The markets were still weak on Wednesday. They were dragged lower by energy and the breakdown in commodities. However, the S&P did rebound off strong support at 1340.
We lost another position this morning when gold prices dipped again. Fortunately this one was a breakeven.
Futures are up slightly tonight and I am going to risk two new entries. Both have already reported earnings and rose in a bad market today. If the Microstrategy position works out well we could recover all the losses from this week in one play.
Current Position Changes
MSTR - MicroStrategy $140.24 (Short Put)
Microstrategy reported earnings on Wednesday that were very strong. In spite of a bad market the stock gained +3.57 to $140. Because of the recent volatility in MSTR we can sell a $125 put for some decent premium. There may be some post earnings depression so there is some risk but I am putting the stop right under Wednesday's low.
Do not enter this position unless MSTR and the S&P are both positive.
Sell short MSTR MAY $125.00 Put, currently $4.30, stop loss $133.75
Chart of MSTR
MHS - Medco Health Solutions $61.79 (Short Put)
Medco reported better than expected earnings and has been rising ever since. This is a stock nobody really pays attention to but should be a good performer in the months ahead. We can sell just under support.
Do not enter this position unless MHS and the S&P are both positive.
Sell short MHS June $57.50 Put, currently $.85, stop loss $59.50
Chart of MHS
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.