First Solar declined more than $13 but our short put remained profitable and we are still in play.
Friday was actually a decent day despite the big decline in First Solar. The option increased in price by 76-cents but remains well under our entry price. After the weekend's premium decay and a couple days for holders of FSLR to sleep on the earnings we should be in good shape.
Next week could be rocky. There are quite a few of important economic events and we moved into a new fiscal year for mutual funds. That frees them up to make wholesale changes in their portfolios. That coupled with the FOMC QE2 statement, ISM and Jobs is going to be a lot for the market to digest.
For that reason I am cautious about adding new plays this weekend. I did search through about 400 stocks trying to find a couple with decent charts and decent premiums but all the ones I would have played had earnings next week. Examples of big premiums included DRQ, WBMD, MSTR, CTSH, OPEN, CLR and IOC. Unfortunately we can't play them only a couple days before earnings. That is why they still have big November premiums because of the potential for an earnings disaster. Those stocks that have already reported had half the premium because the uncertainty is gone.
Current Position Changes
FSLR - First Solar - Add Stop
First Solar fell to $136 and strong support on Friday and our option position remains in the black. Now that the initial excitement is over I want to put a new stop on the position. If we get hit we should still exit with a profit thanks to the miracle of premium decay.
ADD STOP on short FSLR NOV $130 Put @ $134.75
First Solar Chart
WYNN - Wynn Resorts - EARNINGS WARNING
Wynn will report earnings after the close on Tuesday. Cautious traders will need to exit this position to avoid any negative surprise.
However, we have a $90 strike and the stock is trading at $107. There is decent support at $100. It would take a serious earnings miss to knock $17 off the stock price.
I am advising cautious traders to exit but I am leaving the position open in the portfolio.
CLF - Cliffs Natural Resources
Cliffs reported earnings last week that increased 500%. However they still missed the estimates. After the obligatory decline they rallied strongly on Friday. The volatility is holding their premiums up. With the stock at $65.16 I would recommend the November $62.50 put for $1.60 but next week could be rocky. Instead I am stepping down to the $60 put for $.88 for a little more safety.
SELL Short CLF Nov $60 Put (CLF-10W6000) currently $.88, stop loss $62.65
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)