The market declined -5% over the last two days and most analysts believe it could go lower.

Based on the news coming out of Greece, the confusion in Europe, weak economics in China, the UK and the U.S. on Tuesday, I also thought we could go lower on Wednesday.

The Greek prime minister emerged from a 7-hour cabinet meeting at 3:AM Athens time and reiterated his pledge to put the austerity measures to a citizen vote in what would seem to be a very slim chance of passage. Analysts now believe this is his way of killing the deal and saving face with the Greek people at the same time. Unfortunately it will bankrupt Greece and cause even more severe hardships in the future.

It will also force severe hardships on European banks and push Italy and Spain to the brink of default themselves. There are no words to describe how double crossed the leaders of the other 16 euro zone countries feel after they spent two years, 130 billion euros and 14 summits trying to find a way to rescue Greece only to have the prime minister setup a suicide vote after the deal was finally agreed.

A referendum, Papandreou said, "will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro," according to a text of his speech to the meeting issued by his office. "The dilemma is not 'this government or another one', the dilemma is 'yes or no to the agreement', 'yes or no to Europe', 'yes or no to the euro.'"

It sure sounds like he is offering the people a chance to vote themselves out of the euro and go back to being a standalone country and going that route would cause untold damage to the remaining euro zone countries. If Greece can escape the control of Europe then maybe Portugal, Spain and Italy would want to go the same route. This is NOT a good scenario for Europe.

Add in the decline in China's PMI, UK PMI and the U.S. ISM plus the bankruptcy of the fifth largest futures broker in the U.S. and it is a wonder the Dow was not down -500 points.

That appears to be what traders are thinking tonight. If the Dow only declined -297 points on all that bad news then maybe there is a bounce in our future. The S&P futures began rising about 10:PM and they are up +10 at 3:AM.

I looked at more than 100 charts to see if I could find something to play on Wednesday. Unfortunately all the stock charts looked like the market charts and those I would have played had earnings over the next couple weeks and that took them out of contention. The ones that have already reported had weaker charts for obvious reasons.

With the futures up over 10 points we are facing a gap open if the trend holds. That is not good for entering short put positions and you don't want to sell naked calls in a higher volatile environment with upside potential.

I was not able to find anything worth the risk tonight. We also have a Fed meeting that ends at 12:30 with a Bernanke press conference at 2:15.

There is a lot of event risk from numerous sources. Wednesday is a day to watch rather than risk money just for the sake of trading.

Jim Brown

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Existing Play Recommendations

Links to original play recommendation

BAC - Bank of America (Long Term)

BAC - Bank of America (Update 8/31)

BZH - Beazer Homes (Long Term)

MDR - McDermott International (Long Term)

BK - Bank of New York Mellon (Long Term)

SD - Sandridge Energy (CC + Long Term Combo)

YHOO - Yahoo (Long Term Combo)

PHM - Pulte Homes (LT Leveraged Combo)

XOP - Oil Exploration SPDR (Short Put)

UWM - UWM ETF (Covered Call)

JJC - Copper ETF (Covered Call)

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 please let us know.