The grand bargain sprang back into life in Washington as the countdown clock slowly headed for a U.S. default on Wednesday. The party leaders and the president have an agreement and now it is up to the House and Senate to pass it. The Senate should not be a major problem but the House could be a challenge.
The prospect of getting a debt compromise passed spiked the S&P futures +20 points on Sunday night. I waited to send this email to see if it was going to hold. With a gap open that big there is no way for us to launch any plays at Monday's open. All the put premiums will deflate instantly and the potential for a gap and crap makes buying stock and selling covered calls at the open a suicide mission I plan on avoiding.
We have accidentally sold into large gaps earlier in the year and the outcome was always negative. When you enter a trade it is always best to have a general idea which way the market is going. For Monday all we know is there will likely be a gigantic spike.
However, both the Senate and the House have to pass the bill. The tea party members are already complaining about the lack of any material cuts and several members have said they would vote against it. While I think it will pass in some form the market volatility may not be over. As Yogi Berra once said, "Its not over until its over."
The monster gap down on Friday knocked us out of the ANF covered call with a significant -$1.81 loss. The stock price dropped -$2.70 at the open to trigger our stop at $71.75 before returning to close down only 18-cents for the day. These events will happen and while losing $1.81 is not fun it is better than not having a stop and facing a bigger loss on a real news event.
If the debt deal passes on Tuesday I will add some plays on Tuesday night because a signed deal should be good for several days of gains. The potential pothole in that theory could be the Nonfarm Payrolls on Friday. If they come in negative it could cause new economic worries to settle over the market.
Current Position Changes
See portfolio graphic for new stops/targets
New Short Put Recommendations
New Covered Call Recommendations
New Long Term Recommendations
New Aggressive Recommendations
None until a positive market trend returns
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.