The morning dip on the really ugly housing numbers succeeded in closing our remaining three positions.
The worst new home sales data in 40 year managed to knock out our remaining three positions and we are back in cash and watching from the sidelines. The FOMC announcement took a step backwards in their view of the recovery. They believe the recovery will "moderate" for a while. That is the politically correct way to say we are dipping again.
The market actually recovered into the announcement but showed little excitement afterwards. Investors are confused and don't know whether to raise cash or just hunker down for the weakness ahead.
We are flat again and I am not going to rush back into market just to make a trade. We were lucky to escape our remaining positions for a minor profit, with the exception of U.S. Steel, and until the market starts to find a bid again there is no reason to put our cash at risk.
WYNN dipped to trigger the stop at $83.95 with the $75 put at $1.35. That exit gave us a profit of 75-cents.
BEN hit the stop at $91.95 with the option at $1.45. That exit gave us a profit of 73-cents.
U.S. Steel (X) stopped out at $42.95 with the option at $1.10 and we lost 9-cents on the position.
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 just send us an email and we will use your price.