Friday's short squeeze did not hold and the major indexes rolled over to close on the lows.
The market setup for the rest of the week is not looking good. Negativity is everywhere and there were several new articles today from high profile analysts suggesting the U.S. may be in for a double dip recession.
Add to that a warning from Iran that they will stun world powers and the west with an event on February 11th and the markets are running scared.
Our portfolio is bearish so we are ready for further declines. I don't want to add any more as we close in on the February expirations and higher market volatility.
We lost AMD today when the stock and chip sector rallied at the open. We escaped with a minor profit so no harm done.
Check the stops on all plays. I am moving the stops lower along with the stocks in case we get another big short squeeze.
No new plays today.
No New Plays Today
February Recommendation History
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Click here for December Results
Click here for November Results
Click here for October Results
Click here for September Results
Click here for August Results
We do not sell out of the money puts for a few cents and then hope the market does not correct and cost us a fortune to exit. I don't like to risk a dollar to make a quarter.
The concept for Option Writer is to find solid momentum plays with enough volatility to inflate the option premiums. We will sell in the money naked puts ahead of the stock price and let the stock rally to our strike.
Selling in the money puts allows us to capture nearly dollar for dollar the movement in the stock price.
Because we are selling in the money that same dollar for dollar move can go against us as well. For this reason we establish tight stops to take us out of the play for a loss of a few cents rather than let the losers grow and "hope" they rally again. In a typical month we could get stopped out of twice as many plays as we close for a profit but those stops will be minimal and the winners worth the trouble.
If you do not have the ability to sell options you can turn the plays into spreads by buying a lower strike put. This will decrease your margin requirements but it will also decrease your profits.
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)