Friday, July 27, 2018  3:42:49 AM

All's Well that Ends Well

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
The news of a trade deal with the EU and positive earnings from Amazon should lift the market on Friday.

The trade deal is not Friday news but it has a lasting impact on the market. Tariff fears over Europe are fading. Next I would expect to see some deal with Canada and Mexico and that would leave China as the odd country out and provide even more pressure for them to capitulate and offer some form of deal. This would be a win for President Trump and the market.

The Dow gained 112 today and the Nasdaq lost 80. That sounds terrible but the Nasdaq losses came from only two stocks. Facebook erased 85 Nasdaq points and Amazon subtracted 23 points. However, the A/D line on the Nasdaq was positive with 1,574 advancers to 1,291 decliners.

The good news is that we are not likely to see a repeat of the decline on Friday because those two stocks are now oversold. Add in the 61 point spike in Amazon after earnings on Wednesday and we should have a positive open.

The only two indexes that counted on Wednesday were the Dow and Nasdaq. The Dow closed at a 6-month high and appears headed for a test of light resistance at 25,725.


The Nasdaq has been stuck under uptrend resistance for two weeks but continues to make slightly higher highs. Even with an 80 point decline today the index is still holding right at the prior highs. We need to get over that resistance and stretch out some gains.


The market is going to celebrate the EU trade deals until they have some other news. Investors are ignoring the final battle against China that should appear in August. That could upset the apple cart when those headlines begin to fly.

This is the busiest week in the Q2 earnings cycle but the intensity does not decline much for next week. The week after will be the first week of August and there is a significant decline in activity.

I am cautious about the outlook for August. There are far too many headlines expected and August and September are normally the weakest months of the year. However, once China capitulates, investors will party on and within a couple days they will no longer remember the last six months of pain.

We had to step out to September options this week and there was very little premium there as well. We are in the heart of the earnings cycle so about 75% of available stocks were actually unavailable because of their impending earnings. Some 40% of the S&P reports this week and 25% next week.

There is no reason to try and force a play. Be patient and our market will eventually return.

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


July Position Recap


The July option cycle worked out well but could have been better. The volatility stopped us out of a lot of positions for minor gains, but they were still gains. Since our biggest loss was $75 it was a good month. Anytime we can generate a lot of individual gains and keep the losses to a minimum, I count that as successful.




Current Position Changes


UBNT - Ubiquiti Networks (Aug Put Spread)

The market volatility on the 24/25th knocked us out of a lot of positions. UBNT was already heading lower and the volatility just accentuated the move. I serioudly dount the August $60 long put will appreciate so I am recommending we close it.

Closed Aug $70 short put, entry $2.41, exit .95, +1.46 gain.
Close Aug $60 long put, entry $1.06, currently .60, -.46 loss.



GRUB - GrubHub (Aug Short Put)

I neglected to remind readers to close the GRUB position the day before earnings as we always do. I am sure readers exited rather than held a short position over an earnings report. We always close at the open the morning before earnings.

Closed Aug $90 short put, entry $2.45, exit .89, +$1.56 gain.



WIX - WIX.com (Aug Put Spread)

We had a left over long put from the aborted spread. I recommended we close it at last Friday's open.

Closed Aug $80 long put, entry .85, exit .50, -.35 loss.
Previously closed Aug $90 short put, entry $2.08, exit $1.85, +.23 gain.
Net loss .12



FB - Facebook (Aug Put Spread)

I neglected to remind readers to close the FB position the day before earnings as we always do. I am sure readers exited rather than held a short position over an earnings report. We always close at the open the morning before earnings. The FB collapse is a prime example of why we always close the short position before earnings.

Closed Aug $180 short put, entry $2.32, exit .42, +1.90 gain.
Closed Aug $170 long put, entry $1.11, exit .17, -.94 loss.
Net gain .96.



HD - Home Depot (Aug Put Spread(s))

Home Depot was breaking out the prior week but the rally stalled with the weak market. We were stopped on the older spread at $199.85 and at $199.65 on the new spread. I am leaving the long puts open because the trend appears to have reversed lower.

Closed Aug $190 Short put, entry $1.55, exit $1.00, +.55 gain.
Retain Aug $170 long put, entry .60, currently .30.

Closed Aug $195 short put, entry $1.50, exit $2.00, -.50 loss.
Retain Aug $185 put,entry .39, currently .54.



TTD - The Trade Desk (Aug Short Put)

The market volatility on the 24/25th caused TTD shares to fall more than $10 over two days to stop us out.

Closed Aug $80 short put, entry $2.28, exit $2.24, +.04 gain.



AAP - Advanced Auto Parts (Aug Short Put)

No specific news. Shares declined with the market to stop us out on the 24th.

Closed Aug $135 short put, entry $2.70, exit $3.60, -.90 loss.



New Recommendations


SIG - Signet Jewelers (Sep Call Spread)

Signet is coming back from a rough spring where the stock collapsed on less than expected earnings. The stock is about to breakout to a 9-month high. Expectations are rising again thanks to their "Signet path to brilliance" plan.

Earnings August 30th.

Sell short Sept $50 put, currently $1.60, stop loss $58.85.
Buy long Sept $40 put, currently .40, no stop loss.

Net credit $1.20.



ADBE - Adobe Systems (Sep Short Put)

Adobe continues to surprise on earnings and continues to move higher. The 60-day average has been support for the last year but it is rarely touched. Tuesday's close was a new high.

Sell short September $235 put, currently $2.41, stop loss $254.85.



PANW - Palo Alto Networks (Sep Short Put)

Palo Alto just priced $1.5 billion in convertible notes at 0.75% interest and a convertible price of $266. The stock is currently trading at $215. Palo Alto is also trending steadily higher despite periodic volatility. Under no scenario does anyone expect cyber security to be less of a problem in the future and that makes the outlook bright for PANW.

Earnings September 3rd.

Sell short Sept $185 put, currently $2.41, stop loss $206.25.



New Covered Call Recommendations


No New Covered Calls

Now that the market appears to be headed higher, you would think there would be a lot of covered calls. However, the current earnings cycle has killed the vast majority as potential plays. Any stock that does not have a weak chart has earnings instead. 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.

August expiration is the 17th and September expiration is the 21st.

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. You should always exit a short position the day before earnings.




Couch Potato Portfolio.


No Active Plays


New Couch Potato Recommendations.

No new Couch Potato plays this week. Despite the VIX holding at 12 there is far too much intraday volatility to try and launch combination positions with any hope of having them last until expiration. Everything that looked playable has earnings over the next couple weeks. That is a recipe for disaster as evidenced by the Facebook crash. August premiums are too skinny and we cannot reach out to September because of the late July, early August earnings. Also, the tariff issues have not gone away. They will be back.

There are no "safe" neutral plays or at least none that I could find. If we cannot find a low volatility play we should not play. The market could move in either direction on Friday after the Dow gaining $112 and the Nasdaq losing -80 on the same day. .


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.


AAOI - Applied Optoelectronics (Aug Short Put 7/12)

Shares have been moving steadily higher and closed at a ten-month high on Thursday. A Davidson analyst said the company was moving into a significant growth phase.

Earnings August 7th.

Sell short Aug $42.50 put, currently $2.42, stop loss $44.65.

Update 7/19: B. Riley analyst Dave Kang downgraded the outlook for AAOI if the $200 billion in proposed tariffs for the end of August were to be enacted. He said the tariff on Chinese components would price AAOI out of the market for U.S. datacenter customers. Shares fell $7 over two days.

Closed Aug $42.50 short put, entry $2.90, exit $3.80, -.90 loss.


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.


AAP - Advance Auto Parts (Aug Short Put 7/19)

We already have an August put spread on AAP but it is one of the few stocks that still has premiums. The stock surged to breakout on Thursday. That should be a buy signal for price chasers.

Earnings August 21st.

Sell short Aug $135 put, currently $2.50, initial stop loss $139.


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.

Update 6/28: 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.


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.

Update 6/28: 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.


FB - Facebook (Aug Put Spread 7/5)

Facebook rebounded on Thursday from a two week decline on worries over their privacy issues. This is noise and a long way from any enforcement action and any material fine. The stock should be poised to rebound with the Nasdaq if the tariff headlines do not tank the market.

Earnings July 26th.

Sell short Aug $180 put, currently $2.29, stop loss $192.00.
Buy long Aug $170 put, currently $1.15, no stop loss.
Net credit $1.14.


FFIV - F5 Networks (Aug Short Put 6/28)

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.

Update 7/19: F5 crashed at the open on Thursday on no news. The market declined sharply, especially in the tech sector. We escaped with a minor gain.

Closed Aug $155 short put, entry $1.85, exit $1.48, +.37 gain.


GRUB - GrubHub Inc (Aug Short Put 6/28)

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.


HD - Home Depot (Aug Put Spread 7/12)

Home Depot shares have been maintaining a minor uptrend with the exception of the market decline the last week of June. There is actually only minor volatility inside the tend. They should not be materially impacted by the tariffs.

Earnings August 14th.

Sell short Aug $190 put, currently $1.67, stop loss $195.50.
Buy long Aug $180 put, currently .57, No stop loss.
Net credit $1.10.


HD - Home Depot (Aug Put Spread 7/19)

Home Depot is surging on the back of high retail sales numbers, falling unemployment and strong home sales. The stock broke out to a 5-month high close on Thursday. As long as this momentum holds for a couple more days we should be safe at $195.

Earnings August 14th.

Sell short Aug $195 put, currently $1.42, stop loss $199.85.
Buy long Aug $185 put, currently .40, no initial stop loss.
Net credit $1.02.


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.

Update 6/28: 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.


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.

Update 6/28: 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.


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.

Update 6/28: 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.

Update 7/5: 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 was nicely profitable. That long put was stopped on Friday.

Closed July $140 long put, entry $1.20, exit $3.10, +1.90 gain
Previously closed July $150 short put, entry 2.41, exit $3.10, -.69 loss.
Net gain $1.21.


SHOP - Shopify (Aug Short Put 7/5)

We just exited a successful position on Shopify and the premiums are still inflated since the big drop in mid June. There appears to be a rebound in progress.

Earnings July 31st.

Sell short Aug $130 put, currently $3.20, stop loss $144.65.


SINA - Sina Corp (Aug Call Spread 7/19)

Shares of SINA have been declining since March and have given back a third of their value. Over the last two months shares have found a soft bottom at $84 but that appears to be cracking with Thursday's close a three week low.

Earnings August 8th. (18 days)

Sell short Aug $90 Call, currently $1.38, stop loss $86.
Buy long Aug $100 Call, currently .34, no initial stop loss.
Net credit $1.04.


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.

Update 7/5: Tesla had a super volatile week. They announced they hit their production goal on the Model 3 at 5,000 per week at the end of June. Investors sold the news after multiple analysts either downgraded the stock or talked it down as not repeatable on a routine basis. They called it "surge production." Shares fell 15% from Monday's high and we were stopped at $324.25. Fortunately the tight stop meant we only lost 10 cents.

Closed Aug $20 short put, entry $4.90, exit $5.00, -.10 loss.


TTD - The Trade Desk (Aug Short Put 7/12)

The TradeDesk exploded higher in May and so far it has not given back any of the gains. Shares closed at a new high on Thursday. Analysts are high on the outlook for earnings.

Earnings August 9th.

Sell short Aug $80, currently $2.15, stop loss $90.65.


UBNT - Ubiquiti Networks (Aug Put Spread 6/28)

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.


WIX - Wix.com (Aug Put Spread, Short Put 7/5)

Wix is a website hosting platform where users can choose from hundreds of basic formats, plug in their pictures and text and have a running website in just a very few minutes. The chart has a nice trajectory with the obligatory decline with the market over the last couple weeks but it is recovering nicely.

Earnings August 9th.

Put spread:
Sell short Aug $90 put, currently $2.20, stop loss $97.65.
Buy long Aug $80 put, currently $1.00, no stop loss.
Net credit $1.20.

Alternate position

Short put:
Sell short Aug $90 put, currently $2.20, stop loss $97.65.

Update 7/19: No specific news. WIX shares fell with the market at the open to stop us out.

I had this as two different positions. One was just the short put and the other was a spread. I am recommending we close the long $80 put because it is well out of the money and still has value.

Closed Aug $90 short put, entry $2.08, exit $1.85, +.23 gain.
Close Aug $80 long put, entry .85, currently .75, -.10 loss.


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.