The market drop in May caught us with a couple of plays that proved costly.
The volatility in early May caught us with some exposed positions and we took losses in Goldman Sachs and Potash that amounted for our total loss for the month. Goldman received some negative news that crashed the stock past our stop and handed us a $2.50 loss. Potash decline on the market fears and worries over global growth.
When the markets turn decidedly negative as they did in May with multiple triple digit gap down opens it is hard not to lose money if you are short puts. We did realize that a correction was in progress and remained flat for the rest of the month and protected our gains from earlier in the year. Taking small losses is not a problem as long as you don't rush back into the market and duplicate those losses over and over.
May Recommendation History
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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 just send us an email and we will use your price.