Are naked puts really this safe????

[jagmot]

Quote from jeb9999:

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.

Remember, that the opposite happens as well. Price can move up and the call can go down as implied volatility moves down with the news event occuring.

I've seen this happen to ES options with payroll numbers, interest rate announcements, etc.

 

[dmo]

Quote from jeb9999:

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.

Jeb, you'll get no argument from me about anything you said. There was a time when I traded silver and gold options on the comex floor, and your story sounds completely credible.

But the volatility patterns of SPX are the exact polar opposite of the volatility patterns in metals (and all other natural resources for that matter). In metals, the otm calls almost always trade at a higher volatility than the otm puts. The tendency is for IV to rise when the metals rise, and drop when the metals drop. Just the opposite of the SPX.

Nothing about the future is certain and of course tomorrow the S&P500 could rise sharply and the VIX could explode. I'm just not aware of any time when that has happened. Generally speaking, the inverse relationship between the S&P500 and the VIX is among the most rigid and reliable in trading.

 

[jeb9999]

Quote from jagmot:

Remember, that the opposite happens as well. Price can move up and the call can go down as implied volatility moves down with the news event occuring.

I've seen this happen to ES options with payroll numbers, interest rate announcements, etc.

Yes, that is very typical behavior. The oddball event is when prices jump to the up side so fast from a very sedate market that implied volatility explodes enough to make put prices go up.

I remember that gold move from the 1980's or 1990's as I had never before seen put prices go up in conjunction with a large one day up move. I think it might have happened just before the "Volume Investors" COMEX clearing firm went under in March, 1985.

 

[xflat2186]

Quote from MasterAtWork:

Hi xflat

Nice to have you here. Someone is waiting for your answer over there:

http://www.elitetrader.com/vb/showthread.php?s=&postid=2036458#post2036458

If you got time...

Thanks we cleared that up already, I knew you could not resist LOL

 

[MasterAtWork]

Quote from xflat2186:

Thanks we cleared that up already, I knew you could not resist LOL

...be my guest..

 

[jeb9999]

Quote from dmo:

Jeb, you'll get no argument from me about anything you said. There was a time when I traded silver and gold options on the comex floor, and your story sounds completely credible.

But the volatility patterns of SPX are the exact polar opposite of the volatility patterns in metals (and all other natural resources for that matter). In metals, the otm calls almost always trade at a higher volatility than the otm puts. The tendency is for IV to rise when the metals rise, and drop when the metals drop. Just the opposite of the SPX.

Nothing about the future is certain and of course tomorrow the S&P500 could rise sharply and the VIX could explode. I'm just not aware of any time when that has happened. Generally speaking, the inverse relationship between the S&P500 and the VIX is among the most rigid and reliable in trading.

I agree with you about the inverse relationship between the SPX and VIX (and VXO), as I can't give any counter examples. My concern was having someone believe that such a relationship existed across markets.

I think that the gold options event I remember happened in March, 1985 and resulted in the very messy default of the COMEX clearing firm "Volume Investors".

 

[Jahajee]

Quote from Jahajee:

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

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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.

I was asked about my overbot indicator on the S&P 5-minute chart - see atatched chart; usually good for a 4- to 5-point move in S&P futures.
Green is a possible buy point, red is a possible sell point; these are minor variations of the normal indicators.

 

[jagmot]

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

Come on lets be serious here. There is no way you have that size of an account.

I'm not an expert, but I think each SPX put margin is at least 10,000 (I think $17,000). And then of course, you need to have plenty of excess margin because you wouldn't want to get stopped out if the premium goes to 5, or 10 for that matter.

You would need a 2.5MM account to make sure you have excess liquidity.

 

[blackjack007]

Quote from jagmot:

Come on lets be serious here. There is no way you have that size of an account.

I'm not an expert, but I think each SPX put margin is at least 10,000 (I think $17,000). And then of course, you need to have plenty of excess margin because you wouldn't want to get stopped out if the premium goes to 5, or 10 for that matter.

You would need a 2.5MM account to make sure you have excess liquidity.

spx 1150 puts require $11500 margin if you have reg-t, and about 2000 if you have portfolio margin, assuming no other positions. you'd need about $750k to safely hold that position.

 

[atticus]

Quote from jagmot:

Come on lets be serious here. There is no way you have that size of an account.

I'm not an expert, but I think each SPX put margin is at least 10,000 (I think $17,000). And then of course, you need to have plenty of excess margin because you wouldn't want to get stopped out if the premium goes to 5, or 10 for that matter.

You would need a 2.5MM account to make sure you have excess liquidity.

I thought he was paper-trading this position?