Thursday, March 29, 2018  2:21:04 AM

Market Flush

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
The Dow is down -1,600 points and the Nasdaq nearly -700 over the past two weeks.

The market is systematically chewing up investors one batch at a time. The one step forward, three steps backwards is enough to keep investors interested and coming back into the market to buy the dips over and over. The trap is then sprung and after several days of high volatility, the indexes move to new relative lows.

There is just enough positive momentum to keep investors thinking "this time is different" and it will continue higher. However, i looked at close to 500 individual charts and the vast majority were bearish. If you handed me 100 charts without names and asked me where the market is going, I would have to say it is going lower,

Er get trapped in our biases and we see only bullish patterns even when the market is declining. That next support will hold. It will rebound from this moving average. The market is too oversold. We all have a quiver full of excuses when the market does not move higher. Even if our bullish reasoning was valid, the market can remain irrational far longer than we can remain liquid.

The Dow has already closed under the 10% correction level and is showing no indications of a pending rebound. The critical area will be the 300-day average at 23,398.


The S&P halted its decline with the touch of the 200-day on Monday but it cannot hold the rebound gains. It is slowly settling back towards that level and a breakdown would be traumatic because of the potential for lower lows.


The Nasdaq had been the strongest index but the big cap tech stocks are imploding. With nearly a 700-point drop, the index is oversold but the sellers continue to dump stock. There were a lot of uncaptured profits on the Nasdaq big cap stocks.


My recommendation would be to not put any more money into the market until the volatility eased and a direction move higher has begun. We were blown out of 12 positions last week because of the market crash. It was no fault of the individual stocks. Investors are just looking for something to sell to raise cash to protect other positions.

Be patient, with 20% earnings expected for Q1, there should be a rally in our future.

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



Current Position Changes


Multiple Position Exits

Rather than list all 12 of the stopped positions individually I am going to refer readers to the portfolio graphic above. All the individual charts look the same and all the declines were market related. The Nasdaq declined nearly 700 points over the last two weeks and the Dow is down -1,600. Much of those losses came in high volatility bearish moves so put premiums were significantly inflated. This qualifies under the "best laid plans of mice and men sometimes go astray." There is nothing we could have done different to combat a sudden market meltdown. We escaped the February crash with minor losses but the number of open positions combined with the speed of the decline, caused a painful loss.


New Recommendations


ADBE - Adobe (May Short Put)

Adobe spiked to $230 on earnings and held there for several days. The big rebound from Monday saw Adobe make a new high but the market decline has taken its toll. I am a firm believer in Adobe and I think it will hold most of its gains.

Earnings June 13th.

Sell short May $180 put, currently $2.09, stop loss $201.50.



DPZ - Domino's Pizza (May Short Put)

Domino's is continuing its post earnings run and despite the ugly market over the last several days, the stock closed at a new high.

Earnings May 28th.

Sell short May $210 Put, currently $3.30, stop loss $223.50.



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.


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.


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.

Update 3/21: 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.


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.


NFLX - Netflix (April Short Put 3/23)

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.


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 (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.

Update 3/21: 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.


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.

Update 3/21: 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.


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 - 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.


VMW - VMWare (May Put Spread 3/23)

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.


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.

Update 3/21: We closed the short put on WDC at the open last Thursday.

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


WIX - WIX.com Ltd (May Put Spread 3/23)

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.


WIX.com Ltd (May Short Put 3/23)

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.


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.