The market dip at the open this morning caused two plays to gap down to the stop loss before the bell even quit ringing.

Peabody Energy (BTU) and Alcoa (AA) were both stopped out at the open. Peabody dropped -$1.50 on the opening tick to $32.95 and hit our stop at $33. That was good for a 40-cent loss ($1.50 open, -1.90 to cover) on the position even though BTU rebounded to near $35 by midday. That is the problem with stops but -40 cents is far better than -$4 if there had been bad news and the drop continued without a stop loss.

Alcoa (AA) dropped from Tuesday's close at $12.92 to $12.20 at the open and hitting our stop at $12.25. I was really surprised that Alcoa took such a dive but we have to play the cards we are dealt. That stop cost us 35-cents. (Net credit to open $1.82 (2.43 -.61), -cost to close 2.17 (2.81-.64) = .35 loss)

As for the market I was very glad to see the attempt to sell it off again at the open and to see that attempt fail. That was a critical test of support. The Nasdaq fell all the way back to 1930 and the low from Monday before rebounding to a new high for the week. That is very positive.

Same with the S&P. The dip to nearly 980 and Monday's support low was immediately bought and the rebound took the S&P back to 1000 before the end of day profit taking bled off -4 points to close at 996. This was very positive.

Futures are up tonight and assuming Asia does not sell off again we should see further gains on Thursday. However, crude futures expire on Thursday and Friday is option expiration so there may be some continued volatility.

We are not really in danger on the rest of our positions with the exception of ATVI. If we get another down day we may lose that one. I am hoping the rest of the week will remain positive and we can get into next week before any market weakness appears. This will allow current premiums to bleed away as they become front month.

Jim Brown



Current Portfolio




Watch List


Conservative

COF - Capital One $32.00 Sell Sept $30 Put COF-UF

BAC - Bank America $16.00 Sell Sept $15 Put BYO-UO

Speculative

   None


Margin Requirements:

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)