Thursday, March 22, 2018  4:00:52 AM

Not Looking Good

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
In recent weeks the Wednesday night S&P futures have been ugly. Nothing changed this week.

The S&P futures rose +7 in the early hours of the overnight session but have rolled over to -20 as I type this. I looked at a lot of charts tonight as i was preparing for the various newsletters and quite a few appear to be rolling over. There was a definite sell off late Wednesday afternoon in quite a few stocks and sectors.

Typically the market action after the Fed announcement is volatile and the direction taken immediately after the announcement is the wrong one. Stock typically reverse the original move, which is exactly what happened on Wednesday.

The day after a Fed announcement, the market is normally directional. Traders and portfolio managers have had time to digest the Fed commentary, the data and the commentary from the market analysts. They made an investment decision and now they are acting on it. Thursday is likely to open negative unless a miracle reversal appears.

The headlines moving the market tonight come from the White House. The president has said he will announce targeted tariffs against China due to theft of intellectual property and unfair trade rules. We import their cars for 2% duty. They add a 25% duty on any cars imported into China. Obviously we do not import many cars from China but there are a few. There are similar imbalances on hundreds of other products.

If China wants to by or start a business in the U.S. they just have to put up the money and we welcome them with open arms. Foreigners cannot open a business in China unless a Chinese partner has at least 51% ownership in the company. That way China is in control and they can access any intellectual property used in the business.

This is not going to go away quickly. China has already leaked some items they are considering for retaliatory tariffs and it will not be pretty. The odds of an actual trade war are growing rapidly.

The markets tried to rally after the Fed but all the major indexes with the exception of the Russell 2000 fell back into negative territory. If the market opens down as much as the futures are predicting, the S&P will be back below 2,700 and a break below the 100-day at 2,690 would be significantly bearish.


The Dow declined -295 points from its intraday high to fall back to the 100-day average at the close. This is the edge of a cliff. If the Dow opens much below the 100-day again, it is likely to continue lower to retest the February lows.


The Nasdaq futures are down -60 points and a break below current support targets a retest of the early March lows at 7,085. This could trigger all kinds of bearish selling.


If you do not have to be in the market on Thrusday, I would strongly suggest waiting patiently on the sidelines until the direction is determined. Do not try to catch this falling knife because the market internals have been weakening. The next market decline could have legs. It is too bad because this is the sweet spot week where earnings are over and the next earnings cycle is far enough away that almost any stock with a trend has an available trade.

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


March Position Recap


When you consider the amount of volatility over the last 45 days, I think we got off lucky with only a $600 loss. Most of that was concentrated in the WYNN gap lower, DPZ gap lower and FB gap lower on February 6th-9th when the market was crashing. It was an extremely volatile month and I am blad it is over. Unfortunately, March has not been much better. Only the declines have been slower and without the gut wrenching dives we saw in February.




Current Position Changes


NFLX - Netflix

The short put was stopped out on the gap lower on the 19th for a successful position.

Closed Apr $210 short put, entry $3.24, exit .25, +$2.99 gain.



PXD - Pioneer Natural Resources (Call Spread)

Huge rebound in PXD today of $5.51 on surge in crude prices. We were stopped out for a decent gain.

Closed April $195 short call, entry $2.20, exit .50, +$1.70 gain.



SWKS - Skyworks Solutions (Short Put)

The trend changed in Skyworks when the Nasdaq rolled over and Apple cut its orders for iPhone components. We were stopped for a minor gain.

Closed April $95 short put, entry $1.15, exit .35, +.80 gain.



WDC - Western Digital (Short Put)

We closed the short put on WDC at the open last Thursday.

Closed Apr $75 short put, entry $1.02, exit .07, +.95 gain.



New Recommendations


VMW - VMWare (May Put Spread)

We already have a short put on VMW but the excellent relative strength in the fave of a weak Nasdaq suggests we can add another position without too much risk.

Earnings May 31st.

Sell short May $110 put, currently $2.10, initial stop loss $119.85.
Buy long May $95 put, currently .50, no stop loss.
Net credit $1.60.



WIX - WIX.com Ltd (May Put Spread)

WIX is a website hosting company that allows users to create fully functional websites in only a few clicks and drag and drop some images. They have been very successful and the stock has gone vertical since Q4 earnings.

Earnings May 15th.

Sell short May $75 put, currently $1.90, stop loss $81.
Buy long May $65 put, currently .70, no stop loss.
Net credit $1.20.



NFLX - Netflix (April Short Put)

Netflix is the gift that keeps on giving. With sky high premium well out of the money it is very hard not to play them every week.

Earnings April 23rd.

Sell short Apr $270 put, currently $3.05, initial stop loss $298.50.



WIX.com Ltd (May Short Put)

WIX is a website hosting company that allows users to create fully functional websites in only a few clicks and drag and drop some images. They have been very successful and the stock has gone vertical since Q4 earnings.

Earnings May 15th.

Sell short May $75 put, currently $1.90, stop loss $81.00.



New Covered Call Recommendations


No New Covered Calls

The current increased market volatility makes covered calls dangerous at this time. There are lots of suggestions on the additional play list.


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 20th. May expiration is the 18th.

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.




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.


COST - Costco (Mar Put Spread 2/14)

Shares dipped to $176 twice over four days and have rebounded to close over $187 on Wednesday. The retail sector is rebounding after a weak first half of February. Costco is Amazon proof and the best performer of the brick and mortar retailers.

Earnings March 15th.

Sell short Mar $175 put, currently $1.38, stop loss $182.00
Buy long Mar $165 put, currently .72, no stop loss.
Net credit 66 cents.

Update 3/7:

COST - Costco (Put Spread)

We were stopped out of the short side with a minor gain and it was probably a good thing it happened. Costco's earnings were moved up from the 14th to today and they reported after the close. There was a minor disappointment and shares declined.

Closed Mar $175 short put, entry $1.43, exit $1.01, +.42 gain.
Retain Mar $165 put, entry .51, currently .21.


CP - Canadian Pacific (Mar Put Spread 1/24)

Shares have seen some significant volatility over the last two weeks but surged to close at a ne whigh on Wednesday. Cowen reiterated an outperform last week with a price target of $207. They reported earnings on the 18th that beat the street and announced several programs to increase rail traffic including strategic opportunities to increase crude by rail.

Expected earnings April 19th.

Sell short Mar $175 put, currently $1.95, stop loss $181.35.
Buy long Mar $160 put, currently .60, no stop loss.
Net credit $1.35.

Update 2/7:

CP - Canadian Pacific (Mar Put Spread)

Shares collapsed with the market since they had been in rally mode for six months. Investors ran to the exits. We were stopped on the short put for a minor loss and I am recommending we close the long put for a decent gain.

Closed Mar $175 short put, entry $1.55, exit $1.95, -.40 loss.
Close Mar $160 long put, entry .46, currently $2.00, est gain $1.54.

Update 2/14: Shares collapsed with the market since they had been in rally mode for six months. Investors ran to the exits. We were stopped on the short put for a minor loss and I recommended we close the long put for a decent gain.


Closed Mar $160 long put, entry .46, exit $1.73, +1.27 gain.
Previously Closed Mar $175 short put, entry $1.55, exit $1.95, -.40 loss.
Net gain $0.87.


DPZ - Dominos Pizza (Mar Short Put 1/31)

Dominos is soaring. The stock has rallied $50 since November. The $190 put is $26 OTM and still has a good premium.

Expected earnings Feb 27th. We will be out before earnings.

sell short Mar $190 put, currently $2.00, stop loss $206.50.

Update 2/7:

DPZ - Dominos Pizza (Mar Short Put)

Dominos crashed with the market to stop us out of the position. The stop came on Tuesday when the market gapped down -600 points at the open. That means our fill on the exit was at the highest premium for the day.

Closed Mar $190 short put, entry $2.15, exit $5.20, -3.05 loss.


FB - Facebook (Mar Put Spread 2/7)

Facebook closed at a new high just before the market weakness began. Shares have solid support at the 100-day average at $178 and they should outperform the market. Today was an exception because of a election advertising question out of Seattle.

Earnings April 24th.

Sell short Mar $165 call, currently $1.88, stop loss $175.
Buy long Mar $150 put, currently $.65, no stop loss. Net credit $1.10.

Update 2/14: Facebook ran into a bad news cycle where every day some lawmaker, agency or country was coming down on them about privacy issues, election related issues or simple downgrades. Shares crashed through the 100-day to stop us out of the short put for a loss. I am recommending we reenter the put now that the market is recovering.

Closed Mar $165 short put, entry $1.91, exit $3.05, -1.14 loss.
Retain Mar $150 long put, entry .56, currently .29.

Sell short Mar $165 pus, currently $1.25, stop loss $171.85.

Update 3/7:

FB - Facebook (Put Spread)

The market dip on the tariff headlines knocked us out of Facebook again.

Closed Mar $165 short put, entry $1.08, exit 1.18, -.10 loss.
Retain Mar $150 long put, entry .56, currently .03.


HD - Home Depot (Apr Put Spread 2/28)

Home Depot crashed on Wednesday after Lowe's disappointed on earnings and fell 6% on weak guidance. Home Depot had strong guidance and posted great earnings. Some analysts thought the guidance could have been better but HD is spending $2.4 billion remodeling stores and improving infrastructure plus a big buyback.

Earnings May 22nd.

Sell short Apr $170 put, currently $2.21, stop loss $179.25.
Buy long Apr $160 put, currently $1.00, no stop loss.
Net credit $1.21.

Update 3/7:

HD - Home Depot (Put Spread)

With the Dow bleeding points daily for the last week, it is no surprise that Home Depot shares declined. We were stopped on the initial rash on March 1st.

Closed Apr $170 short put, entry $2.52, exit $3.10, -.58 loss.
Retain Apr $160 long put, entry .98, currently .93.


LRCX - Lam Research (Mar Put Spread 1/31)

LRCX has been respecting the 100-day average as support for a long time. It is currently on the average and also on horizontal support at $188.50. In theory it should bounce from here.

Expected earnings April 26th.

Sell short Mar $170 put, currently $2.10, stop loss $182.50.
Buy long Mar $160 put, currently $1.05, no stop loss.
Net credit $1.05.

Update 2/7: LRCX collapsed in the market crash to stop us out of the short put. However, the long put has increased significantly and shares are still declining. I added a stop loss to the long put.

Closed Mar $170 short put, entry $2.20, exit $2.84, -.64 loss.
Retain long Mar $160 put, entry $.90, currently $4.07.

Update 2/14: LRCX collapsed in the market crash to stop us out of the short put. However, the long put had increased significantly and shares were still declining. I added a stop loss to the long put at $180 and that stop was hit on the 14th.


Closed long Mar $160 put, entry $.90, exit $1.80, +.90 gain.
Previously Closed Mar $170 short put, entry $2.20, exit $2.84, -.64 loss.
Net gain 26 cents.


LRCX - Lam Research (Mar Put Spread 2/14)

Lam dipped with the market to stop us out of put spread the prior week. The rebound is strong and the market is getting stronger. I am willing to try it again.

Earnings April 26th.

Sell short Mar $160 put, currently $1.60, stop loss $169.45.
Buy long Mar $150 put, currently $1.00, no stop loss.
Net credit 60 cents.

Update 3/7:

LRCX - Lam Research (Put Spread)

We were stopped on the big market drop on the 2nd and missed the giant $29 rebound.

Closed Mar $160 short put, entry $1.53, exit $1.35, +.18 gain.
Retain Mar $150 long put, entry .84, currently .05, hopeless.


MLM - Martin Marietta Materials (Apr Put Spread 3/14)

The company posted strong earnings and guidance in February and spiked to $240. With the market correction and tariff worries, shares have fallen back to very strong support at $205. This should hold unless the market goes back into meltdown mode.

Expected earnings May 15th.

Sell short April $190 put, currently $1.75, stop loss $199.85.
Buy long April $180 put, currently .95, no stop loss.
Net credit .80 cents.


NFLX - Netflix (Apr Short Put)

Netflix has blasted off on a SpaceX rocket to new highs in the $280 range. The market dip knocked it back to $250 and buyers flooded into the stock. I am going to reach out to April on this put so I can sell $50 OTM. As we pass February expirations the premium should take the first hit. That is also when the markets should begin to trend higher and Netflix will lead on the Nasdaq.

Earnings April 23rd.

Sell April $210 put, currently $3.10, stop loss $235.


NFLX - Netflix (April Short Put 3/7)

Netflix continues to make new highs and have been immune to most of the market declines. We already have one April short put but as long as the stock keeps making new highs there is no reason not to add another one.

Earnings April 23rd.

Sell short April $250 put, currently $1.89, stop loss $282.50.


NVDA - Nvidia (April Put Spread 2/28)

Nvidia has been holding the recent gains. The stock did take a hit on Wednesday but tech stocks should lead out of the current dip. Nvidia should be setting new highs before the Q1 earnings cycle.

Earnings May 10th.

Sell short Apr $205 put, currently $2.24, stop loss $228.75.
Buy long Apr $190 put, currently $1.04, no stop loss.
Net credit $1.20.

Update 3/7:

NVDA - Nvidia (Put Spread)

Nvidia crashed $26 with the semiconductor sector and the market and knocked us out of the put spread. No news, just an ugly market on tariff headlines.

Closed Apr $205 short put, entry $2.25, exit $5.00, -$2.75 gain.
Retain Apr $190 long put, entry $1.00, currently $1.00. No stop loss.


PXD - Pioneer Natural Resources (Mar Short Put/Put Spread 2/15)

After falling 10% last week, oil prices are recovering. We are entering a seasonally weak period but inventories are declining. Energy equities fell with the market and oil last week and are rebounding this week. I am recommending either a short put or a put spread on PXD.

Earnings May 8th.

Short Put:

Sell short Mar $160 put, currently $1.00, stop loss $169.65.

Put Spread:

Sell short Mar $160 put, currently $1.00, stop loss $169.65.
Buy long Mar $150 put, currently .50, no stop loss.

Net credit 50 cents.

Update 3/7:

PXD - Pioneer Natural Resources (Short Put)

Even the oil companies were crashing last week and we were stopped on the Pioneer short put.

Closed Mar $160 short put, entry $1.39, exit $1.15, +.24 gain.


PXD - Pioneer Natural Resources (Apr Call Spread 2/21)

We already have a put spread on PXD but this well OTM call spread appeared and March is normally a seasonally weak period for oil prices.

Earnings May 8th.

Sell short April $195 call, currently $1.65, stop loss $183.75.
Buy long April $210 call, currently 55 cents, no stop loss.
Net credit $1.10.


RHT - Red Hat Inc (Mar Short Put 1/24)

Red Hat shares have been moving slowly higher. They were up in a weak tech market on Wednesday and closed only about 35 cents from a new high.

Expected earnings March 20th.

Sell short Mar $120 put, currently $1.90, initial stop loss $124.65.

Update 2/7:

RHT - Red Hat Inc (Mar Short Put)

Shares collapsed with the market to stop us out. I am going to reload this using the $115 put.

Closed Mar $120 short put, entry $1.65, exit $1.85, -.20 loss.


RHT - Red Hat Inc (Mar Short Put 2/7)

We were stopped out of the $120 short put last week andI am going to reload it with the $115 put. RHT declineed but just enough to hit our stop. The stock has good relative strength and with a farther OTM put we can lower the stop loss.

Earnings March 26th.

Sell short Mar $115 put, currently $1.16, stop loss $122.25.

Update 2/28: The short March put was closed at the open last Thursday.

Closed Mar $115 short put, entry $1.40, exit .10, +$1.30 gain.


SHOP - Shopify (April Short Put 2/28

Shopify posted strong earnings and saw a nice spike in the shares. The minor post spike depression has faded and the stock even rose on Wednesday.

Earnings May 17th.

Sell short Apr $120 put, currently $2.75, stop loss $129.50.


SHOP - Shopify (April Short Put 3/14)

Shopify crushed earnings estimates and soared to new highs. The market weakness barely produced any drag but it does exist. With a positive market Shopify should move higher.

Earnings May 17th.

Sell short April $130 put, currently $1.85, stop loss $140.65.


STZ - Constellation Brands (April Put Spread 3/14)

Constellation was making new highs just three days ago but the market decline pulled it back under that prior high resistance. It should return to the higher levels once the market recovers.

Expected earnings April 4th. (prior to expiration)

Sell short April $210 put, currently $2.60, stop loss $220.85.
Buy long April $200 put, currently $1.60, no stop loss.
Net credit $1.00.


SWKS - Skyworks Solutions (April Short Put 2/15)

Skyworks put in a solid bottom at $95 over the last two months and despite the market weakness the stock has been moving higher. Even the recent rumors over Apple cutting Q1 orders for the iPhone X had no impact.

Earnings May 7th.

Sell short April $95 put, currently $1.15, stop loss $102.


URI - United Rentals (April Call Spread, Short Put 2/21)

United fell $25 in the market crash and has a long way to go to recover the old highs and this spread is well out of the money. The stock is also strong enough to avoid new lows unless the bottom falls out of the market.

Earnings April 26th.

Sell short April $195 call, currently $2.25, stop loss $181.
Buy long April $210 call, currently 85 cents, no stop loss.
Net credit $1.40.

Sell short April $145 put, currently $2.00, stop loss $158.50.

Update 2/28: United rallied on Monday to $182 to stop us out at $181. I am recommending we reload this position using the April $200 call.

Closed Apr $195 short call, entry $2.50, exit $4.00, -1.50 loss.
Retain Apr $210 long call, entry .85, currently .90, no stop loss.

Sell short Apr $200 call, currently $1.75, stop loss $183.50.

Update 3/7:

URI - United Rentals (Call Spread)

We were stopped out the prior week when the market spiked higher and we were stopped on the short call again this week when URI ignored the ugly market to move higher. If URI keeps climbing maybe we can get some of our money back on the long call.

Closed Apr $200 short call, entry $1.90, exit $3.20, -1.30 loss.
Retain Apr $210 long call, entry .85, currently .68, no stop loss.


VMW - VMWare (Mar Short Put 1/24)

VMWare closed at a new high on Tuesday and only declined slightly in the Nasdaq sell off on Wednesday. They have a strong chart after coming back from the December dip.

Earnings March 1st. We must close before earnings.

Sell short Mar $125 put, currently $1.85, initial stop loss $133.50.

Update 1/31:

VMW - VMWare (Mar Short Put)

News broke that Dell was considering a reverse merger with VMW, where it already owns 80% of the stock, and the bottom fell out of the stock. We were stopped for a big loss on the big drop since the velocity was extreme from the $165 high the day before.

Closed Mar $125 short put, entry $1.85, exit $3.70, -1.85 loss.


VMW - VM Ware (April Short Put 3/14)

Shares of VMW have been beaten like a rented mule over the last two months after Dell talked about doing a reverse merger into the 20% of VMW stock they do not own. The stock dipped on both series of headlines but has since recovered. The Dell news is now factored into the stock unless they come out with some new plan.

Earnings May 31st.

Sell short April $110 put, currently $1.00, stop loss $119.50.


WDC - Western Digital (April Short Put 2/21)

Western fell sharply in the market crash to support at $78 and then rebounded back over $85. The outlook is good for WDC despite the fight over the Toshiba memory. They came out of that battle with a win, just not the one they wanted.

Earnings April 25th.

sell short Apr $75 put, currently $1.09, stop loss $81.25.


WYNN - Wynn Resorts (Mar Short Put, Put Spread 1/31)

I am sure everyone has heard about the disaster that struck WYNN shares last week. Steve Wynn was accused of sexual harassment and the stock fell nearly $45 in a knee jerk reaction to the news. I believe the worst is over since the stock has already lost $4.5 billion in market cap. Wynn is old (76), blind and the board is likely to eject him from the business. He owns 11.8% of the outstanding shares and his net worth has already declined by $450 million over the last week. The best thing he could do would be to resign and let the stock rebound. I am sure the board will explain it to him.

Expected earnings April 23rd.

Sell short Mar $140 put, currently $1.82, stop loss $153.50.

You could also play this as a spread:

Sell short Mar $140 put, currently $1.82, stop loss $153.50.
Buy long Mar $125 put, currently .80, no stop loss.
Net credit $1.02.

Update 2/14: Easy come, easy go. Wynn shares spiked to $180 on the news Steve Wynn had resigned. Two days later Morgan Stanley downgraded the stock saying without Steve Wynn at the helm there could am impact to operations and growth as well as activist pressures. Lawsuits are springing up almost daily against the casino for allowing a sexual predator to run free. Shares crashed back to $160 to stop us out of both short put positions.

Closed 2/8: Mar $140 short put, entry $2.06, exit .91, +$1.15 gain.
Retain Mar $125 long put, entry .54, currently .21, no stop loss.

Closed 2/9: Mar $155 short put, entry $2.01, exit $5.60, -$3.59 loss.

Update 3/7: We closed the March short put at the open last Thursday.

Closed Mar $140 Short Put, entry $2.06, exit .14, +1.92 gain.


WYNN - Wynn Resorts (Mar Short Put 2/7)

Steve Wynn resigned as CEO and Chairman because of the sexual harassment allegations that tanked the stock price. The rebound put the shares well over support at $160 and they should remain at this level or move higher.

Earnings April 23rd.

Sell short Mar $155 put, currently $2.07, stop loss $161.50.


WYNN - Wynn Resorts (Apr Short Put 3/7)

We already have two profitable positions on WYNN but there is nothing stopping us from opening another. The stock is recovering from the headline now that Steve Wynn is out of the company. They are considering a name change to lose the stigma. Support is holding at $161.

Earnings Apr 23rd.

Sell short April $150 put, currently $1.84, stop loss $158.50.


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.