This was one of those days where every chart you look at has possibilities bit none had probabilities. I easily looked at more than 500 charts and while I found some really interesting stocks there were none that screamed, "Buy me."
We really need a profit-taking day in the market. Nearly every stock I looked at had almost zero put premiums unless the strike was right at the money. Four days of vertical movement has removed all traces of volatility and the associated premiums.
I did find one really interesting stock but a day late. The ticker is MDVN and the option premiums are out of this world. For instance with the stock at $40 the $30 March put was $4.40 with an open interest of 25,000. At first I thought it was a misprint but all the strikes had similar premiums. After researching I found that the company is going to release the results of phase 3 trials on their Alzheimer's drug at 8:30 on Wednesday. Depending on the results the $40 stock could either be $80 or $10 by the time the market closes. Wish I had found it yesterday!
Option Matrix for March MDVN Puts
We can't really hope for profit taking because we already have some long positions. I would rather not be stopped out on those just to see an entry point in some new ones.
I did manage to find a couple plays that, while not exciting, should still be money in the bank.
FCX - Freeport McMoran (Naked Put Write)
Freeport is in rally mode because of the price hikes in copper after the Chile earthquake and from the nearly $20 rise in gold on Tuesday. I doubt either will retain their gains but the strike is $8 out of the money.
ENTER ONLY if FCX is positive, and S&P is positive at the open on Wednesday.
Sell MAR $70 PUT FCX 10O70 currently $.58, Stop at FCX $73.95.
Chart of FCX
KCI - Kinetic Concepts - $42.76 (Naked Put Write)
Kinetic has spiked from $40.50 to $43 in the last week on an approval of some new medical devices. Earnings are good and the stock is relatively cheap in the medical device sector.
ENTER ONLY if KCI is positive, and S&P is positive at the open on Wednesday.
Sell March $40.00 Put KCI 10O40 currently $1.05, Stop KCI at $41.25
Chart of KCI
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)