estimates for 1 cent. Revenue of $80.9 million beat estimates for $65.6 million. Shares spiked to $24 on then news then pulled back for a week. Now they are rising again. Decent support at $21.50.

Earnings July 31st.

Buy-write June $22 call, currently $22.12-$1.20, stop loss $20.85.
Gain if called $1.08.

FB - Facebook (July Put Spread)

Facebook shares imploded with the market but this is temporary. The company is growing earnigns at 35% and revenue at an even faster rate. With price targets at $175 the stock is not going to fall below support. There are too many investors waiting to add it to their portfolio on any dip.

Earnings Aug 2nd.

Sell short July $135 put, currently $1.68, stop loss $138.85
Buy long July $125 put, currently .55, no stop loss.
Net credit $1.13.

ILMN - Illumina (Put Spread)

Illumina reported earnings and revenue that roughly matched analyst estimates but the guidance was strong and the story was better. They recently spun off a company called GRAIL and profited from the sale of partial ownership. They launched a new product called VeriSeq for non-invasive prenatal testing in Europe. More than 135 NovaSeq systems were ordered in Q1 and they cost up to $1 million each. They guided for 10% to 12% revenue growth in 2017 and GAAP earnings of $5.26-$5.36. Shares have been moving up steadily since the April 25th earnings.

Earnings July 25th.

Sell short June $175 put, currently $2.20, stop loss $180.85
Buy long June $160 put, currently .80, no stop loss.
Net credit $1.40.

Update 5/10/17: Shares hit a new intraday high on Friday and then fell $10 in four days on no news. Sometimes traders just need to take profits. This stopped us out of the short side for a steep loss. If the shares start to rise again I will replace it with a new short.

Closed June $175 short put, entry $2.21, exit $4.20, -1.99 loss.
Retain June $160 long put, entry .81, currently .55, no stop loss.

ILMN - Illumina (July Short Put 5/31/17)

The company posted decent earnings but only met estimates. That is good for a decline every time. Shares have pulled back from $189 to $173 and a textbook support test and now they are rebounding.

Earnings July 25th.

Sell short July $165 put, currently $2.15, stop loss $171.85

IWM - Russell 2000 ETF (Put Spread)

The Russell is right on the verge of breaking out to a new high. The relative strength over the last three weeks has been stronger than the big cap indexes.

Sell short Aug $134 put, currently .90, initial stop loss $137.85
Buy long Aug $128 put, currently .44, no stop loss.
Net credit 46 cents.

KITE - Kite Pharma (Short Put)

Kite closed at a new high on Wednesday after blasting off on earnings earlier in the month. With the biotech sector on fire, we could see this stock continue to climb.

Earnings August 7th.

Sell short July $80 put, currently $1.50, stop loss $85.35.

Update 7/12/17: Kite collapsed in the biotech sell off on Monday to hit our stop at $100.65. We exited for a decent gain.

Closed July $80 long put, entry $1.59, exit .25, +$1.34 gain.

LXRX - Lexicon Pharmaceuticals (July Covered Call)

Lexicon specializes in small molecule drugs for treatments of rare diseases, diabetes and pain management. They are presenting at the 77th American Diabetes Association conference next week and this should lift the stock higher.

Estimated earnings August 1st.

Buy-write Jul $15 call, currently $15.23-$1.75, stop loss $14.35
Gain if called $1.52.

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.

Update 5/31/17: We had a May covered call on Micron that expired. Over the last week, the stock has rallied and I am recommending a new call to replace it. If you want to reach out to July, the premium is more than double.

Sell short Jun $31.00 call, currently 87 cents, stop loss $28.85

NFLX - Netflix (July Put Spread)

Netflix set a new high over $160 two days before the market crash. Shares dropped sharply to $153 and rebounded just as quickly. The stock as stalled about $158 as it consolidates the gains from the last four weeks. Rumors of interest by Disney, Apple and Amazon continue to provide support.

Earnings July 17th. Before expiration on the 21st.

Sell short July $140 put, currently $2.29, stop loss $148.85.
Buy long July $120 put, currently .53, no stop loss.
Net credit $1.76.

Update 6/21/17: The remaining long put position on Netflix was closed at the open last Thursday as recommended.

Closed 6/15/17: Long July $120 put, entry $.36, exit $.69, +.33 gain.
Previously closed: Short July $140 put, entry $1.90, exit $1.31, +.59 gain.
Net gain $.92

RH - RH Inc (Short Put Spread)

RH, formerly Restoration Hardware, has been on a rocket ride higher. The company change its business model to a member subscription model like Costco and the stock is on fire.

Expected earnings August 31st.

Sell short Aug $50 put, currently $1.75, stop loss $52.35.
Buy long Aug $40 put, currently .85, no stop loss.
Net credit 90 cents.

Update 7/12/17: RH was doing great with a long sustained rally until Monday. Shares declined $7 from Friday's high of $69.25 to a low of $61.20 to stop us out at $61.35. After two days of declines, the stock rebounded to its prior highs.

I am going to recommend we reenter this position in order to offset the premium on the long put.

Closed Aug $50 short put, entry $1.72, exit $1.91, -.19 loss.

Sell short Aug $50 put, currently .80, initial stop loss $58.65.

Retain Aug $40 long put, entry .67, currently .20. No stop loss.

RH - RH Inc (Short Put)

RH is on a rocket ride higher since they changed their business model. This put is currently $17 OTM with the stock making new highs.

Earnings Aug 31st.

Sell short Aug $50 put, currently $1.10, initial stop loss $61.50.

Update 7/12/17: RH was doing great with a long sustained rally until Monday. Shares declined $7 from Friday's high of $69.25 to a low of $61.20 to stop us out at $61.35. After two days of declines, the stock rebounded to its prior highs.

I am not recommending we renter this position. We are already exposed with the spread position and the premiums have declined to the point where a naked put does not make sense.

Closed Aug $50 short put, entry $1.30, exit $1.81, -.61 loss.

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.

Update 4/17/17: 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.

SLCA - U.S. Silica Holdings (Short June Put)

We already have this as a covered call that is significantly underwater. However, they reported strong earnings this week and guided for 20% earnings and revenue growth for the foreseeable future. The stock is going to move higher as soon as oil finds a bottom, which is always does in late April, early May because of the demand cycle.

Strong guidance on earnings call. Earnings gudiance

I am recommending a slightly in the money put at $45 but the premium is $3.80. It is $1.94 in the money so the market maker cannot just put you the stock or he loses $1.86. If you were put, just repeat the process and you make $1.86 every time. Trust me, they will not put it to you. You have to be prepared in case they do but 99 times out of 100, they will not do it.

Earnings July 24th.

Sell short June $45 put, currently $3.80, no stop loss.

Update 5/3/17: Covered Call Update: Silica shares have collapsed. The stock has declined $11 in the last two weeks despite strong earnings and stronger guidance. Making the situation worse was a big earnings miss by Emerge Energy Services (EMES) reporting a loss of 38 cents compared to estimates for 34 cents. EMES misses estimates 58% of the time so a miss is not uncommon. However, it does impact the other two stocks in the sector, SLCA and HCLP. Emerge said total sand volumes rose 185% to 1,251,000 tons. We know from other reports that sand prices have doubled over the last six months and are expected to double again over the next six months.

Also, Dan Loeb's hedge fund Third Point is shorting the frac sand distributors. Third Point said there could be a shift from northern white sand to abundant in-basin brown sand. They warned there were new sand reserves being developed and there were significant reserves on the sidelines that had been deactivated during the slump. SLCA debunked all those excuses in their earnings report. They said frac sand revenue rose 161% YoY and 41% from Q4.

Comments from the conference call: Our comments last quarter and other industry capacity expansion announcements have created questions for some investors over the potential future supply and demand balance of sand proppants and the implications for pricing and other industry dynamics. Let me take a few minutes this morning to share some thoughts on how we see this unfolding and why we believe that the sand proppant market fundamentals should say strong for the foreseeable future.

We believe our industry will remain tight in the near future due to 3 main factors: First, our industry must add capacity to meet customers' needs. Our internal estimates and current sell side reports estimate industry sand proppant demand to be about 75 million tons here in 2017, growing to over 100 million tons in 2018, with some estimates as high as 147 million tons.

Our industry will be short capacity and we cannot let sand become the bottleneck for the completions industry. Second, oil sand is not fungible within that 100-million-plus tons of projected 2018 demand. Unlike many industrial products, there is a lot of friction in the sand market for a variety of reasons, including logistics, quality differences and mesh sizes. Therefore, we're on average to see 20% to 25% more total supply than demand before our markets come into balance. So for example, if 2018 demand is 110 million tons, that implies that supply and demand balance around 135 million tons of effective capacity. Today, even after estimated reactivations of idle capacity, our industry will only have approximately 90 million tons of effective capacity, thus leaving a 45-million-ton shortfall versus projected 2018 needs. And third, even all the likely capacity additions that are being talked about are not enough. We think there could be an additional 10 million to 15 million tons of brownfield capacity added in the next 12 to 18 months, including our own expansions and perhaps as much as 20 million to 25 million tons of greenfield capacity being added locally in the Permian. All of which will be needed, if current demand estimates prove accurate. Even if our estimated 35 million tons of potential brownfield and greenfield additions come online, the market will still be short.

Full transcript HERE

I cannot fix the current covered call. I am recommending we close it but call premiums are depressed and I am not going to recommend selling a new $40 call today because that would lock in our loss on the first rebound. We need to wait for the rebound to inflate premiums then sell a new call in the $45 range.

We cannot buy a put to protect against further declines. The put premiums are too expensive. You could close the position, take the loss now and then buy back in when the stock rebounds.

Close May $50 short call, entry $2.40, currently .04, +$2.36 gain.
Retain SLCA shares.

Update 5/3/17: Short Put Update: If you read the prior commentary, you know the facts on SLCA. We have a June $45 short put that is under water. We sold it for $4.50 last week. I am recommending we turn this into a spread to protect against a further decline. This will reduce our eventual gain but it will ease the pain now.

Buy June $37 put, currently $2.55, no stop loss.
Retain June $45 short put, entry $4.50, currently $8.00.

SPY - S&P-500 ETF (Put Spread)

The S&P is holding near its highs and the earnings cycle starts next week. This should give the market a positive bias for the next three weeks, assuming earnings are positive.

Sell short Aug $230 put, currently .82, initial stop loss $235.00
Buy long Aug $220 put, currently .40, no stop loss.
Net credit 42 cents.

SWKS - Skyworks Solutions (Short Put)

Skyworks has had a nice calm uptrend until the Nasdaq flash crash. Support at the May lows held and it is currently consolidating.

Earnings July 27th.

Sell short July $95 put, currently $1.00, stop loss $99.85.

WIX - WIX Com Ltd (July Short Put)

WIX is about to break out over the $80 level on its way to a new high. The short strike is $15 OTM with a decent premium. If WIX does break over $80, it could be a good run.

Estimated earnings August 9th.

Sell short July $65 put, currently $1.30, initial stop loss $72.35.

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.