After gains in 12 of the last 14 days maybe we should quit now and take profits.

I am really starting to become leery of the current market. Any market that rallies 12 out of 14 days is testing its over bought limits. However, the breakouts today over critical resistance on the Dow and S&P is very bullish.

Fund managers and even retail investors can't afford to sit back in cash in hopes of a correction. Over S&P 1130 they have to chase the market or be left way behind when the profits are tallied in December. We could have a volatility event any day now but the bulls are busting out and shorts are getting trampled.

When the completely unexpected happens in the market like a 12 day run in September the pessimists will say every day that a correction is coming but more often than not the surprise rally will continue. The shorts will feed it on a daily basis because they don't understand the fund manager mindset and the risk of losing their bonuses if they under perform.

I may be leery of the potential for continued gains but I don't want to cut and run either. I did raise the stops just so we don't give it all back in the case of a volatility event. Tuesday is a Fed meeting day so anything is possible.

Jim Brown

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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)

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.