Are naked puts really this safe????

Quote from jagmot:

OC has a directional bias. He is stating that there is more risk to the downside, ie. he thinks the market is heading lower. He is not saying that the pricing of calls is inefficient to puts. Nice try though.
More...

I think MasterAtWork's posts and some other posts are saying something different. My understanding of it is that the market has priced things through supply and demand via premium at various strikes and times.

While one can bet their views, this is still just speculation and the expected profit from this should be zero for the all traders as a whole.

The essential point I understand is that given the ways option premia are priced, and since the seller of premium is in essence a seller of variance, if one were to sell premium and the underlying does not move in the right direction, then one should position oneself in way where there is a compensation.

Therefore if one were to sell the put and one is wrong in the direction, there will be an increase of variance sold because of stock price moving towards the short strike, but that at the same time there will be a decrease of variance due to a lower implied volatility because of the nature of implied Volty as function of the strike.

It is exploiting the structure of prices to get out what might be an edge?
 
Quote from newguy05:

This is pure comedy, i actually loled. Optioncoach made a comment about selling call instead of put if a gun was to his head, and now he's getting tag teamed by 4 people.

ROFL!
More...

THANK YOU! These people either have no reading comprehension skills or only want to read what they want to read. How in the @#$% did people take my post and come out with a response to me about pricing of options and inefficiencies and all the other stuff that has been posted. I am sure they are good discusion points but it is being asked of me as though I made some statement to that effect. Thank you for restoring my faith that someone read my post in the proper context. After all I made several follow up posts to restate the premise so there would be no confusion.
 
Quote from MasterAtWork:

Until now we have never seen an index value at zero, so the size of the slide seems to be limited.
More...

Just because an index wont go to zero does not mean a slide is limited and therefore controllable or "absorbable". I don't think 9/11, MLK day 2008 and Aug 2007 were merely moves which did not blow out some naked option sellers. Moves up are techically limited as indexes cannot reach infinity but a slide up or down is painful to short option sellers. I never made an argument about call/put inefficiencies.

For the @#$%th time, I responded to someone who was selling puts for SEP and said based on the market bias if I was forced to sell options I would prefer the calls. If one is selling short options and has a downward bias, why evne try and find an equivalent premium put. This is why I dont recommend selling any naked options choosing puts or calls or both. Too many variables hanging out there to cause damage. The rest of the discussion is great but not relevant to my posts so I leave the answer to others.

I play any market bias down with OTM calendars personally on the indexes (currently flat though before anyone jumps in with more tangents).
 
Quote from MasterAtWork:

My point is, for sure whether the market make a big gap up or down, there will be an implied volatility increase. Broadly the same risks for calls and puts.
More...

That would seem to make sense, but history shows otherwise. It has never happened that the market made a sharp move up and implied volatility increased. Never.

So if you sell otm puts and the market drops sharply, you get double-whacked on both deltas and vegas. The flip side is that if the market goes up, you get a double-bonus.

The risk/reward of selling otm calls is different and more even on the upside and downside. If the market goes up you lose money on deltas but that is offset somewhat by a gain in vegas. If the market goes down you gain on deltas but that is offset somewhat by a loss in vegas.
 
Quote from newguy05:

This is pure comedy, i actually loled. Optioncoach made a comment about selling call instead of put if a gun was to his head, and now he's getting tag teamed by 4 people.

ROFL!
More...

You sure its 4 people and not fewer with more then one screen name. Some people find they need the attention of total strangers in the vasty anonymity of the internet, their weak character and fragile egos makes them do some entertaining things.
 
Hi Dmo,


"That would seem to make sense, but history shows otherwise. It has never happened that the market made a sharp move up and implied volatility increased. Never."

Never. You can' t be serious. Large increase like 1999 and early 2000, bound around 7% a day on index without an increase of volty? Never? You got be kidding me.
Please don't focus on Vix as an estimation for volty. There is a real market over there with a lot of maturities broadly over 30 days.


"So if you sell otm puts and the market drops sharply, you get double-whacked on both deltas and vegas. The flip side is that if the market goes up, you get a double-bonus."

I'm sorry Dmo, but it's wrong. You just focus on the behaviour of short term options. Long maturity options would react a different way. There is no relationship like that that could be state as the one. Take a look on a volatility surface, you will discover that if you got a market drop, there is no "everybody move higher" movement for volty. What is going on for a 4 years options if the market drop today 4%, today, and for today, there is no real change. You pay your delta, but for vega, no immediat impact.

"The risk/reward of selling otm calls is different and more even on the upside and downside. If the market goes up you lose money on deltas but that is offset somewhat by a gain in vegas. If the market goes down you gain on deltas but that is offset somewhat by a loss in vegas."

Take a look at a quote for a SP call STRIKE 1350. Which is the vol? Take a look same maturity a SP call strike 1050? Which is the vol?
Loss in vega depend on which maturity you trade.
 
Quote from optioncoach:

Just because an index wont go to zero does not mean a slide is limited and therefore controllable or "absorbable". I don't think 9/11, MLK day 2008 and Aug 2007 were merely moves which did not blow out some naked option sellers. Moves up are techically limited as indexes cannot reach infinity but a slide up or down is painful to short option sellers. I never made an argument about call/put inefficiencies.

For the @#$%th time, I responded to someone who was selling puts for SEP and said based on the market bias if I was forced to sell options I would prefer the calls. If one is selling short options and has a downward bias, why evne try and find an equivalent premium put. This is why I dont recommend selling any naked options choosing puts or calls or both. Too many variables hanging out there to cause damage. The rest of the discussion is great but not relevant to my posts so I leave the answer to others.

I play any market bias down with OTM calendars personally on the indexes (currently flat though before anyone jumps in with more tangents).
More...

Sorry Coach, I didn't want to disturb. As everyone I need to learn so I just reacted to what you stated about volatility. I never mention that you promote selling short option nor that you made an argument about call/put inefficiencies.

Thanks for your answers
 
Quote from Jahajee:

Sell 50 SPTUJ @1.25 (September SPX 1150 puts)

Sell Stop SPU8 @1200

Will consider any of the the following, depending on market conditions:
- adjust sell stop SPU8 higher depending on possible rate of decline of SPX.
- sell more SPX naked puts if market goes above 1300
- sell SPX 1125 or 1075 puts if SPX approaches 1225
- buy back SPX 1150 puts & sell SPX 1225 puts if SPX moves up, a big range up day, to say 1350
--------------------------------------------------------------------------------

Looking to sell CALLS in the strike zone of 1380 to 1420 (SPX).

-------------------------------------------------------------------------------

I am going to sell 25 to 50 SXYIM or SXYIN (SPX 1365 or 1370 calls) ; may sell in 2 batches if I can't get a good fill on 50.


I will short SPU8 for a day trade - looking for overbot on the
5-m.

Will update log.
 
Quote from dmo:

That would seem to make sense, but history shows otherwise. It has never happened that the market made a sharp move up and implied volatility increased. Never.

So if you sell otm puts and the market drops sharply, you get double-whacked on both deltas and vegas. The flip side is that if the market goes up, you get a double-bonus.

The risk/reward of selling otm calls is different and more even on the upside and downside. If the market goes up you lose money on deltas but that is offset somewhat by a gain in vegas. If the market goes down you gain on deltas but that is offset somewhat by a loss in vegas.
More...

Better be careful generalizing about markets going up and implied volatility. A number of years ago the metals markets were very quiet and one day the price of gold shot up, dragging silver and copper along with it. The implied volatilities of both puts and calls exploded and wiped out some premium sellers of both puts and calls in all 3 markets.

One thing I remember in particular about this is that the implied volatility rose so much in one day that the price of some gold puts actually went up with the price of gold going up. I'll have to do some research to find the date this happened.
 
You must log in or register to reply here.
Back
Top