The continued spike higher in Caterpillar has reduced the premium on the option to our exit point. I am recommending we close this position on Tuesday for a profit.
Caterpillar has risen about $7 since we entered the short put position last week. The option traded at 11-cents today. I always recommend closing positions at that level to reduce the risk of a news event that unexpectedly puts us back into a losing position. Close the position on Tuesday.
Molycorp rallied +7 today so that position could be headed for an exit soon. The option declined 85-cents today but because of the historical volatility in MCP it is holding at $1.00. I believe MCP will continue to remain well above our stop and the premium will continue to decay. I am putting an exit target on the position at 25-cents.
On the negative side of the ledger First Solar opened higher today to trigger the new entry but then declined -4 for the day. It is still above our initial stop and I am hoping this was just profit taking from last week's rally. Because of the gap open we were filled at the low of the day which is normally the case on a gap higher.
Current Position Changes
CAT - Caterpillar (Short Put)
Close the short April $100 put at the open on Tuesday. The option premium has declined to 11-cents. Exiting now will prevent an unexpected reversal between now and expiration.
MCP - MolyCorp (Short Put)
Set an exit target on the short May $50 put at 25-cents. The stock price is now $16 over the strike price and the premium should decay soon even on a highly volatile stock like MCP.
New Long Term Recommendations
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.