The market did not cooperate as I had hoped.

The opening gap was the high of the day and about 200 Dow points over what the futures were showing when I recommended those plays last night. The super strong gap with the Dow opening up +455 points nearly zeroed the put premiums on the IWM and IYT. We were filled at nearly the low of the day. It was not pretty. Instead of opening +200 or so and then continuing to rise throughout the day, it was all in the opening spike.

The USO gapped to $37.50 on a +$3.50 spike in oil prices but then declined when the euro/dollar immediately reversed directions. The size of the Eurozone stability package was seen as a devaluation of the euro rather than a strengthening action. The euro declined from an opening high of 129.08 to 127.24 while the dollar index rose to 84.37 from the low of 82.91. This is exactly opposite what was expected on Sunday night. Everyone believed that the danger to the euro was over and the currencies would return to their rightful levels over the next several weeks.

In reality the size of the package seemed to indicate that the EU is expecting problems with Spain and Portugal and by devaluing the EU they could lessen those problems and allow the entire Eurozone to benefit from the weaker currency. This was contrary to what the EU finance ministers were claiming on Sunday night. That brings to mind the old adage, "do as I say, not as I do." The finance ministers were saying one thing and doing another.

If the dollar is going to continue its climb the USO position could be in trouble. Because of the gap higher and our lousy fill we only have 12-cents of cushion. Fortunately the USO and crude oil were moving up at the close. Hopefully that trend will continue and the initial reaction to the package will fade and the euro will find some traction. That will support oil prices and the USO.

The worst trade for the day was Goldman. I expected them to gap open and then maintain those gains and then rise with the financial sector throughout the day. Unfortunately the opening print on Goldman and on the financial sector was the high of the day so our fill was the low for the day.

To make matters worse Goldman declined from its $150 opening print to a low of $141.20 late in the day. It gave back all its gains and turned negative before ending the day with a fractional gain.

The -$8 drop back to $142 triggered our stop and a major loss. The opening fill at $2 was far less than the put premium of $4.50 when the stop was hit. That represents a $2.50 loss and some major pain.

Because the super gap open was the high of the day in everything I have moved the stops to as high as possible to avoid any further losses. We simply have no cushion and I would rather risk being stopped out by some opening volatility than give back dollars should the +400 day turn into a -200 on Tuesday.

I am not adding any new positions tonight due to the massive short covering. Odds are better than 50% it will be followed by profit taking.

Jim Brown



Current Portfolio


Current Positions


New Recommendations


None


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)


Prices Quoted in Newsletter

At Option Investor we have a long-standing policy prohibiting the editors and staff from actually trading the individual recommendations in order to conform to SEC rules concerning trades.

The prices quoted in the newsletter are the end of day prices in most cases.

When discussing fills or stops the prices quoted are the bid/ask at the time the entry trigger or exit stop is hit. This is NOT a price that someone on staff actually got using a live order.

For entry/exit points at the market open the prices quoted will be the opening print. The majority of the time the readers are able to get a better fill than the opening print because of market maker bias at the open.

For trades with an opening qualification the prices quoted will be the bid/ask at the time the qualification was met.

All of these rules normally produce worse prices than an active trader would normally get. Because they are standardized there may be some cases where a price quoted was better than an actual fill. If you received a price that was dramatically different than what was quoted just send us an email and we will use your price.