Friday, August 03, 2018  2:41:24 AM

Don't Touch that Mouse

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
I want to believe, I really do, but Thursday's Nasdaq rebound and 200+ point intraday dip on the Dow, is unsettling.

We have seen broad diversity of opinions nearly every day over the last week. An example is a strong gain on the Nasdaq and a triple digit decline on the Dow. Investors do not know which way to play. Do they buy stocks, close their eyes and hope for the best>Do they wait on the sidelines while the markets break through overhead resistance and kick themselves for not being more aggressive. I am sure we have all done a little of both in years past.

It is always better to wait for a buying opportunity but it is also the hardest thing to do. When you are out of the market every 10-20 point uptick in the Dow is painful. However, when you are in the market every 10-20 point decline is equally painful. Only one of those scenarios actually costs you money.

The S&P rebounded from imaginary support at 2,800 and posted a decent gain but it was all tech stocks. With Tesla's $49 gain, Amazon $37, Apple +6 and the rest of the FANG stocks strongly positive, all of those events supported the Nasdaq, S&P and Russell. However, the minor gain on the S&P means there is still plenty of resistance to overcome as we move into August and September, the two weakest months of the year.


The Nasdaq benefitted from the $48 gain in Tesla, $37 gain in Amazon, record high for Apple, etc. The odds are strong that Tesla will not rally $49 again on Friday. Apple is likely to find some sell the news volume now that it closed at $1 trillion in market cap. The strong gains in the list below are not likely to be repeated on Friday and probably not even next week. We could see some rotation into different names but they would not have as much impact on the market.



I would continue to remain cautious over the next several weeks. The Nasdaq fell -329 points in three days last week and this rebound could be earnings inspired short covering. Once the pressures are equalized the prior trend normally returns. The S&P has had no trend since February. While we could conceivably rally to a new high in August, the odds and the historical precedent are against us.

There are a lot of broken charts as a result of the Nasdaq crash but there are also a lot of bearish charts in companies that are not leading the market. The breadth remains focused on the top 10-12 tech stocks and they are leading the market. Should they decline again the market is going to follow.

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


UBNT - Ubiquiti Networks (Aug Put Spread)

We closed the left over AAugust $60 long put at the open on Friday.

Closed Aug $60 long put, entry $1.06, exit .20, -.86 loss.
Previously closed Aug $70 short put, entry $2.41, exit $.95, +1.46 gain.
Net gain 60 cents.



SHOP - Shopify (Aug Short Put)

We escaped a beating on this position with our tight stop loss. We were stopped out at $167.85 on Friday and SHOP went on to lose 40 points for the week.

Closed Aug $130 short put, entry $2.95, exit $1.00, +1.95 gain.



SIG - Signet Jewlers (Aug Put Spread)

Signet was downgraded by Nomura from buy to neutral on Tuesday with a $62 price target. That was enough to knock more than $5 off the price and stop us out at $58.85 on the short side. The stock is trying to rebound so I am recommending we close the long put.

Closed Sept $50 short put, entry $1.64, exit $2.30, -.66 loss.
Close Sept $40 long put, entry .38, currently .50.



ADBE - Adobe Systems (Sept Short Put)

The three day -329 point drop on the Nasdaq Composite crushed Adobe and all the big cap tech stocks. We were stopped out for a loss.

I am going to recommend a new position on Adobe.

Closed Sept $235 short put, entry $2.40, exit $3.50, -$1.10 loss.



PANW - Palo Alto Networks (Sept Short Put)

The three day -329 point drop on the Nasdaq Composite crushed Palo Alto and all the big cap tech stocks. We were stopped out for a loss.

I am going to recommend a new position on PANW.

Closed Sept $185 short put, entry $3.00, exit $3.89, -.89 loss.



New Recommendations


COST - Costco (Sep Short Put)

Costco shares had stalled at $220 for the last two weeks but resisted declining with the Nasdaq until Tuesday of this week. That decline was met with immediate buying and the stock closed at a new high. Amazon is no threat and Kroger is no threat. Costco is taking market share away from both.

Earnings August 20th.

Sell short Sept $210 put, currently $1.76, stop loss $216.75.
Buy Sept $200, currently .74, no syop loss.



PANW - Palo Alto Networks (Sep Short Put)

PANW suffered from the Nasdaq crash and stopped us out of the prior position. I am going to try another short put on this stock. The rebound is very strong.

Earnings September 3rd.

Sell short Sept $180 put, currently $2.39, stop loss $198.50.



ADBE - Adobe Systems (Sep Short Put)

Afobe had a nice rally obliterated by the Nasdaq crash but shares are rebounding nicely. I am going to reload a short put position on this stock.

Earnings Sept 13th.

Sell short Sept $230 put, currently $2.88, stop loss $243.85.



New Covered Call Recommendations


No New Covered Calls

The choppy market has again damaged a lot of charts and reduced option premiums. 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. With 300 point intraday swings and a 329 point drop in the Nasdaq last week, it would be suicide to try and launch a neutral position.

Everything that looked playable has earnings over the next couple weeks. That is a recipe for disaster as evidenced by the Facebook crash. We cannot reach out to the September cycle because of the early August earnings. Also, the tariff issues have not gone away. The headlines are increasing and any day we could wake up to a 500 point drop.

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 as we head into the summer doldrums, the end of the earnings cycle and increased tariff headlines.


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.

Update 7/26: 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.


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.


ADBE - Adobe Systems (Sep Short Put 7/26)

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.


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.

Update 7/26: 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.


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.

Update 7/26: 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.


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.

Update 7/26: 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.


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.

Update 7/26: 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 $195 short put, entry $1.50, exit $2.00, -.50 loss.
Retain Aug $185 put, entry .39, currently .54.


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.


PANW - Palo Alto Networks (Sep Short Put 7/26)

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.


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.


SIG - Signet Jewelers (Sep Call Spread 7/26)

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.


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.

Update 7/26: 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.


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.

Update 7/26: 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.


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.

Update 7/26: 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


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.