We got a rally on Tuesday and those that entered our plays at the open got some good fills. Most were at the high of the day.
Walter Energy and National Oilwell were the starts for the day with strong gains but Hartford and Continental Resources were no slouches.
The key now will be protecting our positions in case the market rolls over. The rebound was lackluster and volume was the lowest since July 14th. On a rally day you want to see higher volume then the down days.
I am sure most of you remember the Memorex commercials on TV where they played some piece of music that broke glass and then asked you if it was real or taped on Memorex tape. That is how I felt about the Tuesday rally. It looked real on the surface but without being able to look under the curtain we won't know if it was real until later this week.
Reporting earnings after the bell was Hewlett Packard and they disappointed in their guidance and assessment of current conditions. PC sales are down -18% and that can't be good for back to school shopping and the outlook for the holidays has been talked about negatively for the last couple weeks by several firms. Time will tell.
That is why we need to protect our positions. I would rather exit early and lose a commission than exit late and lose trading capital.
We have three days left in the August option cycle and once into next week our premiums will decline sharply as they become the front month. If we can avoid getting stopped until at least next Tuesday we should make enough to cover commissions even if the market rolls over.
I changed the stops on every position to account for today's market action.
COF - Capital One $32.00 Sell Sept $30 Put COF-UF
BAC - Bank America $16.00 Sell Sept $15 Put BYO-UO
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)