The market weakness we were expecting began right on schedule.

The markets began to show signs of stress last week and I am glad we exited our remaining positions early. The outlook for next week is flat to down. However, there is the potential for a market boost from quarter end retirement funds in the first week of the quarter so that may offset any position shuffling funds.

The key will be the NonFarm Payrolls on Friday. I think fund managers will want to be invested until the employment report just in case there is a positive surprise. With several of the weekly economics showing slight improvements they may be hoping for an unexpected gain in jobs. Obviously if this does not happen there will be a sudden vacuum with everybody trying to get out t once.

After the report I believe the markets will dip. This is October and fund managers have until October 31st to dump losers and sell some winners to offset those losses. October 31st is the fiscal year end for most equity funds. This almost always creates volatility in October.

I would love to see a big dip this year but I am not going to hold my breath. If it comes I will consider it a buying opportunity. I plan on adding some November and also December positions if it occurs.

Because of the uncertainty ahead of the employment report I do not anticipate adding any positions before next weekend and possibly a few days after that. Option expiration comes early this month and that should also add additional volatility over the next two weeks.

Please be patient as we wait for the next entry cycle. We will not enter a position just to make a trade. We want to enter new positions only when the risk is manageable and the chances of a profit are in our favor.

Jim Brown

Current Portfolio

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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)