Market reporters were blaming the market drop on the rise in oil prices but I don't think that was the real culprit.

We did see oil prices rally to nearly $107 on escalating violence in Libya and growing unrest in other countries but I don't think that $1 rise in oil prices to close at $105.37 was the major problem for the markets.

As I wrote over the weekend I believe the hedge funds are dumping their QE2 longs ahead of what could be a change in the Fed statement next Tuesday. Dallas Fed president Richard Fisher said early Monday "If at any time between now and June, it should prove demonstrably counterproductive, I will vote to curtail or perhaps discontinue QE2." While not a concrete statement against QE2 it is another in a long line of comments from Fisher against the QE2 program.

Atlanta Fed president Dennis Lockhart said the Fed should not rule out additional bond purchases after QE2 because turmoil in the Middle East is a risk to a slowdown in the global recovery. However, "With the information I have today, my first inclination is to be very cautious about extending asset purchases after June."

These Fed heads are only voicing what hedge funds are also thinking. They are worried that QE2 could be ended early with the first crack in the program appearing in next Tuesday's FOMC statement.

If you look at an intraday chart it appears there were several sell programs early in the day. We have not seen any material sell programs for months until the last two weeks. This is clear evidence that some funds are exiting their longs ahead of the FOMC meeting.

Today's dip knocked us out of the MOS and APC positions for a minor loss in each. The new recommendation for Acme Packet was not triggered because APKT gapped lower at the open and never met the qualifications. APKT is now cancelled. WYNN and NOV are both active.

I am not adding any more positions because of the volatility and lack of market direction.

Jim Brown



Current Portfolio




Current Position Changes


None


New Recommendations


None


New Long Term Recommendations


None - waiting for a directional trend


New Aggressive Recommendations


None - waiting for a directional trend


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.