Two gaps on plays, one up, one down.

The game plan for Monday was to close the Mosaic put for a nickel or less. The range for the day was 3-5 cents so that went according to plan for a $1.55 profit.

The second stage of that plan was to enter a new position on Mosaic by selling the August $50 put at the open. It was quoted $1.75 at Friday's close but Mosaic gapped open about $2 on Monday and the put premium fell to $1.25. Still a good deal given the direction of Mosaic so we can't complain.

The plan was to close the GDP position at the open for a minor loss ahead of the CHK earnings after the close. Fortunately there was news of additional curtailment of gas production to improve prices and GDP gapped open by more than a dollar to erase losses over the last month. Hindsight is always 20:20 and had we known we could have easily remained in the play. I should not complain since the gap open pushed us back into positive territory and we closed that play without a loss.

The biggest surprise came from a play that was not even mentioned. MFLX gapped down nearly $2 on no news and triggered our stop loss at $21.50. We escaped with a profit but much less of one than we had on the books on Friday.

After all these changes the play list is significantly changed. The watch list still has only one possible with Capital One and well away from the prospective entry point.

The markets rallied again with the S&P coming to rest at the psychological 1000 level and the Nasdaq at the 2000 level. Month end money coming into mutual funds was part of the motive as well as favorable news out of China. It will be interesting to see if we can rally past these levels this week.

Jim Brown

Current Portfolio

Watch List


COF - Sell August $25 Put COF-TE if COF trades at $28



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)