It appears I may have to come up with a "No Gap" rule on new entries.
Numerous times we have been hurt on gaps both up and down and I tried to work around this several times with a "S&P and stocks must be positive to enter" instruction. I think I need to add one on gaps higher we well.
Cliff's (CLF) gapped over $2 higher at the open and then gave half of that back. I hate getting filled on gap opens because more often than not the market comes back to fill the gap and we end up with a losing position. In the future expect to see some additional qualifications on the plans.
Readers don't realize how hard it is for play writers to pick an entry and describe it the day before the actual play starts then have any number of geopolitical, economic, sector or stock related events occur before the market opens the following day. As an individual trader we can wait patiently at the open for those events to filter through and then make an informed decision on whether to enter a particular trade. As a play writer we don't have that choice.
It is like placing a bet at the craps table and then waiting for the dice to roll. Sometimes youâ€™re an immediate winner, sometimes an immediate loser. Sometimes it takes a dozen rolls before the bet is decided. A gap open is like the shooter throwing a seven or craps. We are looking for those rolls that take up time and allow premium to decay for a week to ten days before the shooter makes his point or sevens out.
I place the bet the night before and then I am at the mercy of whatever the market does at the open. As subscribers to this newsletter you should always use your own judgment on whether to enter a play or not once the market is open. There will always be another day and another play. Not taking a risk when the market throws us a curve allows you to save your capital for the next play.
Current Position Changes
FSLR - First Solar - Stopped out
First Solar fell through the stop shortly after the open and stopped us out of the play. Fortunately we still made a few cents despite the $13 post earnings drop.
Stopped: FSLR NOV $130 Put @ $134.75, exit $2.45 @ 10:45 AM
CBOE Options Chart
First Solar Chart
WYNN - Wynn Resorts - EARNINGS WARNING
Wynn will report earnings after the close on Tuesday. Cautious traders will need to exit this position to avoid any negative surprise.
However, we have a $90 strike and the stock is trading at $107. There is decent support at $100. It would take a serious earnings miss to knock $17 off the stock price.
I am advising cautious traders to exit but I am leaving the position open in the portfolio.
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 please let us know.