With the S&P futures up +8 and crude oil $2 off its Sunday night lows we could be looking at a rebound on Monday.

I wanted to take this opportunity to launch a couple of volatility plays. The VIX shot up to 22 on Friday from 12 the prior Friday. Since the VIX rarely remains at this level for more than a couple days I want to launch a bearish call spread similar to the one we played in October. The 4 times a year when there is a quadruple option expiration the markets are normally positive. Considering how short term oversold we are there is a good chance we will see that again this week.

Sell Jan $13 call, currently $6.10, no stop.
Buy Jan $23 call, currently $2.10, no stop.
Net credit $4.00.

I wanted to do the same thing with the Oil Volatility Index (OVX) but the market maker has removed all the bid/ask quotes so I can't create a play tonight. I would suggest you look at an option montage early Monday when trading begins and see if the prices make sense for a bear call spread. The volatility is at multi-year extremes on the OVX. This would be a perfect place to sell those calls.

Jim Brown

Send Jim an email

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.