Today's rally came on a sharp drop in the dollar and a flurry of short covering ahead of the FOMC meeting on Wednesday.

More news is coming out about the survey the Fed took from all the primary dealers on what amount of QE2 would be enough. The average response was in the $500B to $1T range but Goldman said it would take $2T to insure there was enough cash in the system to force a recovery.

The prospect of the Fed announcing a $2T QE program are practically zero but just knowing that number was being circulated caused the dollar to plummet and stocks to rally. Traders who have ridden this QE2 rally since it was announced by Bernanke on August 27th were covering positions today.

The potential for a sell the news rally is even stronger today than it was over the weekend because of the $2T hype. Almost anything the Fed does will be a disappointment to somebody.

I updated a couple stops in order to avoid a complete give back if stocks behave badly after the announcement. If you are an active trader and able to monitor your positions during the day I would probably tighten up those stops even further around 2:PM on Wednesday.

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)