Thursday, March 11, 2010 9:50:11 PM EDT Another Target Hit by Jim Brown Click here to email Jim Brown

We were able to exit the KCI play for a nickel and free up some margin for a new play tonight.

Kinetic held its gains today and the March $40 put traded 238 contracts with a high of 5-cents. That produced a profit of 90-cents on this position.

The markets turned bullish at days end with most of the indexes closing at new highs. The S&P closed dead on its resistance high at 1150. I am going to take this opportunity to add one more play. Maintain your stops at the current levels with no changes.

Jim Brown

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Current Portfolio

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Current Positions

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

KCI - Kinetic Concepts - Closed
This position was closed for 5-cents today.

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

BUCY - Bucyrus Intl
Maintain stop loss at $62.75.

WLT - Walter Energy
Maintain stop loss at $82.75.

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

TM - Toyota Motors
Maintain stop loss at $72.75.

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

PCP - Precision Cast Parts
Maintain stop loss at $115.00.

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New Recommendations

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FSLR - First Solar $113.69

First Solar is rebounding from its lows after two weeks of consolidation. It appears the bulls are moving back into solar stocks as an undervalued sector after the two month decline. I am going to recommend the $100 April put with good support in the $105-$110 range.

SELL FSLR APRIL $100 PUT (FSLR-10P100) currently $2.08, stop FSLR @ $104

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March Recommendation History

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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

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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.

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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)