The Russell 2000 is supposed to be the sentiment indicator for the broader market.
If that is true, we are in trouble. The Russell 2000 closed at a 6-week low and well below its intraday high. The index lost 1 point but closed more than 7 points below the intraday high. At the same time, the Dow rallied more than 160 points intraday but gave back more than 100 points to close with only a 54-point gain.
Fortunately, the Nasdaq regained some of its lost luster with a 51 point gain on the Nasdaq Composite and a big 66 point gain on the Nasdaq 100.
With threats of further tariffs, you would expect the small caps to be doing well. Apparently, investors are shrugging off the tariff threat until after the midterm elections thinking the president will not want to risk making the races tighter than they already are.
The Russell broke back below the 50-day average and is threatening to break uptrend support. The critical level to watch is around 1,670.
The Dow has retraced to the prior uptrend resistance, which should now be support. Any further declines will threaten 26,000 once again.
The Nasdaq is threatening to break out to new highs again and that would be very bullish given our spot on the calendar. The index has honored the 50-day average since May.
The S&P futures were up $4.50 when I started writing this newsletter this evening. Thay have now sunk back to flat. There are a tremendous number of headlines swirling and this is keeping uncertainty in the market and buyers and sellers almost evenly matched.
There was a technical error in the newsletter last week. We use some HTML tags in our content and there was a typo on a tag that caused the entire play paragraph on the PVH recommendation to be invisible. I am rerunning that recommendation this week with different strike prices.
We are still in September but Friday is the end of the month and the quarter. Were it not for the mid-term elections, the volatility would begin to decline in October. This year could see the opposite as the party divisions are the worst I have ever seen.
Enter passively, exit aggressively!
Send Jim an email
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.
September Position Recap
September was a skinny month. There were only a few September positions because of the volatility early in the month when the markets declined for two weeks. Our gains were small but we only had three losses. Some months work out and some are a fight.
Current Position Changes
Cost - Costco (Oct Put Spread)
We were stopped on the October put spread the prior week. I recommended we close the long put because I seriously doubt COST is moving much lower.
Closed Oct $220 short put, entry $2.29, exit $1.00, +1.29 gain.
Closed Oct $210 put, entry .99, exit .49, -.50 loss.
SHOP - Shopify (Call Spread)
We were stopped on the short call the prior week and the long call was highly profitable. I put a stop loss on that call and that was hit last Friday.
Closed Oct $160 long call, entry $1.70, exit $9.10, +$7.40 gain.
Previously closed Oct $150 short call, entry $2.10, exit $4.60, -2.50 loss.
PAYC - Paycom (Oct Put Spread)
We were stopped on the short put the prior week and the rebound stopped us out of the long put last week.
Closed Oct $135 long put, entry .70, exit .15, -.55 loss.
Previously closed Oct $145 short put, entry $1.63, exit $2.60, -.97 loss.
RH - RH Inc (Oct Short Put)
RH dipped just enough on the market decline on Monday to stop us out of the short put position.
Closed Oct $120 short put, entry $2.33, exit $1.95, +.38 gain.
AAP - Advance Auto Parts (Nov Put Spread 9/27)
Shares dipped on the 18th to touch $160 but were immediately bought. Prices have rebounded to $169 and are holding at recent highs.
Earnings November 21st.
Sell short Nov $155 put, currently $2.55, stop loss $165.50.
Buy long Nov $145 put, currently $1.15, no stop loss.
Net credit $1.30.
PVH - PVH Corp (Nov Put Spread 9/27)
PVH shares were hammered after earnings to bottom at$131.60. Shares are rebounding after two weeks of consolidation.
Earnings Nov 23rd.
Sell short Nov $135 put, currently $1.70, stop loss $139.85.
Buy long Nov $125 put, currently .60, no stop loss.
Net credit $1.10.
MED - Medifast (Nov Short Put 9/27)
Medifast was knocked for huge loss from $260 to $181 last week on no specific news. Shares had simply gotten ahead of themselved and profit taking appeared. After the instant rebound they have held over $210 and are faithfully following the 50-day average higher. We are going to sell a put $40 out of the money.
Earnings November 1st.
Sell short Nov $180 put, currently $4.80, stop loss $207.25.
TSLA - Tesla Inc (Nov Short Put 9/27)
If you feel like living dangerously and taking a walk on the wild side, short puts on Tesla on Friday morning. The SEC sued Elon Musk about his going private tweet. Shares fell $37 in afterhours to close at $270. The Nov $200 put is quoted at $3.90 at the close. After the post close news you can bet the stock will crash at the open however, now that the bad news is in the market, it may not decline the entire $37. Either way the put is going to spike in value because investors do not know where the decline will stop. I suggest if it declines to $250 that would be a hard floor. Any opening print put premium is likely to be enormously high and eill evaporate quickly once the stock finds a bottom.
Sell short Nov $200 put, currently $3.90, stop loss $247.50.
New Covered Call Recommendations
No New Covered Calls
The Russell 2000 is in decline mode and closed at a 6-week low. There were only four potential candidates and I put all four in the additional plays graphic. The market is still too volatile to buy and holf domething for 6 weeks.
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.
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.
Update 9/6: 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.
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.
ADBE - Adobe Systems (Oct Put Spread 9/6)
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.
Update 9/13: There was a mixup on the earnings date on Adobe when I recommended the position. The source I was using for dates was showing Sept 28th. The actual date was the 13th. I reported the mixup in the Option Investor commentary and Adobe was listed in all the market wraps as 9/13. We always close the morning before an earnings event. If you did see the notices and closed on the 12th, your exit would have been $1.54. If you held over the earnings on Thursday the put was $1.46 at the close and Adobe shares were volatile after the report but ended the afterhours session with only a $2 decline. You should be able to exit at the open for a reasonable amount as long as ADBE does not gap down significantly. We still have a long put in that spread so a decline now would be appreciated.
Closed Oct $235 short put, entry $3.10, exit $1.54, +1.56 gain.
Retain Oct $225 long put, entry 1.88, currently .91, stop loss $270.65.
Update 9/20: We were stopped on the long put when ADBE gapped open after earnings. We were up at the close but the gap higher killed it
Closed Oct $225 long put, entry $1.88, exit .44, -1.44 loss.
Previously closed Oct $235 short put, entry $3.10, exit $1.54, +$1.56 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.
Update 9/6: 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.
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.
Update 9/13: Clovis declined on Tuesday on no specific news. Shares broke support to stop us out of the call position.
Closed CLVS shares, entry $35.91, exit $33.50, -2.41 loss.
Closed Oct $35 short call, entry $4.55, exit $2.10, +2.45 gain.
Net gain 4 cents. That is miniscule but far better than a loss.
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 stop loss.
Update 9/20: We closed the short put at the open last Friday. The premiums had evaporated to almost zero. We exited at the right time with COST receiving a major downgrade on Friday. This looks like a buying opportunity.
Closed Sept $210 short put, entry $1.85. exit .01, +$1.84 gain.
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.
Update 9/20: We were stopped on the October put spread. I am recommending we close the long put because I seriously doubt COST is moving much lower.
Closed Oct $220 short put, entry $2.29, exit $1.00, +1.29 gain.
Close Oct $210 put, entry .99, currently .55, -.35 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.
Update 9/6: 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.
Update 9/13: We had a put spread on Facebook and the short side was stopped out the prior week on the big decline. The long put was inflated and I added a profit stop at $163.50. That was hit on Friday morning when the FANG stocks rallied.
Closed Oct $155 long put, entry .82, exit $3.25, +$2.43 gain.
FB - Facebook (Nov Put Spread 9/20)
Facebook shares have been depressed for two weeks but the last two days the stock has begun to rebound. Even if it does not move up from here, it has held support for the last two weeks.
Earnings Oct 16th.
Sell short Nov $160 put, currently $2.62, stop loss $159.00.
Buy long Nov $150 put, currently $1.17, no stop loss.
Net credit $1.45.
FFIV - F5 Networks (Oct Put Spread 9/13)
Shares of F5 are making new highs and the recent Nasdaq volatility barely shows on this chart. This is great relative strength and should continue higher.
Earnings Oct 25th.
>b>Sell short Oct $180 put, currently $1.44, stop loss $188.85.
Buy long Oct $170 put, currently .69, no stop loss.
Net credit 75 cents.
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.
Update 9/6: 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.
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.
Sell short Oct $240 put, currently $2.82, stop loss $254.85.
Update 9/13: Nvidia crashed with the 50-point Nasdaq drop at the open on Friday to stop us out on the short put for a minor loss. The entire chip sector was crushed.
Closed Oct $240 short put, entry $2.65, exit $3.20, -.55 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.
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.
PAYC - Paycom Software (Oct Put Spread 9/13)
Paycom is on fire. Shares have gained $61 since the beginning of August. The rally is highly suspect at this point and the doubt is keeoing the put premiums high.
Earnings Oct 25th.
Sell short Oct $145 put, currently $1.65, stop loss $154.
Buy long Oct $135 put, currently .80, no stop loss.
Net credit 85 cents.
Update 9/20: Paycom self destructed after a two month rise. Shares declined from $164 to $151 in 4 days. We were stopped at $154 and in hindsight the stop was not tight enough.
Closed Oct $45 short put, entry $1.63, exit $2.60, -.97 loss.
Retain Oct $135 long put, entry .70, currently .75.
RH - RH Inc (Oct Short Put 9/13)
Formerly Restoration Hardware, RH shares fell nearly $40 after earnings. Over the last two days they have rebounded sharply after the CEO bought $1 million in shares in the open market. Last week the company opened its largest store, a 95,000 sqft giant in New York City. It cost the company $50 million but the CEO believes it will produce $100 million a year in revenue.
Earnings Dec 4th.
Sell short Oct $120 put, currently $2.30, stop loss $127.65.
ROKU - (Nov Short Put 9/20)
Roku closed at a new high on Thursday and after the week of consolidation it may be ready to run again.
Sell short Nov $60 put, currently $2.20, stop loss $68.50.
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.
Update 9/6: 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.
SHOP - Shopify (Oct Call Spread 9/6)
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.
Update 9/13: Shopify gapped lower at the open on Friday and then rocketed $25 higher over the next week. The rebound stopped us out on the short call for a loss but the long call has become very profitable. I added a stop loss to the long call.
Closed Oct $150 short call, entry $2.10, exit $4.60, -2.50 loss.
Retain Oct $160 long call, entry $1.70, currently $6.40, stop loss $153.25.
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.
Update 9/20: Marijuana stocks have been trading like bitcoin over the last week. Constellation saw huge swings as stocks like Tilray (TLRY) surged more than 100% intraday on extreme volatility. This caused us to be stopped out when Constellation was caught in the downdraft.
Closed Oct $190 short put, entry $2.25, exit .76, +$1.49 gain.
TTD - The Trade Desk (Oct Call Spread 9/6)
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.
Update 9/13: The Trade Desk gapped down on Friday then rebounded $10 on no news. This was part of the market rebound on Friday. We were stopped out on the rebound and our long call is up sharply. I am recommending we close the October $170 call because I do not see the stock moving that much higher and today's decline in a positive market is not a good sign.
Closed Oct $160 short call, entry $2.65, exit $3.70, -1.05 loss.
Close Oct $170 long call, entry $1.60, currently $2.50, potential +.90 gain.
Update 9/20: We were stopped the prior week on the short call and we exited the long call at the open on Friday.
Closed Oct $170 long call, entry $1.60, exit $1.65, +.05 gain.
Previously closed Oct $160 short call, entry $2.65, exit $3.70, -1.05 loss.
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
Update 9/20: Twilio shares rolled over after closing at a ne whigh last Friday. The $6 drop stopped us out of the short put.
Closed Oct $70 short put, entry $1.67, exit .76, +.91 gain.
Retain Oct $60 long put, entry .77, currently .10.
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.