The market decline today knocked out two more positions but both were profitable.

Support at the 200-day average on the S&P collapsed late in the afternoon and the Dow lost -148 points. That was too much negativity and two more positions hit their stops.

The VMWare stop at $70.25 was hit just after the open to close the short July $65 put at $1.05 for a 65-cent gain.

The Continental Resources stop at $49.15 was hit around 1:PM with the option trading at $1.00 for a minor 15-cent gain.

I can't complain about stops that take us out for a profit even when that profit is small. The market is setting up for another decline so it may be time to go back to cash on the sidelines.

Check the graphic for stop changes in blue.

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)


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.