When something is working there is no reason to change the plan.
We shorted a $35 put on Mosaic on July 13th for $1.60. I talked about closing it last week but left it up to you. That put traded as low as 3-cents on Friday. I am going to recommend that we close that short for a nickel or less at the open on Monday.
In its place I am going to recommend another short put on Mosiac with 18 days left in the August cycle. This stock has enough volatility to keep the option premiums high and the overall direction is still up. With Asia coming out of the recession and fertilizer not one of the commodities they have been stockpiling the orders should be flowing. Most fields are only good for two seasons without fertilizer to revitalize the ground. About 18 months is the outside window and that window is rapidly approaching.
I am going to recommend we close the Goodrich position at the open on Monday. The stock is slipping and we are only 25-cents negative today but their earnings are coming and I don't want to risk a further drop. As I mentioned before in this commentary I am being ultra conservative and cutting the losers quickly but letting the winners run. Close the GDP short put at the open on Monday.
I thought last week's decline was going to finally breakdown on Wednesday and it was close. I was already lining up some early positions for September on the hopes we got a real bout of profit taking and some great entry points. It was not in the cards and the shorts were crushed again on Thursday morning.
The two-day rally left us overextended once again and at risk for another pullback. I am not confident enough to sell calls against it because we have seen the shorts get squeezed so many times lately betting against the rally that it seems foolish to join their pity party. Patience is a virtue and I am struggling to practice it again this week.
New Recommendation - Conservative
MOS - Mosaic $52.16
The Mosaic Company (Mosaic) is a producer and marketer of concentrated phosphate and potash crop nutrients for the global agriculture industry. The Company operates through business segments: Phosphates, Potash and Offshore. The Phosphates Segment produces phosphate crop nutrients and feed phosphate, which are used in crop nutrients and animal feed ingredients, respectively. The Potash segment mines and processes potash in Canada and the United States, and sells potash in North America and internationally. The Offshore segment produces and/or markets phosphate, potash and nitrogen-based crop nutrients and animal feed ingredients. The Company serves customers in more than 40 countries. As of May 31, 2009, Cargill, Incorporated owned approximately 64.3% of the Companyâ€™s outstanding common stock.
Sell MOS August $50 PUT MOS-TJ currently $1.75, stop loss MOS @ $48
Chart of MOS
COF - Sell August $25 Put COF-TE if COF trades at $28
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)