The markets have strung together several days of declines. It may be a buying opportunity long-term but I am done having fun.
The Cisco guidance warning hammered the markets on Thursday with Dow component Cisco losing 16%. The biggest loss in three years.
The Cisco warning killed market sentiment and sent the Dow down triple digits at the open. On Wednesday the markets dipped sharply during the day and rebounded at the close. That was the same pattern today.
The dip on Wednesday stopped us out of the PCP position at $138.25 and $3.40 for the option. That was a $1.05 loss.
The dip today killed NetApp since they are in the same sector as Cisco. Our stop was hit at 54.50 and 7-cents from the low for the day. We lost 37-cents on that one.
I know we needed a good bout of profit taking to clear the decks and pave the way for the next rally to begin. In reality the declines have only retraced about half of the prior week's gains so it is still not serious but I am ready for it to be over. It is amazing how spoiled you get to two months in rally mode. Suddenly three days of declines puts a cloud over the market and the bears begin to gain confidence.
I am not going to add anything tonight because this market weakness could last through Friday because of events from the G20. I will look to reload over the weekend in anticipation of the indexes remaining about support at Dow 11,100 and S&P 1,190.
Current Position Changes
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.