Friday, June 29, 2018  12:52:33 AM

End of Month/Quarter/Half

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
The Nasdaq rallied to new highs the prior week but the Dow remained a market anchor.

With the strong divergence between large caps and small caps, and the Nasdaq and Russell at new highs, portfolio managers were forced to rebalance their holdings and a strong sell cycle was born.

When markets/treasuries go directional the portfolio allocations become imbalanced. Hypothetically if a pension fund's portfolio is supposed to be 25% small cap, 25% large caps, 25% techs stocks and 25% treasuries a sustained rally or decline in any group throws the portfolio out of balance.

Anyone holding tech stocks and small caps over the last quarter found their weighting in those areas become significantly out of balance. At the end of the quarter/half they need to bring those ratios back into balance. In this care that means selling the tech stocks and the small caps and putting that money back into an underperforming group.

The Russell had outperformed the Dow so significantly that managers were imbalanced. This week alone the Russell has declined 28 points on Monday and Thursday. The Russell is down 76 points (-4.5%) in six days as profits were captured and ratios balanced. After a 28-point drop, the minor 4 point gain was just noise.



The Dow and S&P both fell to critical support at 24,000 and 2,700 respectively and both held at those levels. That could trigger a stronger rebound as long as the headlines do not get in the way.



The Nasdaq also dipped to strong support and rebounded. However, the 58-point gain was only half of Wednesday's loss. The bearish trend is still intact.


We could see a continued rebound from support on Friday as long as the headlines remain calm. With a low volume holiday week ahead, there could be some heightened volatility in both directions.

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


NFLX - Netflix (Short Puts)

We were blown out of both out of Netflix positions last Monday with that 8% intraday drop of -32 points and the -211 point drop on the Nasdaq. We escaped with a profit on the July position but the August position had too much time left and the option premiums exploded.

Closed July $300 short put, entry $5.37, exit $1.45, +$3.92 gain.

Closed Aug $330 short put, entry $4.20, exit $7.54, -$3.34 loss.



SHOP - Shopify (Short Put)

The Nasdaq weakness contaminated all the high profile stocks and Shopify was no exception. We were stopped for a minor loss but the long put is nicely profitable.

Closed July $150 short put, entry 2.41, exit $3.10, -.69 loss.
Retain July $140 long put, entry $1.20, currently $4.10, stop loss $148.75.



FB - Facebook (Short Puts)

The big Nasdaq crash on Monday also knocked us out of both positions in Facebook. It was not stock related, just a market selloff.

Closed July $175 short put, entry $1.52, exit .84, +.68 gain.

Closed July $185 short put, entry $1.80, exit 2.30, -.50 loss.



New Recommendations


UBNT - Ubiquiti Networks (Aug Put Spread)

Ibiquiti has withstood the Nasdaq weakness pretty well and closed at the high for the week on Thursday. There is strong support at $80 giving us a $10 cushion before out shot strike could be hit.

Earnings August 9th.

Sell short Aug $70 put, currently $2.60, stop loss $78.85.
Buy long Aug $60 put, currently $1.40, no stop loss.
Net credit $1.20.



FFIV - F5 Networks (Aug Short Put)

F5 had a nice rally in progress until the Nasdaq crash knocked it back to support, which held very well. This could be a launch point for a continued rally. If not, then we have a clear exit signal.

Earnings July 26th.

Sell short Aug $155 put, currently $1.97, stop loss $168.85.



GRUB - GrubHub Inc (Aug Short Put)

GrubHub had broken out to a new high until the Nasdaq crashed and knocked it back to support at $100. It actually never reached support because eager buyers kept jumping the gun.

Earnings July 25th.

Sell short Aug $90 put, currently $2.50, stop loss $98.50.



New Covered Call Recommendations


No New Covered Calls

With the market still undecided about direction and suffering major intraday swings, I am still very cautious on covered calls. I am not recommending covered calls 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.

July expiration is the 20th. August is the 17th.

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.




Couch Potato Portfolio.


No Active Plays


New Couch Potato Recommendations.

No new Couch Potato plays this week. The market is in decline with 400-point intraday swings in the Dow. It is financial suicide to try and put on big spreads in this market because it is almost a guarantee that one side or both will be stopped out for a loss.

The VIX has rebounded to 17. There are no "safe" delta neutral plays or at least none that I could find. We need for the tariff headlines to turn positive so investors will go dormant for the rest of the summer.


Couch Potato Play Updates

No active positions.


Existing Option Writer 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.


AAP - Advance Auto Parts (Aug Put Spread 6/21)

AAP has a chart to die for. Since earnings in May there has been a nice slow steady gain after gain and no real volatility with the market. The stock posted a gain on Thursday when all the major indexes were down hard.

Earnings August 21st.

Sell short Aug $125 put, currently $2.15, stop loss $131.85.
Buy long Aug $115 put, currently .95, no stop loss.
Net credit $1.20.


ANET - Arista Networks (July Short Put 5/23)

Arista Networks is a solid competitor to Cisco Systems. Analysts believe Cisco's weak performance in the Q1 earnings was due in part to the surge in acceptance of Arista's products. The huperscale cloud companies like Facebook, Microsoft, etc are buying millions of dollars of high performance switches from companies like Arista rather than pay for the top of the line Cisco equipment. In this business performance and price both matter.

Earnings Aug 3rd.

Sell short July $230 Put, currently $3.40, stop loss $246.25.

Update 6/7: Arista was looking weak last Wednesday and I recommended we close the position while it was still positive. It turned out not to be a problem and the stock rocketed higher.

Closed July $230 short put, entry $3.78, exit $3.00, +.78 gain.


CP - Canadian Pacific (July Short Put 5/30)

Shares broke out to a new high on Wednesday and the momentum appears to be increasing.

Earnings July 17th.

Sell short July $175 put, currently $1.30, stop loss $184.50.

Update 6/21: Shares fell with the market on Tuesday morning to stop us out.

Closed July $175 short put, entry $1.40, exit $1.20, +.20 gain.


FB - Facebook (July Short Put 5/30)

Facebook closed at a 4-month high as all the privacy issues appear to be in the rear view mirror. With the Nasdaq nearing a new high the FAANG stocks should do well.

Earnings July 25th.

Sell short July $175 put, currently $1.63, stop loss $183.65.


FB - Facebook (July Short Put 6/14)

Facebook has shaken off all the volatility from the privacy scandals and closed at a new high on Thursday. The stock could continue higher for the short term on the higher high creates another higher hand syndrome.

Earnings July 25th.

Sell short July $185 Put, currently $1.35, stop loss $191.


LLL - L3 Technologies (July Put Spread 5/23)

The defense company suffered a massive drop from $216 to $180 the week before earnings and there was no company specific news. Shares are rebounding and should cross resistance at $197.50 in the coming days. Once back over $200 it should attract some of the old money that was knocked out on the dip.

Earnings Aug 1st.

Sell short July $185 put, currently $2.15, stop loss $192.50.
Buy long July $175 put, currently $1.05, no stop loss.
Net credit $1.10.

Update 6/14: The potential nuclear disarmament deal with North Korea caused all defense stocks to decline and we were stopped out of the short put and the short put side of the spread.

Closed July $190 short put, entry 1.35, exit 1.96, -.61 loss.

Closed July $185 short put, entry $2.20, exit $1.15, +$1.05 gain.
Retain July $175 long put, entry .95, currently .25.


LLL - L3 Technologies (July Short Put 6/7)

The May dip is being quickly erased and the pauses for profit taking have been minor. There is no fundamental reason for the rebound to fail.

Earnings July 31st.

Sell short July $190 put, currently $1.20, stop loss $197.


LRCX - Lam Research (July Call Spread 6/14)

Lam disappointed on earnings and fell from $200 to $181. Support broke today and it could have a lot further to go.

Earnings July 26th.

Sell short July $200 call, currently $1.65, stop loss $159.
Buy long July $210 call, currently .65, no stop loss.
Net credit = $1.00.


MCK - McKesson (July Short Put 6/7)

McKesson is rebounding from a higher low from the March bottom. Shares are recovering slowly.

Earnings August 21st.

Sell short July $135 put, currently $1.05, stop loss $141.00.

Update 6/21:

MCK - McKesson (Short Put)

McKesson spiked the prior week and I raised the stop. Shares immediately rolled over and knocked us out for minor gain.

Closed Jul $135 short put, entry $1.08, exit .85, +.23 gain.


NFLX - Netflix (July Short Put 5/23)

Netflix is back! After posting monster earnings and subscriber growth, the shares spiked then faded in a bout of post earnings depression. That is over and Netflix soared $13 to a new high on Wednesday. That leaves very strong support at $325.

Earnings July 16th.

Sell short July $300 put, currently $5.20, stop loss $325.75.


NFLX - Netflix (Aug Short Put 6/21)

Netflix is the gift that keeps on giving. The stock never quits with new high after new high. The media company acquisition binge currently in progress is mostly due to Netflix. Broadcast and cable companies are trying to get into the streaming segment to keep Netflix from taking their customers.

Earnings July 16th.

Sell short Aug $330 put, currently $4.50, stop loss $383.75.


NVDA - Nvidia (July Short Put 5/30)

Nvidia has not lost its mojo. The stock seased over resistance on Wednesday and could be making a ne whigh soon if the Nasdaq continued to remain positive.

Earnings August 9th.

Sell short July $225 put, currently $2.27, stop loss $243.85.

Update 6/21: We had two Nvidia put positions and the stock crashed with the market on Tuesday to stop us out of both. Nothing stock related. Just a 400-point drop on tariff headlines.

Closed July $225 short put, entry $2.49, exit .63, +$1.86 gain.


NVDA - Nvidia (July Short Put 6/7)

Nvidia has broken above resistance and closed at a new high on Wednesday. There was a minor decline with the Nasdaq on Thursday The most recent analyst was targeting $400 for the stock in a year.

Earnings August 9th.

Sell short July $240 put, currently $2.30, stop loss $254.50.

Update 6/21: We had two Nvidia put positions and the stock crashed with the market on Tuesday to stop us out of both. Nothing stock related. Just a 400-point drop on tariff headlines.

Closed July $240 short put, entry $2.81, exit $1.88, +.93 gain.


RHT - Red Hat (July Short Put 5/23)

Red Hat had a very good run in early May and then collapsed back to $160. This level was tested as support twice and held both times. If RHT can move over $165, it could retest the highs.

Earnings June 27th.

Sell short July $150 put, currently $2.70, stop loss $159.25.


SHOP - Shopify (July Put Spread 6/14)

Shopify had decent earnings but still consolidated the last week. Thursday's gain closed at a new high. Stocks that make new highs tend to continue making new high.

Earnings August 1st.

Sell short July $150 put, currently $2.15, stop loss, $158.75.
Buy long July $140 put, currently $1.15, no stop loss.
Net credit $1.00.


TSLA - Tesla Inc (Aug Short Put 6/21)

Tesla has been on a roll and Elon Musk has promised the mother of all short squeezes at the end of June when they hit their production goals and turn cash flow positive. Let's hope he is right. This put is $100 OTM.

Sell short Aug $250 put, currently $4.75, stop loss $312.50.


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.