Expiration week found traders undecided about direction but the bulls were still able to hold the S&P at four-week highs.

The expiration volatility again came in the week before expiration and not in expiration week. This trend has been prevalent in recent years. The relative lack of volatility last week, with the VIX falling to a six-week low, helped remove some of the option premium from our current plays and left us in profitable positions on all but one.

I raised the stops on all but one position just in case it was expiration pressures holding the market up. Without those quadruple-witching pressures next week the market will be free to head into any direction. Traders in the S&P futures are now working on a new quarter and will start applying their market bias to their new trades.

I looked at roughly 300 different stock charts today and I am concerned there could be some weakness ahead. The majority appeared over extended from the last two weeks of gains and have reached a plateau where moving higher will take some new market event. Many were already rolling over as the week came to a close.

The futures are up strongly tonight at +12 because China said over the weekend it was going to loosen the yuan's de-facto peg to the U.S. dollar. China emphasized that there would be no immediate revaluation but a gradual strengthening of it currency. China was going to come under a lot of pressure at the G20 meeting next week and they took the action to reduce that pressure.

How that will impact our markets other than the opening spike is unknown. A stronger yuan will change the cost of their exported goods and impact trade but the change in the yuan value is going to be so slow that I doubt we will see any movement for quite a while. This is a political statement not necessarily a statement of action. The market could easily gap higher on the news but once reality settles in we could see that gap erased very quickly.

Because of my view of the charts and the potential for a roll over I am not adding any new plays today.

Check the stops in the graphic. Yellow ones have changed.

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)