Our final position was closed at the open and we are back to cash and looking for a buying opportunity.

Millicom (MICC) opened at $96.26, more than $10 out of the money but the market maker refused to let the premium drop on the option. We exited with a 60-cent gain at 40-cents.

That was our last open position and we are now in buy the dip mode. We just need a decent dip to re-inflate option premiums and give us a buying(selling) opportunity.

A reader asked me today why I did not recommend selling calls in this environment. I don't recommend calls especially in this market because of the additional risk. Naked calls have inherently more risk than naked puts. A stock can go up a lot farther than it can go down. In a bulls market, even one I think is due for a breather, the call risk is even higher.

Remember Monday's gap open? Many stocks gapped up $2-$4 and shorts were squeezed out of their plays. If we had been short calls I would bet every position would have been stopped out all at once. Of course we have had gap down days that also caused us problems but I think everyone understands the difference in risk. That is why it requires more margin and more account authority to write naked calls. The brokers and SEC understand the risk and price it accordingly.

I would write calls in a bear market but I would do so sparingly. I have been writing puts for a long time and it has always been a winning strategy for me when I follow my own rules. As in any strategy if you bend the rules and don't stick to your stops you will get burned.

Now we just need to wait for a dip to buy.

Jim Brown

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Current Portfolio




Current Position Changes


MICC - Millicom (Closed)

We exited the Millicom play at the open with MICC trading at $96.26. The option traded for 40-cents giving us a 60-cent gain. That market maker is really stubborn to hold that premium that high with two weeks to go and the stock $10 out of the money. Still, we exited for a gain so we should not complain.


New Recommendations


None


New Long Term Recommendations


None - Waiting for a "real" market dip


New Aggressive Recommendations


None


December Recommendation History



Option Writer has been profitable for 13 of the last 17 months

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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.