Friday, August 31, 2018  4:53:07 AM

Holiday Jitters

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018  2019 
With a long holiday weekend ahead the returning tariff headlines sent traders running to the sidelines.

This is a very low volume news week along with low volume in the markets. The president got a trade deal with Mexico and Canada could agree to a new deal on Friday. However, China is still in play and the president again threatened to enact another $200 billion in tariffs if they did not reach an agreement soon.

This killed the rally on Thursday but it was already losing traction. With the Nasdaq S&P and Russell at new highs the pressure is on for the Dow to confirm with a new high and it is not even close. The tariff sensitive big caps in the Dow are up one day and down the next. We are not going to get any leadership from the Dow until there is a trade deal with China and then the markets will explode higher.

There is not a lot of analysis we can do on a Thursday before the last summer weekend and holiday. Any movement from the market will be headline related and therefore I cannot chart it in advance.

The S&P posted a decent decline that managed to knock us all the way back to....yesterday. Yes, no harm, no foul and it was a garden-variety bout of profit taking ahead of a long weekend.

The nasdaq posted a mediocre decline of 21 points and nothing to excite traders. Volume was slightly higher than the recent average because profit taking normally happens faster than bullish moves. The Nasdaq has a lot of room to maneuver since the last resistance. The index could move 100 points and that would just put it back to prior resistance. The index is over extended so do not be surprised if we have another day of profit taking on Friday.

The Dow failed exactly at uptrend resistance and that suggests we have plenty of sellers waiting in the woods for a chance to short a new high. The Dow is not likely to make a new high until China capitulates in the trade war.

Readers should be careful entering new positions on the day before a long weekend. With multiple countries in the midst of a currency crisis and hyper-inflation, anything is possible. Financial meltdowns can trigger unexpected events. I wold avoid the wewekend event risk and start over on Tuesday.

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

Covered Calls

Current Position Changes

No Changes

New Recommendations

FB - Facebook (Oct Put Spread)

Facebook erased months of gains with their earnings guidance to fall to $170. Since then they have tried to rebound twice, so far unsuccessfully. However that $170 support level is holding. With the S&P 3,000 tractor beam pulling the markets higher we should see FB begin to rally again soon.

Earnings October 16th.

Sell short Oct $165 put, currently $1.85, stop loss $171.85.
Buy long Oct $155 put, currently $.72, no stop loss.

COST - Costco (Oct Put Spread)

Costco is holding at recent highs and the strong consumer is pouring money into Costco coffers. With monthly sales growth at double digits there is no fear of Amazon in these isles. Every time I have been recently there is a line to get in, a line to get out and lines at all the sample carts.If the market is going to continue higher, Costco should go along for the ride.

Earnings October 4th.

Sell short Oct $220 put, currently $2.21, stop loss $227.85
Buy long Oct $210 put, currently $1.00, no stop loss.

SHOP - Shopify (Oct Short Put)

Shopify disappointed on earnings and crashed back to $132 twice and both times that held. The last rebound faded slightly the last two days because SHOP is market sensitive. However, the Nasdaq decline on Thursday barely made a dent in Shopify gains.

Earnings October 25th.

Sell short Oct $125 put, currently $2.10, stop loss $137.00.

New Covered Call Recommendations

No Covered Calls

The opportunities for covered calls dried up just a quickly as it appeared. The vast majority of low dollar stocks have crummy charts. The market volatility has not done the small caps any good. The A/D line on small caps was solidly in favor of decliners on Thursday.

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.

September expiration is the 21st, October is on the 19th.

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. We are going from feast to famine in the market. The prior week it looked like we were headed lower after two weeks of Nasdaq volatility. Last week the Nasdaq, S&P and Russell made new highs but premiums collapsed. In order to get any premium we have to reach out to October and September and early October are the worst six months of the year historically.

The tariff issues have not gone away. The headlines are daily and any time now we could wake up to a 500 point drop. You saw what happened on Thursday with just a small mention about the $200 billion in tariffs on China.

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.

AAPL - Apple Inc (Sep Short Put 8/16)

Apple spiked to $206 after earnings and has held over that level for a week despite the extreme Nasdaq volatility on Wednesday. Warren Buffett just added 12.5 million shares to bring his stake to $50 billion. With the cash repatriation, increased buybacks and dividends and the upgrade cycle starting in September, there is no reason for this stock to decline other than a market implosion.

Earnings November 6th.

Sell short Sep $200 put, currently $1.11, stop loss $205.85.

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.

Update 8/2: 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.

ADBE - Adobe Systems (Sep Short Put 8/2)

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.

Update 8/16: The Nasdaq crash at the open on Wednesday was brutal. The index lost -97 for the day but it was down -135 at the open. This knocked us out of ADBE for a minor gain.

Closed Sep $230 Short Put, entry $2.77, exit $2.56, +.21 gain.

ANET - Arista Networks (Oct Short Put 8/23)

Arista has caught fire and after a series of higher lows has finally broken out to a higher high. This stock appears poised for take off.

Earnings Nov 6th.

Sell short Oct $250 put, currently $3.00, stop loss $269.25.

CLVS - Clovis Oncology Inc (Covered Call 8/23)

I finally found a stock I am willing to use for a covered call. The high premium will give us a significant amount of protection if the stock suddenly declines. Support at $35 has been rock solid and shares are trying to rally.

Earnings Nov 6th.

Buy Clovis shares, currently $35.95, stop loss $33.50.
Sell short Oct $35 call, currently $4.20, stop loss $33.50.
Net debit $31.75.

COST - Costco (Sep Short Put 8/2)

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.

IRBT - iRobot (Sep Short Put 8/16)

IRobot beat on earnings and raised guidance. Shares spiked 20% before falling back $15. That post earnings depression has faded and shares are making new highs.

Earnings October 23rd.

Sell short Sep $80 put, currently $1.05, stop loss $84.50.

NVDA - Nvidia (Oct Short Put 8/23)

Nvidia disappointed some analysts with their earnings but announced a new video chip that is 600% faster than current chips. This will more than power earnings in Q3/Q4. The dip was immediately bought and we are not likely to retest that $240 level in the near future.

Earnings Nov-6th.

Sell short Oct $240 put, currently $2.82, stop loss $254.85.

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.

Update 8/2: 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.

PANW - Palo Alto Networks (Sep Short Put 8/2)

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.

Update 8/16: The Nasdaq crash at the open on Wednesday was brutal. The index lost -97 for the day but it was down -135 at the open. This knocked us out of PANW for a minor gain.

Closed Sep $180 Short Put, entry $2.90, exit $2.50, +.40 gain.

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.

Update 8/3: 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.

Update 8/9: We were stopped out of the short side of the spread the prior week. I recommended closing the long put at the open last Friday while it still had some value.

Closed Sep $40 long put, entry .38, exit .45, +.07 gain.
Previously closed Sep $50 short put, entry 1.64, exit 2.30, -.66 loss.
Net loss 59 cents.

STZ - Constellation Brands (Oct Short Put 8/23)

Constellation crashed on the announcement they bought a major stake in Canopy Growth, a marijuana grow company. Shares briefly fell to just below $200 before starting to rebound. That should be strong support.

Earnings Sept 28th.

Sell short Oct $190 put, currently $2.20, stop loss $198.25.

TWLO - Twilio Inc (Oct Put Spread 8/23)

TWLO closed at a new high on Thrusday after spiking more than $10 after earnings two weeks earlier. The post earnings depression was minimal and TWLO could ne off to the races.

Earnings Nov 6th.

Sell short Oct $70 put, currently $2.19, stop loss $74.65.
Buy long Oct $60 put, currently .70, no stop loss.
Net credit $1.49

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.