We got entries on six of the eight plays and successfully closed two existing plays.

It was not a bad day although I would like to have seen a continuation of the rally. However, a day of consolidation after a +4% rally the prior week is to be expected. Relatively speaking the profit taking was mild so no complaints.

We successfully exited the March positions on CLF and VMW for 10-cents each. We had new entries on UYM, BUCY, WLT, BHP, TM and GMCR.

The PCP and MSTR recommendations were not entered because both opened in the red and did not qualify for an entry.

PCP declined to support and simply gave back part of Friday's gains. I am reinstating PCP as a new recommendation for Tuesday with the same qualifications. It must open positive and the S&P must be positive in order to enter the trade. The drop today inflated the option premiums and made PCP a better trade as long as support at $116 holds.

MSTR imploded on no news with a -4.79 loss. I am REALLY glad I had the positive stock/S&P qualification on that trade. I am removing MSTR from the play list.

Jim Brown



Current Portfolio



Current Positions


FDX - FedEx $86.67
Put in a bid to buy back the option at 10-cents or less.
Maintain stop loss at $84.75.

KCI - Kinetic Concepts $42.87
Maintain stop loss at $42.25.

FCX - Freeport McMoran $80.65
Put in a bid to buy back the option at 10-cents or less.
Maintain stop loss at $77.75.

UYM - Proshares Ultra Basic Materials $34.73
Maintain stop loss at $32.95.

BUCY - Bucyrus Intl $66.12
Maintain stop loss at $62.75.

WLT - Walter Energy $86.34
Maintain stop loss at $82.75.

BHP - BHP Billiton Ltd $79.31
Maintain stop loss at $75.75.

TM - Toyota Motors $77.94
Maintain stop loss at $72.75.

GMCR - Green Mountain Coffee $92.44
Maintain stop loss at $84.75.


New Recommendations


PCP - Precision Cast Parts - $117.81

PCP gave back $2.51 of its Friday gains and declined to just above support at $116.

ENTER ONLY if PCP is positive, and S&P is positive at the open on Tuesday.

Sell PCP $100 PUT PCP-10P11000 currently $1.55, Stop at PCP $115.00.

Chart of PCP


March Recommendation History



Click here for February Results

Click here for January Results

Click here for December Results

Click here for November Results

Click here for October Results

Click here for September Results

Click here for August Results


Methodology

We do not sell out of the money puts for a few cents and then hope the market does not correct and cost us a fortune to exit. I don't like to risk a dollar to make a quarter.

The concept for Option Writer is to find solid momentum plays with enough volatility to inflate the option premiums. We will sell in the money naked puts ahead of the stock price and let the stock rally to our strike.

Selling in the money puts allows us to capture nearly dollar for dollar the movement in the stock price.

Because we are selling in the money that same dollar for dollar move can go against us as well. For this reason we establish tight stops to take us out of the play for a loss of a few cents rather than let the losers grow and "hope" they rally again. In a typical month we could get stopped out of twice as many plays as we close for a profit but those stops will be minimal and the winners worth the trouble.

If you do not have the ability to sell options you can turn the plays into spreads by buying a lower strike put. This will decrease your margin requirements but it will also decrease your profits.


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)