The bulls stampeded the shorts on Thursday as the Dow soared in a breakout from bullish consolidation.

It was a good day for anyone long stocks but a bad day for the shorts. The two weeks of bullish consolidation exploded higher at the open and creating a monster short squeeze. Those expecting a sell the news event (me) around the FOMC announcement were met with a a +219 point rally instead.

We exited two positions at the open. The short $70 put on VMWare opened at 30-cents for a +$1.05 profit. The short put on WYNN spiked to 25-cents on a drop in Wynn shares but that was almost another dollar profit so we can't complain.

SalesForce.com traded in the wrong direction today with a $2.42 loss. I can't imagine that our $95 put is in danger with the stock at $114 but it has failed to make any forward progress in nearly two weeks. Being down today could be a warning signal. I am recommending we close that position at the open on Friday. Better safe with a profit now than sorry with a loss later.

The big rally today has all the appearances of a bullish breakout. However, even with last week's consolidation I would hesitate to add new positions today. I keep telling everyone in my commentary to buy the dips but they have been few and far between. Eventually one will appear and I will back up the truck to add positions. Until then I am going to remain cautious but I will add some this weekend.

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 please let us know.