Option Investor

Option Writer Update

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Here is what we are looking at for tomorrow.

Tiffany's (TIF) Sell June 40 Puts

Mosiac (MOS) Sell June 105 Puts/June 150 Calls

TransOcean Offsore (RIG) Sell June 135 Puts

WYNN Resorts (WYNN) Sell June 95 Puts

BHP Billiton (BHP) Sell June 95 or 100 Calls

I like Goldman Sachs (GS) but the stock price is too high to sell naked options. It is a great candidate for the Monthly Cash Machine. More pricey stocks have higher margin requirements and less return for the capital at risk. That is why having a fixed margin requirement (the difference between the two strikes multiplied by the number of shares per contract (usually 100 shares/contract)) is preferrable on higher priced and/or more volatile stocks. GOOG, GS, AAPL, SPY, CME, and POT are all great examples of stocks that I would like to write options on but require too much margin for our hypothetical amount of risk capital ($50,000). Even if you have $5,000,000, writing uncovered (naked) options on higher priced stocks isn't advised purely for the amount of risk capital required to do the trade. Therefore, if you have $5,000 in your option writing brokerage account, you can still follow this strategy. However, it may be impossible to enter all 8 - 10 positions. You either have to pick and choose or take the first 3 - 5 positions. I think I will enhance the Portfolio screen to show the actual margin requirements for the current portfolio. My next big change will be tracking the MMG (max marginers) to see how the aggressive people are doing. My family is sick so I'll be in touch tomorrow. Take care.

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