Thursday, May 10, 2018  1:50:12 AM

Finally a Rally?

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
Trading higher only 3 of the last 4 days is hardly a convincing rally but better than the prior weeks.

The S&P finally squeezed by the resistance at the 50-day and the horizontal resistance at 2,675 that has caused so much trouble over the last 6-weeks. The index closed at 2,697 with the 100-day resistance at 2,705. One more decent gain and we should be over these critical resistance levels.


The Dow actually broke above downtrend resistance and the horizontal resistance at 24,500. With futures up on Wednesday night, we have a decent chance of moving higher. The 100-day at 24,846 and horizontal resistance at 24,700 there are still a couple hurdles to cross but the outlook is improving.


The Nasdaq closed at a 2-month high and broke above resistance at 7,300. The index is gaining speed and only two of the 16 Nasdaq big caps were negative today. Those were AVGO and BABA and both were only fractional losses. The next hurdle is 7,421.


The Russell is on fire with another 10-point gain to close jsut below 1,600. If we can post another decent daily gain, it should put the Russell over that level and could trigger a broad market rally as the index retests its prior highs.


Three out of four days does not make a trend but it is a lot better than what we were seeing over the prior two weeks. The Dow and S&P are trying to break out of their bearish descending triangles and the Nasdaq and Russell are trying to retest their highs. We could be heading for another day of gains but there is likely some profit taking ahead. I find it hard to believe that all the uncertainty suddenly just evaporated.

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


MCK - McKesson (Short Put)

MCK was looking weak so we closed the short put at the open on Thursday. That was the right decision since the stock crashed at the open and continued to decline over the last 5 days.

Closed May $135 Short Put, entry $2.34, exit .35, +$1.99 gain.



LULU - Lululemon (Short Put)

LULU shares collapsed after a news headline about a girl getting second degree burns wearing yoga apparel for a MRI. However, although that headline was new the news was not. MRI facilities all over the country have signs and warnings posted about NOT wearing yoga apparel during a MRI. The lycra and spandex for sports have tiny metal threads that inhibit bacteria growth and body odor. Unfortunately, those threads heat up in the MRI. It is like sticking aluminum foil in a microwave.

The shares recovered immediately and I am recommending we reload the position.

Closed June $90 short put, entry $2.18, exit $2.75, -.57 loss.

Reload:
Sell short June $90 put, currently $1.80, stop loss $96.45.



New Recommendations


VMW - VMWare (June Put Spread)

VMWare surged to a new post January high on Wednesday after an analyst said the stock could rise another 30% to $175 in the coming weeks. The stock weathered the post Icahn position depression cycle with a $7 decline and has now erased that loss. Carl acquired just under a 5% stake and is likely to resist a reverse merger with Dell. Icahn has battled with Michael Dell in the past and lost so it is personal for Carl and likely to be dramatic.

Earnings May 31st.

Sell short June $125 put, currently $2.35, stop loss $133.65.
Buy long June $115 put, currently $1.05, no stop loss.
Net credit $1.30.



NFLX - Netflix (June Short Put)

We already have a short put on Netflix but with premiums so high, it is tough to pass up.

Earnings July 16th.

Sell short June $300 put, currently $3.50, stop loss $318.65.



WYNN - Wynn Resorts (June Short Put)

Elaine Wynn has won the support of all three investor proxy advisory firms for her "Campaign for Change" slate of board nominations. She is trying to evict all the old board members loyal to Steve Wynn in hopes of avoiding serious problems with the probes into moral fitness by Nevada and Massachusetts. Ironically, Steve tried to prevent her from voting in years past and muted her as a stockholder. Now ISS, Eagan-Jones and Glass Lewis have all recommended investors vote with Elaine. Shares soared on the news.

Earnings July 26th.

Sell short June $180 put, currently $1.40, stop loss $189.50.



PANW - Palo Alto Networks (June Short Put)

Shares are exploding higher in a positive market. They should rest soon but there is plenty of room between the current price and our put strike.

We already have a position in PANW. If you do not want to double up on the singl estock risk, please pick another play.

Earnings May 28th.

Sell short June $185 put, currently $3.00, stop loss $197.50.



New Covered Call Recommendations


No New Covered Calls

Surprisingly, even with the recent market rally, call premiums were very low. We are now due for a bit of profit taking. I did not find anything I would put my money in again this week.


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.

June expiration is the 15th. July expiration is the 20th.

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.


ADBE - Adobe (May Short Put 3/28)

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.

Update 4/25: We were finally stopped out of the Adobe put thanks to a tight stop. This was a textbook example of how a play is supposed to work.

Closed May $180 short put, entry $1.81, exit .16, +$1.65 gain.


ADBE - Adobe Systems (May Short Put 4/25)

Adobe is a strong chart with an uptrend that has not been violated in the last year. Support should be firm at $215.

Earnings June 13th.

Sell short May $205 put, currently $2.45, stop loss $212.25.


DPZ - Domino's Pizza (May Short Put 3/28)

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.

Update 4/25:

DPZ - Dominos Pizza (Short Put)

Dominos did not post a material decline given its recent gains but it was enough to take us out of the position before a potential support break at $230.

Closed May $210 short put, entry $3.16, exit $2.10, +$1.06 gain.


DQ - DAQO New Energy Corp (May Short Put 4/4)

Throughout the market decline DAQO has held support at $45. Shares have risen recently to close over $54 on Wednesday. This is not a high premium put but it is worth the effort.

Earnings May 20th.

Sell short May $40 put, currently $1.20, stop loss $47.85.

Update 4/18: DQ announced a secondary offering on the 12th and dropped $6 on the news to stop us out.

Closed 4/12: May $40 short put, entry $1.15, exit $1.30, -.15 loss.


DQ - DAQO New Energy (June Short Put 5/2)

DQ has been trading sideways since they dropped in early April on a secondary offering announcement. There is a minor upside bias and it could be getting ready to move higher. The low volatility in DQ will let us use a tight stop and the premium is decent with a low margin requirement.

Earnings May 30th.

Sell short June $45 put, currently $1.60, stop loss $50.50.


IPGP - IPG Photonics (May Put Spread 4/18)

IPGP bottomed at $220 on the last decline in early April. The stock is not roaring higher but it is moving steadily. There has been very little volatility over the last two weeks.

Earnings May 17th.

Sell short May $210 put, currently $2.35, stop loss $226.50.
Buy long May $195 put, currently $1.10, no stop loss.
Net credit $1.25.

Update 4/25:

IPGP - IPG Photonics (Put Spread)

The rebound from uptrend support failed and then support failed. We were stopped on the short side a $226.50. The long put is currently profitable so I am recommending we close it as well. Normally, I would just put a stop loss on it but this is a May position and the $195 put is still $20 OTM. By next week that premium will begin to evaporate quickly.

Closed May $210 short put, entry $3.43, exit $4.00, -.57 loss.
Close May $195 long put, entry $1.93, currently $2.84, +.91 gain.

Update 5/2: We closed the remaining long put for a gain at the open last Thursday. The stock had crashed the prior week to inflate our premium.

Closed 4/26: May $195 long put, entry $1.93, exit $2.75, +.82 gain.
Previously closed: May $210 short put, entry $3.43, exit $4.00, -.57 loss.
Net gain 25 cents.


JACK - Jack in the Box (May Short Put 4/11)

JACK appears to have found support at $83-$84 and has been moving slightly higher despite the big market swings. The base at support appears solid.

Earnings May 23rd.

Sell short May $80 put, currently $1.15, initial stop loss $83.75.

Update 5/2: We were stopped on the short put when JACK dipped to $87.75.

Closed 5/2: May $80 short put, entry $1.20, exit .70, +.50 gain.


LLL - L3 Technologies (May Short Put 4/4)

During the market weakness L3 held in the 200-205 range and broke out to a four-week high close on Wednesday. With even a barely positive market, the defense stocks should do well given the $700 billion in funding that was recently approved. This is a short fuse with earnings three-weeks away.

Earnings April 26th.

Sell short May $190 Put, currently $1.55, stop loss $203.50.

Update 4/25:

LLL - L3 Technologies (Short Put)

L3 crashed nearly $18 but fortunately we had a tight stop loss and we escaped with a minor gain.

Closed May $190 short put, entry $1.55, exit .85, +.70 gain.


LRCX - Lam Research (May Short Put 4/4)

Lam Research is capable of making some big directional moves. After trading relatively flat at $195 for five days the stock posted a decent gain on Wednesday. I believe that $195 level is going to be decent support. This is a short fuse with only three weeks until earnings.

Earnings April 26th.

Sell short May $170 put, currently $2.70, stop loss $190.25.

Update 4/11: We were only in the LRCX position one day before the tariff battle out of China appeared to suggest there would be tariffs on chips and the entire sector collapsed. We were stopped for a large loss. There is no way we could have known this headline would appear.

Closed May $170 short put, entry $2.62, exit $4.10, -1.48 loss.


LULU - Lululemon (June Short Put 5/2)

LULU is on fire. The stock spiked in early April and just keeps climbing a little bit every day. With this kind of relative strength we can use a tight stop loss. You know there are investors just waiting for a dip so they can buy this stock. I have wanted an entry point to go long in OIN for the last two weeks but it never worked out.

Earnings June 27th.

Sell short June $90 put, currently $1.75, stop loss $96.50.


MCK - McKesson (May Short Put 4/11)

McKesson has been moving steadily sideways with a minimal upward bias over the last three weeks in a very bad market. Support has held at $140.

Earnings May 3rd.

Sell short May $135 put, currently $2.15, stop loss $138.75.


NFLX - Netflix (May Short Put 4/25)

Netflix spiked to a new high after earnings then fell back as the weak market took its toll. Shares closed $13 off their intraday low today. This could be an attempt to put in a bottom at $300.

Earnings May 31st.

Sell short May $270 put, currently $2.67, stop loss $289.


PANW - Palo Alto Networks (June Short Put 5/2)

PANW closed at a new high on Wednesday in an ugly market. The stock has been creeping up slowly over the last several weeks despite the market volatility. This shows good relative strength.

Earnings May 28th.

Sell short June $175 put, currently $2.99, stop loss $189.50.


PAYC - Paycom Software (May Put Spread 4/11)

Paycom shares are holding at a new high with good relative strength over the last week.

Earnings May 8th.

Sell short May $100 put, currently $1.90, stop loss $106.35.
Buy long May $90 put, currently .80, no stop loss.
Net credit $1.10.

Update 4/25:

PAYC - Paycom (Put Spread)

Paycom set new highs last week but the market weakness finally took hold and dragged the stock back to support at $110. If I had any confidence at all that the market was going to rebound I would resell that May $100 put, currently $1.50 but the indexes are too weak to risk more money on this position. Given the recent gains it would be a prime target for selling if the market continues lower.

Closed May $100 short put, entry $2.34, exit 1.65, +.69 gain.
Close May $90 long put, entry $1.04, currently .50, -.54 loss.

Update 5/2: We closed the remaining long put at the open on Thursday.

Closed May $90 long put, entry 1.04, exit .30, -.74 loss.
Previously stopped: May $100 short put, entry $2.34, exit $1.65, +.69 gain.
Net loss 5 cents.


RH - Restoration Hardware (June Short Put 5/2)

RH gave some strong guidance when they announced earnings on the 27th. Shares have rocketed higher and appear to be headed for a retest of the highs at $105.

Earnings June 27th.

Sell short June $85 Put, currently $2.75, stop loss $92.50.


SHOP - Shopify (May Short Put 4/18)

Shopify crashed after earnings to decline from $155 to $115 in just over week. That was really painful. Shares have started to to rebound out of their consolidation pattern.

Earnings May 17th.

Sell short May $110 put, currently $2.05, stop loss $119.

Update 4/25:

SHOP - Shopify (Short Put)

No magic here. The weak market killed the rebound and stopped us out.

Closed May $110 short put, entry $2.20, exit $3.31, -1.11 loss.


STMP - Stamps.com (May Short Put 4/18)

Stamps.com closed at a 6-month high on Wednesday. This stock is prone to volatility and wild moves around earnings. We will exit before that happens.

Earnings May 23rd.

Sell short May $180 put, currently $2.30, stop loss $208.65.


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.

Update 4/17: Weak market knocked us out.

Closed May $95 long put, entry .53, exit .20, -.33 loss.
Previously closed: May $110 short put, entry $2.43, exit $3.40, -.97 loss.


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.

Update 4/11: We closed the leftover long put at the open on Thursday.

Closed May 65 long put, entry .74, exit .90, +.16 gain.
Previously closed: May 75 short put, entry $2.22, exit $3.80, -1.58 loss.
Net loss $1.42.


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.


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.