The markets recovered from their early week decline but the week is not over yet.

We got the decline I was expecting with a huge assist from the debt problems in the Eurozone. Thursday's rally was a short covering spike at the open and then a siesta for the rest of the day. The bullish open did not carry into the close with a few sellers trying to take some positions.

I think shorting Thursday's close was probably not a good idea for anyone that does not have a hair trigger escape plan. Recently we have seen closing rallies on Friday as shorts cover rather than remain short over the weekend. If this Friday follows that pattern of no conviction by sellers then we will start some new plays on Monday.

If the shorts find some conviction and the market closes lower or even marginally higher then I think our highs are behind us and we will start seeing some of the "sell in May and go away" traffic begin to appear.

There are so many undercurrents in the debt market, the banking sector and now the energy sector that the markets will have a tough time moving higher even though the Fed did not change the statement.

Jim Brown



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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)