The current positions in the portfolio are doing great thanks to the market rally. However, with four weeks left in the August expiration cycle the search for new candidates is becoming progressively harder.
After a nearly +1000 point run by the Dow and +110 by the S&P the volatility continues to decline with the VIX closing at 23 on Friday. The lack of volatility and the 15-30% rallies in most stocks has reduced put premiums even lower than they were in the prior week. Finding new candidates without adding unreasonable risk is becoming more difficult.
Ideally the markets would decline on profit taking next week and then rebound again after the GDP report. The decline would inflate premiums and bring out of the money put strikes back into play. Until that happens we may have to continue biding our time with a minimum of positions while we wait for the market to give us an opening.
The Mosaic position with the August $35 put was entered at $1.60 on July 13th. The bid/ask has declined to .05/.10 and could be closed if you wanted to free up some margin. I have little doubt the position will expire worthless with Mosaic now trading near $54. If you chose to close the position remember the commission in your profit calculations. I am going to leave it open in the portfolio until expiration.
I raised the stop losses on each position in anticipation of some profit taking. I plan on running Option Writer to completely avoid losses whenever possible. I would rather take less profit on a position rather than watch it deteriorate into a potential loss. Obviously as independent traders you can elect to continue the position and not exit at the stop.
I am putting a couple energy stocks on this week with close strikes based on the continued rise in crude prices. Natural as prices also rose last week and more rigs are going back to work.
New Recommendations - Conservative
GDP $26.63 - Goodrich Petroleum Corp
Goodrich Petroleum Corporation is an independent oil and gas company engaged in the exploration, exploitation, development and production of oil and natural gas properties primarily in the Cotton Valley trend of East Texas and Northwest Louisiana. As of December 31, 2008, the Company owned working interests in 414 active oil and gas wells located in thirty fields in six states. At December 31, 2008, Goodrich had estimated proved reserves of approximately 390.4 billion cubic feet (Bcf) of natural gas and 1.9 million barrels (MMBbls) of oil and condensate, or an aggregate of 402.3 billion cubic feet equivalent (Bcfe). In 2008, the Company drilled and completed 126 gross wells. In June 2008, Goodrich and Chesapeake Energy Corporation announced that they have entered into a joint venture to develop Goodrichâ€™s Haynesville Shale acreage in the Bethany-Longstreet and Longwood fields of Caddo and DeSoto Parishes, Louisiana.
Warning: Earnings August 5th.
Sell Aug $25 Put GDP-TE currently $.90, stop loss GDP @ $24.25
CRZO $20.84 - Carrizo Oil & Gas
Carrizo Oil & Gas, Inc. (Carrizo) is an independent energy company engaged in the exploration, development, and production of natural gas and oil. The Companyâ€™s operations are principally focused in producing natural gas plays known as shale plays or resource plays. The Companyâ€™s primary core area is the Barnett Shale area in North Texas (Barnett Shale or Fort Worth Barnett Shale), with a focus on Southeast Tarrant County, Texas. Through its wholly-owned subsidiary, Carrizo (Marcellus) LLC, the Company is actively seeking to establish a core area in another emerging resource play, the Marcellus Shale play in Pennsylvania, New York, West Virginia, and Virginia. It also explore for, develop, and produce natural gas and oil from traditional geologic trends along the onshore Gulf Coast area in Texas, Louisiana and Alabama, primarily in the Miocene, Wilcox, Frio, and Vicksburg trends. The Companyâ€™s other interests include properties in the United Kingdom North Sea.
Warning: August Earnings Date Unknown
Sell Aug $20 Put QOW-TD currently $.95, stop loss CRZO @ $19.50
New Recommendation - Speculative
None this week
LDK - Sell August $10 Put DLO-TB if LDK trades at $11
COF - Sell August $25 Put COF-TE if COF trades at $28
JNPR - Sell August $25 Put JUX-TE if JNPR trades at $26
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)