Friday, September 07, 2018  2:50:58 AM

Eventful Week

by Jim Brown

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Review prior updates here: 2014  2015  2016  2017  2018 
With prior tech winners being hammered for big losses and the chip sector imploding, September is living up to its reputation.

Historically, September is the worst month of the year for the market. The week after Labor Day is the worst week in September. I really hope that is the case this year and the rest of September will only be choppy rather than worse than the last three days. The Nasdaq has declined nearly 3% from its highs but the big cap techs have suffered a lot more than that. Facebook, Apple, Google, Amazon have all suffered large losses.

The revelation by Micron and KLA-Tencore on Thursday that the chip sector was not healthy, caused all the major chip stocks to implode. The companies said the long expected decline in memory prices had arrived and it could be the second half of 2019 before it improved. They also said capex spending by chipmakers was slowing. Since the chip sector leads the Nasdaq the outlook is negative.

Jeff Bailey always called the Semiconductor Index the head of the snake because wherever the SOX went, the Nasdaq followed and that is still true. If the SOX continues lower it will drag the Nasdaq with it.


The most likely place for the Nasdaq to pause is the 50-day average at 7,817. Prior uptrend resistance is back in play and the index has fallen back below the 8,000 level. A dip to the 50-day would be about a 3.6% decline and only a normal bout of profit taking. It only seems worse since the big cap techs have fallen so hard.


The S&P has fallen back below 2,900 and more importantly the prior resistance at 2,872 intraday. The likely target here is the 2,850 level and then the 50-day if the weakness continues.


At the risk of repeating myself too much, "the week after Labor Day is normally the most volatile week of the month." I would wait until next week to make a decision about entering new positions. We could have another bout of tariff flu at any time. Now that Japan has found itself the target of trade negotiations, investors should worry that the fair trade effort will eventually reach all our trading partners and upset the market. After climbing the wall of tariff worry over the last several weeks, finding any even higher wall of new worries could depress sentiment. Be patient, there is always another day to trade.

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


AAPL - Apple Inc

Apple peaked at $229.67 and gave back $6 over the last two days. That was enough to stop us out for a minor gain at $222 on today's intraday drop. Shares should decline further next week after the new product announcement.

Closed Sept $200 short put, entry $1.08, exit .53, +.55 gain.



IRBT - iRobot

iRobot resisted the Nasdaq decline the first couple of days but collapsed on Thursday. We had a tight stop and were knocked out on Tuesday in the Nasdaq gap down open. Shares recovered nicely until today.

Closed Sept $80 short put, entry $1.25, exit .50, +.75 gain.



ANET - Arista Networks

We entered this short $250 put when ANET was at $300. That was not far enough away to avoid a loss when the stock crashed $18 on Wednesday. What goes up, sometimes comes down in a hurry.

Part of our problem was the entry. The stock gapped open $14 on the day we entered the position and we had a terrible fill at 95 cents when it was $3.00 when the play was recommended the night before. That removed our margin of error on the premium.

Closed Oct $250 short put, entry .95, exit $2.40, -1.45 loss.



FB - Facebook

Facebook has crashed $16 over the last three days on worries about decelerating growth and increasing regulatory oversight. The testimony in Washington on Wednesday was almost pleading for help in controlling fake accounts. There is also a probe into the suppression of conservative content. We lost a little bit on the short put but the long put is up nicely. I added a stop loss to the long put.

Closed Oct $165 short put, entry $1.95, exit $2.50, -.55 loss.
Retain Oct $155 long put, entry .83, currently $3.35, stop loss $163.50.



SHOP - Shopify

The decline in the Nasdaq and the drop in the Chinese retail stocks knocked $12 off SHOP in just the last two days. When shares are falling hard, premiums rocket higher and we barely got out with just a minor loss.

Closed Oct $125 short put, entry $2.25, exit $3.20, -.95 loss.



New Recommendations


ADBE - Adobe Systems (Oct Put Spread)

Adobe made a new high last week then declined slightly with the Nasdaq weakness. The stock had been respecting the 60-day for almost the last year until it had those two dips in July/Aug. I believe those were buying opportunities. Despite the 3% Nasdaq crash over the last week, Adobe has not declined that much and was positive on Thursday.

Earnings 9/28 so we will be out quick. Close at the open the day before earnings.

Sell short Oct $235 put, currently $2.91, stop loss $253.85.
Buy long Oct 225 put, currently $1.78, no stop loss.
Net credit $1.13.



SHOP - Shopify (Oct Call Spread)

Shopify failed with a lower high and is in danger of breaking through support at $134. With the commentary negative the odds are better that support breaks rather than produces a rebound.

Earnings Nov 6th.

Sell short Oct $150 call, currently $2.70, stop loss $140.85.
Buy long Oct $160 call, currently $1.35, no stop loss.
Net credit $1.35.



TTD - The Trade Desk (Oct Call Spread)

The Trade Desk has been on fire for most of 2018 and has risen from $40 back in February. This is an advertising company competing with Facebook, Google and Amazon among others. The easy revenue gains have already been made. Shares have stalled at $140 for more than a week. With other momentum stocks rapidly losing ground, it may keep TTD from advancing. Adding another $20 at this point would be amazing relative strength.

Earnings November 8th.

Sell short Oct $160 call, currently $2.20, stop loss $145.
Buy long Oct $170 call, currently $1.20, no stop loss.
Net credit $1.00.



New Covered Call Recommendations


No Covered Calls

The market decline over the last week has flattened all the decent stocks and crushed those that were not decent. Small price stocks under $30 were hammered and I could not find a single low dollar stock with a decent chart and a material premium. I did add some higher dollar stocks to the optional play list. They were the only ones I could find with positive charts and fat premiums.


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. The volatility has increased significantly with the Nasdaq losing 3% over the last week. The vast majority of stocks have charts with either major declines or post earnings spikes. September is the worst month of the year for the market historically and it has certainly started out true to form.

Just about the time I think we are going to have a trending market, something happens like we have seen over the last several days. It is just not conducive to condors unless you play them so far out of the money it is all risk and no reward.


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.


COST - Costco (Oct Put Spread 8/30)

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.


FB - Facebook (Oct Put Spread 8/30)

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.


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.


SHOP - Shopify (Oct Short Put 8/30)

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.


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.