The -150 point drop in the Dow cost us 42-cents on three positions that hit their stops.
Considering there were thousand of investors that lost far more than that on Tuesday I guess we should call the day a success. 42-cents spread over three positions is a perfectly acceptable risk.
Flowserve hit the stop at $100.50 at the open with the option at $1.25 for a 10-cent loss.
SalesForce.com hit $101.50 on the opening dip to close the option at $2.20 and a breakeven.
U.S. Steel drug out the pain until 10:30 when it finally hit the stop at $47.25 and cost us 32-cents in lost premium.
The opening dip came on a drop in imports in China for the month of July. At 2:15 the FOMC announcement rallied the markets to push the Dow back to positive territory but it could not hold its gains.
I am worried about the rest of the week but hopefully the expectations for Cisco's earnings after the bell on Wednesday will keep the markets from declining. This is also the week before expiration and it has been bullish in recent months.
If we exited every position today we would be up more than $3 for the month but if we could hang on until expiration those numbers would rise dramatically. Keep your fingers crossed!
Check the graphic for new stop losses.
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.