The market is trying to move higher but cannot get any traction.
The 545 point Dow gain after the election was mostly short covering. On Thursday, the market was flat because shorts were not being forced to close positions. Investors were waiting for someone else to make the first move.
We are probably going to have a repeat on Friday. The S&P futures are down over 11 points and the yield on the ten-year is right at 3.25% and a 7-year high. The Fed did not raise rates but they did say they were probably going to push them up over neutral rather than holding at neutral.
Bull markets end when the Fed kills them by raising rates too high. That appears to be where we are headed. Fortunately, it will take another 6-9 months before this scenario plays out and the market rally ends.
The S&P came to a dead stop at 2,186 and the October resistance high. This would be the logical place for the rally to stall. However, I expect this to be only temporary. If we are choppy to down on Friday I still expect a positive market next week.
The rebound from the correction has inflated call premiums and crushed put premiums. With the earnings cycle in full swing and put premiums nearly invisible there was not much to choose from this week.
Be patient on Friday and look for entry points on Monday.
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.
Current Position Changes
Five - Five Below (Dec Put spread)
Five below is a specialty retailer similar to a Dollar General or Dollar Tree but everything in the store is less than $5. Like the rest of the sector, the stock has been up and down multiple times in 2018. The correction low was $110 and I am using a spread below that level.
Earnings December 6th.
Sell short Dec $105 Put, currently $1.95, stop loss $116.00.
Buy long Dec $95 put, currently .95, no stop loss.
Net credit $1.00.
ADBE - Adobe Systems (Dec Short Put)
Adobe has not closed behind its 200-day average at $239 since January 2016. The stock tried to sell off in the Nasdaq decline but support at $238 was strong.
Earnings December 14th.
Sell short Dec $220 put, currently $2.70, stop loss $236.85.
New Covered Call Recommendations
No New Covered Calls
The 7-day rally has spiked call premiums and provided several more potential plays. However, I do not believe the volatility is over. I am not recommending covered calls 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.
November expiration is on the 16th. December is on 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.
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.
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.
Update 10/4: No specific news. Shares rolled over with the market to stop us out on the short put.
Closed Nov $155 short put, entry $2.70, exit $3.40, -.70 loss.
Retain Nov $145 long put, entry $.80, currently $1.60.
AAP - Advance Auto Parts (Nov Put Spread 10/18)
AAP took a dive on Wednesday after Walmart said ti was partnering with AAP to create a specialty qutoparts store on Walmart.com. I don't see the reason for the decline since this will help AAP compete with O'Reilly and Autozone. AAP only does $9 billion in annual revenue and the sector generates more than $100 billion in sales. It sounds like a win-win to me. Shares dipped to $154 on the announcement but have rebounded $8 since Wednesday's low.
Earnings Nov 21st.
Sell short Nov $145 put, currently $2.10, stop loss $155.85.
Buy long Nov $135 put, currently $1.00, no stop loss.
Net credit $1.10.
AAPL - Apple Inc (Nov Put Spread 10/4)
Apple broke out over $230 to a new high on Wednesday. Thursday's $4 decline was only a partiao retracement of their $13 gain over the last week or so.
There is very strong support at $217 and Apple should post killer earnings on Nov 1st on strong iPhone sales. We will exit the day before earnings.
Earnings Nov 1st.
Sell short Nov $210 put, currently $2.73, stop loss $223.50.
Buy long Nov $200 put, currently $1.46, no stop loss.
Net credit $1.27.
Update 10/11: The Nasdaq crash stopped us out of the short side on the Apple position. I am recommending we close the long side because Apple is going to rebound in any positive market.
Closed 10/5: Nov $210 put, entry $2.67, exit $4.10, -1.43 loss.
Close Nov $200 long put, entry $1.47, currently $4.70, potential gain $3.23.
ADBE - Adobe Systems (Nov Short Put 10/18)
Adobe raised guidance this week and helped to kick start the Tuesday rally. Shares retraced some gains but assuming the market does not make new lows, Adobe should be an out performer.
Earnings Dec 13th.
Sell short Nov $225 put, currently $2.02. Stop loss $236.85.
Update 11/1: It should be no surprise that a 14% decline in the Nasdaq in three weeks caused us to be stopped out of Adobe. The monster market decline on Monday afternoon spiked put prices on everything causing us a big loss.
Closed 10/29: Nov $225 short put, entry $1.64, exit $5.00, -3.36 loss.
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.
Update 10/4: The report of a new hack into 50 million Facebook accounts caused the shares to collapsed again and make a new five-month low. We were stopped on the short put and the long put is still active and profitable.
Closed Nov $160 short put, entry $5.50, exit $6.45, -.95 loss.
Retain Nov $150 long put, entry $2.41, currently $4.55, stop loss $160.50.
FB - Facebook (Nov Put Spread 10/4)
Facebook shares fell hard again on news of the new cyberattack. However, Facebook always seems to bounce back from these types of revelations. We are going to sell a put spread nearly $20 OTM and the stock is trying to cling to the $160 level.
Sell short Nov $140 put, currently $1.94, stop loss $154.50.
Buy long Nov $130 put, currently .83, no stop loss.
Net credit $1.11.
Update 10/11: We were stopped out of the short side the prior week on the news of a new hack of 50 million accounts. We retained the long put and we were rewarded when shares fell in the Nasdaq crash.
Closed 10/5: Nov $150 long put, entry $2.41, exit $5.40, +2.99 gain.
Previously closed Nov $140 short put, entry $5.50, exit $6.45, -.95 loss.
Net gain $2.04.
We were also stopped on the lower put spread.
Closed 10/8: Nov $140 short put, entry $1.83, exit $2.48, -.65 loss.
Close Nov $130 long put, entry $.79, currently $1.43, +.64 potential gain.
LRCX - Lam Research (Nov Short Put 10/18)
Lam posted decent earnings and guidance and spiked to $154 on the news. The week market has seen some of those points bleed away but there is strong support around $143.
Earnings Jan 15th.
Sell short Nov $125 put, currently $2.00. Stop loss $139.85.
LULU - Lululemon (Nov Call Spread 10/4)
Shares peaked at $164 the prior week and have declined to $157 on the market weakness. LULU has a nice base built and could go higher but the strong gains since last December suggests there may be more sellers than buyers in the weeks ahead.
Earnings Nov 20th.
Sell short Nov $170 call, currently $2.00. Stop loss $163.25.
Buy long Nov $180 call, currently .79, no stop loss.
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.
Update 5/11: We were killed on MED and the stock barely moved. It opened down $1 on the 8th then dipped lower as the day progressed. We were stopped in the opening minutes before there was any major decline but the short put opened at $13 and twice the premium we sold. This was a $180 put with the price at $212. The market makers were taking advantage of the week market to jack up the premium. We were caught in the trap.
Closed 10/8: Nov $180 short put, entry $4.70, exit $13.90, - 9.20 loss.
MCK - McKesson (Dec Put spread 11/1)
McKesson is rebounding strongly out of the market crash and is now $12 above its correction lows.
Earnings January 24th.
Sell short Dec $120 put, currently $1.95, stop loss $122.50.
Buy long Dec 110 put, currently .75, no stop loss.
Net credit $1.20.
MMM - 3M (Dec Put spread 11/1)
3M is rebounding out of its post earnings crash lows and any positive news out of China would send it into the stratosphere. Earnings disappointed but the stock is recovering.
Earnings January 22nd.
Sell short Dec $180 put, currently $2.77, stop loss $186.25
Buy long Dec 170 put, currently $1.45, no initial stop loss.
Net credit $1.32.
NVDA - Nvidia (Nov Short Put 10/4)
Shares got a bump this week after Evercore ISI upgraded their target price to $400. Shares spiked to a new high before fading slightly in the Nasdaq decline. I firmly believe we will see $400 next year but that does not mean there is no risk at $250. This strike is $30 OTM but Nvidia can move quickly. I am counting on the Nasdaq coming back to life soon.
Earnings Nov 15th.
Sell short Nov $250 Put, currently $4.40, stop loss $264.85.
Update 10/11: Nvidia imploded in the chip wreck that was helping to drive the Nasdaq lower. We were stopped for a big loss on the short put when the Nasdaq gapped down on Monday.
Closed 10/8: Nov $250 short put, entry $3.67, exit $9.00, -5.33 loss.
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.
Update 10/4: No specific news. Shares rolled over with the market to stop us out on the short put. Two weeks of gains evaporated in three days.
Closed Nov $155 short put, entry $2.70, exit $3.40, -.70 loss.
Retain Nov $145 long put, entry $.80, currently $1.60.
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.
Update 9/27: 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.
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.
Update 10/4: Roku declined $11 in three days after making a new high on Monday. There was no news. We were stopped on Wednesday for a breakeven.
Closed Nov $60 short put, entry $2.17, exit $2.11, +0.06 gain.
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.
Update 10/11: Thank you Elon Musk for being an idiot. This would have been a great put position if Musk had kept his mouth shut. (tweet) He launched an attack on the SEC and shares gave back all their rebound gains. We escaped with a gain ourselves but it would have been much nicer had Musk lost his phone.
Closed 10/5: Short Nov $200 put, entry $7.43 exit $5.90, +1.53 gain.
URI - United Rentals (Dec Short Put 11/1)
URI fell from $170 to $106 in the market crash. In two days it has rebounded $19 and has a long way to go. The bottom at $106 was tested for six consecutive days and held.
Earnings January 16th.
Sell short Dec $105 put, currently $1.75. Stop loss $110.75.
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.