The market decline on Thursday and Friday has turned sentiment bearish.
I waited until Sunday night to send this email in order to see what happened when the S&P futures opened for trading. If they were moving higher I might have tried a couple plays but they are down -5.25 and appears to be heading lower.
I am not inclined to add any new plays this weekend until we see where this market weakness is going to end. The object of trading is to make a profit. We should always have as many points in our favor as possible in order to have the best possible chance to make that profit. Trading just to trade is never recommended. Tonight the market direction is a coin toss although the farther the futures decline the more likely next week will start out in negative territory.
The euro contagion is spreading and like the annual influenza virus it is mutating as it spreads. We don't know what form it will take from day to day and week to week. This worry over the economic health of Europe and now China as well is weighing on our markets and there is no clear picture of when that worry could disappear.
I am always leery of writing naked calls in a down market because of the potential for monster short covering spikes on any day the market is open. We saw a +400 point spike last Monday. I doubt anyone would have wanted to be short calls in that environment. Those spike don't allow you to close option positions until well after the opening spike inflates premiums.
I believe we are better off waiting for this weakness to ease before attempting new entries.
I am going to hold off recommending any new plays this weekend.
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)