We only lost one position on the opening drop this morning.
The market drop at the open pushed every stock lower but only one triggered the stop loss. That was the basic materials ETF (UYM) that hit the $33.50 stop by six cents to a low of $33.44 before rebounding to close with a 66-cent gain. Unfortunately busted plays on stop losses are a fact of life and I believe we are lucky to have only lost one today.
I made an error on the BTU update over the weekend. I posted the closing number based on an incorrect symbol and an astute reader caught the error. I have corrected the history graphic with the right price.
The opening dip today did us a favor on the new plays by inflating the put premiums so all the positions are already in the green thanks to the rebound.
In retrospect I did not give clear instructions on the entry rules. I said don't enter unless the stock opens above a specific level but I should have said don't enter unless the stock is above a specific level. Mosaic opened a few cents under the $58 instruction but quickly rebounded over $58 and moved strongly higher. A reader emailed that he waited for it to move over $58 then entered, was that the correct call? Fortunately hindsight is 20:20 and I told him it was ok. If I had worded the instructions correctly I could avoid this type of confusion. A strict interpretation would have been "no entry" because it did not open over $58. If you did not enter the trade you were correct. If you did enter it once it moved over $58 then you should have a successful trade underway and I doubt anyone is complaining. I added the position to the portfolio for tracking purposes for those who did take the entry.
CBOE Options Chart
We had two plays close today. GMCR hit our target at 25-cents and Toyota hit our target at 10-cents.
I am not adding any new plays today just in case this rebound does not stick. We already have a full plate so it is probably wise for us to let some premium bleed off before adding additional risk.
TM - Toyota
Closed at 10-cents or less.
GMCR - Green Mountain Coffee Roasters
Closed at 25-cents or less.
PCP - Precision Cast Parts
Bid to buy back the option at 25-cents or less.
Maintain stop loss at $118.50.
UYM - Basic Materials ETF
Stopped at $33.50 @ 93-cents for a 2-cent profit.
FSLR, POT, IOC, MOS, CREE - No Change
March Recommendation History
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)