Hello Traders

It is the first warm weekend of the year. I am really looking forward to spring and enjoying some golfing very soon. Another interesting week passed in the markets and I have a few new positions to share with you. Please see all the information below about my open positions.

My two new services that I have been working on are one step closer this week to being implemented. I am going to continue the free information on my positions that will soon become part of the strategy newsletter, “The Game Plan”. You will be able to subscribe to the service and it will have the two focuses of trading in index and sector option strategies, and the second of individual option strategies. This will remain a free service for a while while I test a few other things that I would like to implement. Once those are in place I will be going to a pay subscription service. The second service will be a paid service right out of the gate, I will be trading volatility with my newest strategy. This is a very exciting strategy and is performing beyond my expectations. It is one of my favorite trading tools and I look forward to showing all of my trading in this area for all that subscribe.

Open Positions:

Index Options Strategy:

Positions currently held: UNG, NUGT, OIH, TBT

UNG Position – Recovered from the big volume down day. Question is if it fails like the last time that is highlighted or if it tries to move back toward the 21DMA?

I continue to hold the long 100 shares of UNG. I need to establish a new short call against the 100 shares that are now naked. I will be looking to open a new short call on Monday and additionally if UNG recovers the 6.80 level. I was considering selling a put, but I am going to pass on this and really be more aggressive on selling the call and using that to exit if we can get strength in UNG. The call I sell will be short term (less than 2 weeks to expiration) and is essentially going to be a target price for exit.

The NUGT Position has done well, but has stalled a bit and has me concerned because gold has been breaking out to the upside. This correlation should move to the upside, but it has diverged and the miners are showing weakness. There is potential that the miners are lagging or were affected by the tough market on Friday. I will be keeping a close eye on this trade next week for a catch up by the miners especially if gold continues to move higher. Otherwise, if gold shows weakness it could mean it’s time to move away from this trade.

The OIH Position has 200 shares long and I have sold calls against it and lowered basis multiple times. Oil continues to trade sideways between 50 and 55 causing continued trending action in OIH. Support will be tested just below 32 and we will have to see If we go as far as the 200 DMA and the long-term up trend line. This week I will be selling another call against the 200 shares to get back to 100% covered. The 32.5 call that expires Friday will remain on and I will look to add the additional call to cover the 200 shares.

TBT Position – This is at the low end of the range. 50% of the position is covered. Looking for a bounce off this support level. If it doesn’t happen Monday I will cover the remaining position.

Shorting bonds still looks very attractive. I have continued to roll the covered position and have taken heat several times on the calls, but have rolled them out and continue to lower basis as TBT trends between 39 and 43. I will need to add a short call to the position again this week. I am looking to see if support near the red line in the chart holds (near 39). If TBT bounces a bit I will sell a call into the strength that expires greater than 2 weeks out. Otherwise, I am sitting on my hands to see if there is a push lower and I will roll the 1 call that is currently active and look add the second call on the retest of the resistance that was support near the 39 level. I just don’t believe that bonds can continue to rally for a sustained period of time and interest rates are going to go up unless there is something drastic to happen. With that said there is always the European issues, but I would not count on them being long term and the economic trends will continue.

TLT Position – I put on an iron condor and we get a pop to the upside of the range. I really don’t think it lasts because the FED is going to move more this year and will put pressure on bonds.

I started an iron fly at the 120.5 strike that was 2 dollars wide. TLT has consistently been trading sideways as bond traders churn positioning in this range. Anyone wanting the TLT to get moving you can thank me now, hahaha. Anyway, back to being serious, FED raising rates and stock markets at highs with risk of sell off have put the bond market in a conundrum. Financial data has supported the FED thus far, and the market setting records daily has brought some concern as well as the European issues. These potential catalysts are putting pressure in opposite directions and Friday we saw the bond buyers win. I may have to adjust the trade I put on last week if TLT continues to rally especially if it breaks above the 122.5 level.

Stock Options Strategy:

Positions currently held: TWTR, UAA, NFLX, HLF

TWTR Position – Aggressively selling Calls to reduce the basis of the long March Calls. Only a few weeks left to sell against those long calls.

The position in TWTR has become very far OTM for the long calls that expire on the March normal expiration. I continue to sell 1/3 to 2/3 of the of the position in calendar spreads to lower the cost basis. This has done very well on lowering the losses that will occur on the long calls. I didn’t just give up on the position because there was a chance that they could be bought out. Unfortunately, since the CEO bought a huge stake in the company that buyout option for the trade is not really a good probability now. I will not be upping the covered calls to fully cover the long calls to try to recoup as much as possible without taking on a large risk position.

UAA Positions:

My UAA position has done nicely, but the volatility has caused very poor pricing for the risk of selling further positions. I also don’t see tremendous upside or downside potential that would get me into buying some long spreads. So, outside of the current trade I am going to sit on my hands on this underlying until something changes.

NFLX Position – Holding the 8 and 21 period averages. Showed good signs of strength in the tough market on Friday.

I started a new position in NFLX this week. I really like the consolidation here and any momentum takes us higher. The trades were two fold. The first is a standard long call position, that I will add to if NFLX continues to trend, but it gets me in the game. I made the trade theta positive by selling an ATM put spread that is 3 points wide. The second portion of the trade is the targeted price that I am looking for which is right at the 150 level. I bought a butterfly around the 150 strike that expires in about 3 weeks. If there is any momentum left in this name and the market I think we could see this level very easily and this will reward my nicely.

HLF Position – Newest trade in portfolio. I gave this time of over 40 days. Long a put spread and sold a call spread. All for a credit that makes the breakeven just above 60. Looking for a move to at least the 50DMA.

The last new position that I added was HLF. I really don’t think the investigations and the admitted need to change business is good for this company. Yes, they are making money, but I feel it is hard to truly think that full disclosure as public company will be beneficial to them. With that said, I like to short them. There was a nice gap down following earnings and some good implied volatility left in the name for me to work with. I bought a long put spread a little longer dated and I covered the cost by selling a call spread. In all both positions were combined together for a credit and makes the break even price just over 60. HLF would have to rally about 6% from here to get back to break even. That would be a pretty hefty move at this point and with the big run prior to earnings, I believe the trade is in pretty good position. Just a note of caution on this trade if you are following me in on this one. I did define the upside risk for a reason. There are some people out there with a lot of money that could encourage this company to get back to being a private company. This could cause a pop in the stock which is upside risk, the other is that the options in this stock are not very liquid and could create some issues with big upside moves. Again, I have capped my losses to the upside.

The Bottom Line:

I put risk back on in the portfolio but a big chunk of that risk was bearish in nature so if the market continues with weakness it should be a benefit. I see a pretty good tug-of-war going on out there right now. It is interesting and the positions I have on I really like at this point. I do have a couple that I ready to move on from, TWTR and UNG. Keep your eye on a few things as we progress this week. One alarm that I saw during my review this weekend was the price action in the utilities. They are really getting going again. They are companies that are really having some good earnings results, but usually when there is a run into them there should be some concern for the market. Also, keep you eye on the dollar, gold, and treasuries. If those products rally, and dollar sells off, be very careful in the market. Though, I would most likely like to buy my favorites because there is a lot of room to the downside before breaking uptrends and a pull back could be healthy. As a reminder, don’t get to shook up by the media out there, if there is even close to a 1% down day, they are going to be talking about the end of the market etc. Just keep your list of things you want to buy on 21 DMAs and 50 DMAs in the event we get a pull back. I am looking forward to the week. Several other big changes in my websites are coming soon and I will be introducing, “The Volatility Player,” service for everyone to get in on.

Option Coach