Monday, January 01, 2018  11:43:48 PM

Tick Tock

by Jim Brown

Click here to email Jim Brown
Review prior updates here: 2014  2015  2016  2017  2018 
The markets are crawling slowly sideways as we head into year-end.

There is no excitement, zero momentum and very low volume as investors hold their breath as we head into year-end. Everyone is unsure what January will bring and they are just hoping they can get into the new tax year before they take profits on the monster gains in 2017.

The VIX has been ticking slightly higher despite the lack of selling in the market. People are buying puts for what could be a very volatile start to January. With the Dow up 25%, S&P 20% and Nasdaq 29% for the year, there is a lot of uncaptured profits. The big cap tech stocks have been trading sideways to down slightly with only a couple showing a positive direction. With their monster gains for the year, they could lead any January sell off.

If we do get a dip in January, it will be a buying opportunity for what could be the second half of a generational market move. The first six months of 2018 could see another 15% rise in the S&P. However, when summer approaches, I would suggest tightening your stop losses and get ready for a larger decline. The Q4 earnings reported in Jan/Feb will feature raised guidance from nearly every company as a result of the tax cuts, announcements of raised dividends and stock buybacks. That will power the first phase of a 2018 rally. The Q1 earnings reported in Apr/May will feature the actual earnings increases and confirm what they told us in January. However, after the Q2 earnings all the expectations will be priced into the market and that is when the selling could begin.

For January, if we do get a market decline, it could be short, sharp and shallow because everyone will want to be fully invested when those Q4 earnings begin to flow. I would buy any January dip.

However, any January volatility is going to pay havoc with our positions. Be prepared and keep your stops tight.

The S&P is trading in a very tight range with volume barely over 4.0 billion shares per day. That could increase on Thursday because any trades will settle on Jan 2nd and be on 2018 business and taxes if investors are using the settlement date for their accounting. In other words, the fireworks, if they are going to exist, could begin on a limited basis on Thursday.


The Dow has gone dormant with very narrow daily ranges. Clearly, investors and portfolio managers are waiting for the clock to tick down to 2018. It is highly unlikely we will see another attempt to hit 25,000 and it is more likely we could see a break below 24,700.


The weakness in the big cap tech stocks is dragging the Nasdaq slowly lower. The index barely closed positive on Wednesday. The 7,000 level is more than likely out of range for 2017.


Because of the expected volatility next week, I really hated to add any new plays but I found two that I could live with. Please, do not enter these positions if you are not comfortable with dealing with the potential whipsaw we could see over the next ten days. I am looking forward to volatility increasing premiums and hopefully by next Wednesday night we will have some idea of market direction.

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


ACIA - Acacia Communications (Jan Put Spread)

The short side on the ACIA put spread was stopped out at $37.75 on Dec 21st. The position began to deteriorate on the 12th and was stopped last week.

Closed Jan $35 short put, entry .78, exit .75, +.03 gain.
Retain Jan $30 long put, entry .28, currently .15, no stop loss.



OSTK - Overstock.com (Jan Put Spread)

Overstock went into decline on the 20th and gapped down on the 22nd to stop us out of the position. It was looking very good prior to the peak.

Closed Jan $40 short put, entry $1.20, exit .60, +.60 gain.
Retain Jan $30 long put, entry .39, exit .05, no stop loss.



FIZZ - National Beverage (Feb Put Spread)

Uptrend support broke on Friday and we were stopped on the gap lower open on Tuesday. If the 200-day average at $100 fails our long put could come into play.

Closed Feb $95 short put, entry $2.35, exit $3.70, -1.35 loss.
Retain Feb $85 long put, entry .93, currently $1.20, no stop loss.



New Recommendations


JACK - Jack in the Box (Feb Call Spread)

JACK spiked with earnings but has been fading ever since. The food borne illnesses at Chipotle has been weighing on Qdoba, which is owned by JACK. Shares are on the verge of closing at a three month low.

Earnings Feb 13th.

Sell short Feb $105 call, currently $1.75, stop loss $103.00
Buy long Feb $115 call, currently .45, no stop loss.
Net credit $1.30.



JUNO - Juno Therapeutics (Feb Short Put)

Juno is rebounding from the December lows with a nice steady move higher. There is solid support at $42.50. Earnings are January 31st so we will have to close the position before expiration.

Earnings Jan 31st.

Sell short Feb $40 put, currently $1.45, stop loss $44.00.



New Covered Call Recommendations


No covered Calls


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.

February expiration is the 16th.




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 (Jan Short Put)

This stock behaved very well on Wednesday and actually posted a gain of 62 cents when the tech world was crashing. With this kind of relative strength it should do well in a positive market.

Earnings Feb 8th.

Sell short Jan $35 put, currently $1.60, initial stop loss $39.50.

Update 12/13: Last week I recommended closing the short put at the open on Thursday. Unfortunately, AAOI gapped down on Thursday and the option exploded higher to put us into a loss for the position. Sometimes if it were not for bad luck, we would have no luck at all.

Closed Jan $35 short put, entry $1.60, exit $2.13, -.53 loss.


AAPL - Apple Inc (Jan Put Spread 11/22)

Apple shares have caught fire again with a $5 gain over the last two days. The stock is back near its highs and the holiday shopping season is going to be huge for iPhones.

Earnings Fed 3rd.

Sell short Jan $165 put, currently $1.56, initial stop loss $169.45.
Buy long Jan $155, currently .54, no stop loss.
Net credit $1.02.

Update 11/29/17:

AAPL - Apple Inc (Jan Put Spread)

Apple shares declined for the last three days with a big $3.50 drop today. We were stopped out on the short put for a big loss.

Closed Jan $165 short put, entry $1.31, exit $2.70, -1.39 loss.
CLOSE Jan $155 long put, entry .64, currently 1.08, est gain .44.
Estimated net loss 95 cents.


ACIA - Acacia Communications (Jan Put Spread 12/6)

Acacia shares have been moving up despite the weak Nasdag. Wednesday's close was a five week high. This is a low dollar position but the risk should be minimal.

Earnings Feb 3rd.

Sell short Jan $35 put, currently .70, initial stop loss $37.75.
Buy long Jan $30 put, currently .20, no stop loss.
Net credit 50 cents.


ADSK - Autodesk (Jan Put Spread 11/22)

Shares of Autodesk have taken off after their earnings. Shares closed at a new high on Wednesday. Premiums are high and we can sell well out of the money on this one.

Earnings Feb 13th.

Sell short Jan $115 put, currently $2.11, initial stop loss $122.50.
Buy long Jan $100 put, currently .94, no stop loss.
Net credit $1.17.

Update 11/29/17: The earnings site I used for Autodesk earnings was incorrect. The earnings were after the close on Tuesday. I recommended on Monday evening that we exit the position at the open on Tuesday.

Closed Jan $115 short put, entry $2.00, exit $2.03, -.03 loss.
Closed Jan $100 long put, entry .75, exit .55, -.20 loss.
Net loss 23 cents.


ALB - Albemarle Corp (Jan Call Spread 12/6)

ALB has declined for the last week after topping out just over $140 for two months. If the tax bill carries forward the negative items weighing on the market over the last couple days, we could see additional selling in stocks with big gains for the year.

Earnings Feb 3rd.

Sell short Jan $140 call, currently 75 cents, initial stop loss $135.65.
Buy long Jan $150 call, currently 25 cents, no stop loss.
Net credit 50 cents.


BITA - Bitauto Holdings (Jan Covered Call 12/13)

BITA had a rough month with a decline from $53 to $28. Support at $28.50 has held for two weeks and Wednesday's close was a two-week high. I believe the worst is over. This call is $1 ITM so we will have a little insurance in the position.

Earnings Feb 13th.

Buy-Write Jan $30 call, currently $30.96-$2.80, stop loss $27.65.


FB - Facebook (Jan Put Spread 11/29)

Facebook has had very good relative strength until today. I believe it was just caught up in the tech downdraft and will rebound early once the selling is over. I am willing to try a put spread well out of the money because there is strong support at $170.

Earnings Jan 31st.

Sell short Jan $165 put, currently $2.36, initial stop loss $169.50.
Buy long Jan $155 put, currently .99, no initial stop loss.
Net debit $1.37.

Update 12/6/17: Over the last week the Nasdaq has collapsed with the FANG stocks leading the decline. When I recommended the FB put spread last week the stock had dropped $7 to $175 and support. That was the first rotation day for the Nasdaq. The second rotation day was this week and we were stopped out at $169.50 at the open on Tuesday. Shares have already rebounded to $176.

When the market decides to take profits it can be immediate and painful. I am going to try the short put again since we already have a long put.

Closed Jan $165 short put, entry $2.18, exit $3.80, -1.62 loss.
Retain Jan $155 long put, entry .89, currently .64.

Sell short Jan $165 put, currently $1.77, initial stop loss $170.65.


FIZZ - National Beverage Corp (Feb Put Spread 12/21)

FIZZ reported earnings on Dec 6th and shares posted a decent gain. The very next day shares dropped -$13 on no news. In retrospect analysts were not impressed with the earnings growth. Since that drop shares have been rebounding steadily.

Expected earnings March 8th.

Sell short Feb $95 put, currently $2.15, stop loss $99.85.
Buy long Feb $85 put, currently $1.00, no stop loss.
Net credit $1.15.


LRCX - Lam Research (Jan Short Put 12/6)

The chip sector has been hammered over the last eight days but the selling should be about over. The $SOX rose slightly on Wednesday and LRCX has found prior support at $181.

Earnings Jan 16th.

Sell short Jan $165 put, currently $2.40, initial stop loss $174.85.
Buy long Jan $155 put, currently $1.40, no stop loss.
Net credit $1.00.


NFLX - Netflix (Jan Short Put 11/22)

Netflix is the gift that keeps on giving. Its high premiums and bullish bias keep giving us plays every week.

Earnings Jan 17th.

Sell short Jan $175 put, currently $2.74, initial stop loss $185.

Update 11/19/17:

NFLX - Netflix (Jan Short Put)

Netflix was caught in the Nasdaq crash with an $11 decline to stop us out for a big loss.

Closed Jan $175 short put, entry $2.51, exit $6.00, -3.49 loss.


NFLX - Netflix (Jan Put Spread 11/29)

If at first you don't succeed, try, try again. We were stopped on two Netflix positions on Wednesday but the $15 intraday drop was severely overdone. With any kind of positive market we should see Netflix rebound back over the $190 level, which was prior support.

Earnings Jan 17th.

Sell short Jan $160 put, currently $2.08, initial stop loss $174.50.
Buy long Jan $145 put, currently $1.02, no initial stop loss.
Net credit $1.06.


NFLX - Netflix (Jan Put Spread 12/13)

Netflix option premiums are the gift that keeps on giving. They have value well away from the stock price. Netflix shares have found support at the 100-day average and once the tax bill has passed, we could see the tech sector rebound. This put spread is $22 OTM.

Earnings Jan 17th.

Sell Jan $165 put, currently $2.11, initial stop loss $178.35.
Buy long Jan $150 put, currently 96 cents, no stop loss.
Net credit $1.15.


NVDA - Nvidia (Feb Put Spread 12/21)

Nvidia rolled over with the semiconductor sector when the nasdaq sector rotation hit in late November. Shares dipped to the 100-day then rebounded. The second big cap tech dip in early December knocked the stock back to the 100-day once again and it bounced again. That level has been decent support. I am hoping the $37 drop from the highs has eliminated most of the sellers. The stock has more going for it today than it did a month ago after some recent product announcements.

Expected earnings Feb 13th.

Sell short Feb $170 put, currently $2.79, initial stop loss $183.65.
Buy long Feb $160 put, currently $1.59, no stop loss.
Net credit $1.20.


OSTK - Overstock.com (Jan Put Spread 12/13)

This is kind of a strange play. Overstock was/is an online retailer of excess inventory that belongs to other people. It has had a checkered past. However, CEO Patrick Byrne has come up with an idea to use blockchain to determine property and territory rights. Overstock is forming a new company called De Soto Inc that will begin to formalize property ownership by using multiple methods to establish the chain of succession in property where none currently exists. Globally about 80% of the world's population is unable to sell or commercialize their property because of a lack of standardized property records. There is roughly $14 trillion in "dead" property because of a lack of property ownership records. Overstock is going to launch its first pilot program in early 2018 after forming partnerships with economist Herando de Soto and Medici Ventures. Byrne has been a "colorful" character in the past but he may have hit on something that will make him a huge success. The stock is up 213% YTD but now that he has attached the keyword "blockchain" to its future it could go higher.

Earnings Feb 7th.

Sell short Jan $40 put, currently $1.20, stop loss $49.85.
Buy long Jan $30 put, currently 40 cents, no stop loss.
Net credit 80 cents.


PANW - Palo Alto Networks (Feb Call Spread 12/20)

Palo Alto reported good earnings back on Nov 20th and shares spiked to $152 then faded. The stock has been trading listlessly between $140-$150 for the last month. There is no upward momentum. I think getting through that $152 level over the next several weeks is going to be difficult in a potentially volatile market.

Expected earnings Feb 19th.

Sell short Feb $160 call, currently $1.57, initial stop loss $152.85.
Buy long Feb $170 call, currently .55, no stop loss.
Net credit $1.02.


SHOP - Shopify (Jan Put Spread 11/22)

Shares closed at a 2-month high on Wednesday after a $12 gain over the last five days. Shares appear to be headed for a retest of the prior high just over $120.

Earnings Jan 31st.

Sell short Jan $95 put, currently $1.85, initial stop loss $101.50.
Buy long Jan $80 put, currently .55, no stop loss.
Net credit $1.30.

Update 11/29/17:

SHOP - Shopify (Jan Put Spread)

Shopify was caught in the Nasdaq decline with a -$12 intraday drop to stop us out of the short side.

Closed Jan $95 short put, entry $1.82, exit $3.90, -2.08 loss.
CLOSE Jan $80 long put, entry .45, currently .85, est gain .40.
Estimated net loss $1.68.


WLL - Whiting Petroleum (Jan Covered Call 12/21)

Crude prices are refusing to decline and various production outages around the world are helping to reduce inventories. We still have the rough patch between Jan-Apr but the outlook is improving. Whiting appears to have found support at $22.50 after some rocky months.

Expected earnings Jan 24th.

Buy-write Jan $24.50 call, currently $24.37-$1.41, stop loss $22.00.


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.