The markets held their gains from last week until the last 30 minutes of trading. A sell program hit the tape at just after 3:35 and knocked the indexes into negative territory.
This end of day selling could be a positive event. We needed a pause for traders to reload and give the bears some encouragement. This could carry over into Tuesday but I don't expect it to last the week.
This minor decline is not enough to jump in with some new positions tonight but it did set the stage for some possible additions on Tuesday night.
I apologize for confusing everyone last night with the Fluor recommendation. I classed it as an aggressive recommendation even though the put was at the money. I also wished for a significant decline at the open to give us a better entry point. I also put the stop loss under the strike price. I believe I scared off a lot of traders with the comment about being put with a cost of $70.
I traded emails with a reader today who was concerned the volume in that strike today was less than 20 contracts. Since he normally sells 10 contracts in his positions he was afraid there was something wrong with the play or nobody was reading the newsletter. I explained everyone has a different risk profile and I probably set that play up with parameters that fit very few traders.
When I was looking at the play it all made sense at the time but when looking at it today through the eyes of somebody different I realized I may have described it incorrectly. However, it was an aggressive play and obviously has a different risk profile. I realize there are traders of every type reading this newsletter and the aggressive plays only pertain to a very small minority.
I looked at more than 150 stocks before I chose CF and FLR as candidates. After last week's rally there was a real shortage of stocks with good entry points. If we can get a little more decline on Tuesday coupled with a rebound I think I can add some additional "normal" positions Tuesday night.
On the CF positions I indicated I would like to get a decline to around $130 for an entry point. Normally I use the opening price for tracking but I did warn about the expected decline and target in advance. CF declined immediately at the open and hit $130 nine minutes into the day. Based on the play description that would have made the stop $128 (-$2 from the entry). Unfortunately CF was caught in the end of day dip and stopped us out at the close on the $125 put for a 60-cent loss. The $115 May put is still in play.
Keep your fingers crossed for dip and rebound off the 50-day average at 1306 so we can add more plays on Tuesday.
Current Position Changes
New Long Term Recommendations
New Aggressive Recommendations
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.