The market decline is progressing very slowly but it is still a decline and this is why we have stop losses.
If you have been an investor for a long time you have probably watched some long positions bleed away a few cents a day for multiple days. It is not enough to make you rush to close the position. Unfortunately those small daily declines eventually add up to a problem. More often than not those declines end with a sharp drop as a capitulation event occurs.
You are like a frog in the cooking pot. The water gets warmer so slowly you don't realize you your in trouble until it is too late. By having stop losses we avoid those problems and exit for manageable losses.
We had two stops hit on Wednesday. VMW hit the stop at 86.95 with the option at $1.94 and took us out for a 27-cent loss.
First Solar bucked the weakness all day but finally caved in at the close to stop us at $134.75 with the option at $4.50 for a 25-cent loss.
We have been fortunate this week with minimal losses and the portfolio has shrunk to only three open positions. We were due for some weakness after the FOMC meeting and hopefully it will be over soon.
Current Position Changes
New Long Term Recommendations
None - Waiting for a "real" market dip
New Aggressive Recommendations
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.