Are naked puts really this safe????

Quote from dmo:

I know what you mean, but CL is probably not the best example. At the moment, the CL skew is quite even up and down - a true smile of volatility. I love the crude skew because it is very pliable - the call skew can be steep while the put skew is flat, the put skew can be steep while the call skew is flat, etc. That baby moves, unlike the SPX skew which is rigid as a board and never budges.

A better example of what you're looking for is gold, or the grains. Why do those exhibit skews that are the opposite of the SPX skew? My answer is to look for where the emotion is - the excitement and the panic. In stock, it's the downside. In natural resources, it's the upside.

That's really just another way of expressing the same thing Atticus said. Most of the world is long stock so portfolio protection means buying puts. The world is short wheat and soybeans, so portfolio protection means buying calls. You and I are "short wheat" because we're going to consume more bread and pasta in the future than we own today.

Does most of the world panic when stocks go up? Of course not. Does most of the world panic when wheat goes down? No again.
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could you pls. explain this a bit more:
"The world is short wheat and soybeans, so portfolio protection means buying calls".

For instance what do you mean by the "world"? From the context, I am understanding that you mean by this the financial world of commodities. If this is the case, is it not true that for each short position, there is a corresponding long position? Thanks.
 
Quote from blackjack007:

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.
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Thanks for the info. I probably should have checked hard details before actually posting previously. It was a lack of discipline on my part. Can I ask where you got your numbers from?

I looked at the margins months ago when I was thinking of moving to the big contract from the Emini. I decided against it. When I looked at it months ago, that is where I got the margin number of approx 17,000. In reality, its people that post selling 50 puts that gives naked put sellers a bad name, which is why I get frustrated and posted so quickly.

I ran these scenarios on IB.

On a reg-t account I came up with the following margins: initial 22,855, maintanence 18,284 for 1 Sept 1150 put.

On a Portfolio Margin account (yes I have both) I came up with the following margins: initial 11,113, maintanence 8,891 for 1 Sept 1150 put.

Now lets look at if we sell 50 puts and see what that does to the portfolio margin account: initial 1,202,659 and maintanence 962,128.

One caveat is my accounts are not clean, I obviously have some positions in them that could throw the margins off some but not too much.

So again I say you need at minimum a 2MM account. Add 3% for interest on your money and collection of 250,000 in premiums and you are looking a return of possibly 15%. To me that is a lot of risk for not such a high return.

And I'm not biased as I currently am short the 1150 Puts in ES as you can see in my screenshot. (I'm short calls as well in a strangle)

Goodnight all
 

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Quote from jagmot:

Thanks for the info. I probably should have checked hard details before actually posting previously. It was a lack of discipline on my part. Can I ask where you got your numbers from?

I looked at the margins months ago when I was thinking of moving to the big contract from the Emini. I decided against it. When I looked at it months ago, that is where I got the margin number of approx 17,000. In reality, its people that post selling 50 puts that gives naked put sellers a bad name, which is why I get frustrated and posted so quickly.

I ran these scenarios on IB.

On a reg-t account I came up with the following margins: initial 22,855, maintanence 18,284 for 1 Sept 1150 put.

On a Portfolio Margin account (yes I have both) I came up with the following margins: initial 11,113, maintanence 8,891 for 1 Sept 1150 put.

Now lets look at if we sell 50 puts and see what that does to the portfolio margin account: initial 1,202,659 and maintanence 962,128.

One caveat is my accounts are not clean, I obviously have some positions in them that could throw the margins off some but not too much.

So again I say you need at minimum a 2MM account. Add 3% for interest on your money and collection of 250,000 in premiums and you are looking a return of possibly 15%. To me that is a lot of risk for not such a high return.

And I'm not biased as I currently am short the 1150 Puts in ES as you can see in my screenshot. (I'm short calls as well in a strangle)

Goodnight all
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sure spx margins are greater, as is the contract multiple. sticking with es you can sell many more contracts; but a weak analogy is you can trade more es using 300 daytrade margins than ib's 4k or so; and what do you think is most likely to happen when you use the margin in that way? span will let you leverage and also will kill you if something goes wrong. for instance, do you really want those 50 es puts assigned potentially? using spx, you would never have so many contracts on the same sized account.
in your case, i am sure your account can handle 50 es 1150's with es at 1125; but surely you would rather not..right?


in any case; i too , use future options mostly. my particular way is selling closer stuff, using spreads (as prevail remarked with the diminished vega risk), ratio's (i know one pretty good ops guy who abhor's ratio's..sorry) and working spot. i can take assignment because of the lesser amount of contracts (for larger juice); but of course i prefer not. also, i do not say my way is the right way; just the way i trade es.
 
Quote from riskfreetrading:

could you pls. explain this a bit more:
"The world is short wheat and soybeans, so portfolio protection means buying calls".

For instance what do you mean by the "world"? From the context, I am understanding that you mean by this the financial world of commodities. If this is the case, is it not true that for each short position, there is a corresponding long position? Thanks.
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Imagine you work in a widget factory. Your co-worker Hal comes to you and says "You know that order for 100 widgets we're supposed to deliver in 2 days? I looked on the shelves and we only have 85." "Damn," you say, "we're short 15 widgets."

That's the common use of the word "short" and if you think about it, it's no different from the way it's used in the markets. If you're short something it essentially means you don't have it but you're going to have to acquire it. If you go short wheat futures it means you've made a contract to sell wheat in the future, so between now and then you're going to have to acquire the amount you've contracted to sell. You're short it.

When I said we're all short wheat, I didn't mean in the formal sense that we've all made contracts to sell wheat in the future. I simply meant that if I look at the amount of wheat products my family and I are going to consume over the next year or two - I don't have that much in my cabinets. I'm going to need to buy it. That puts me in a "short position."

That's not just a technical semantic turn of phrase. I am really and truly short wheat in the sense that I am now concerned about the price of wheat going up. I will lose money if the price of wheat goes up. If I were long wheat (owned an elevator full of the stuff) I would be worried about the price of wheat going down. But my position is the opposite. My concern is that the price of wheat will go up, which will cost me. So in every real sense, I am short wheat. So is almost everyone I know.

By proxy, much of huge corporate America is short wheat. Kellogg's is short wheat, General Foods is short wheat, whoever makes Wonder Bread is short wheat - simply by virtue of the fact that they're going to have to keep buying it into the future.

So how do you and I and Kellogg's and Wonder Bread hedge our "short wheat" position? One way is to buy calls. Hence the fact that otm calls in wheat generally trade higher than otm puts. The same is basically true for all natural resources. Most of the world is going to have to keep buying metals and energy into the future, so we're all "short" them. We're not worried about the price of these things going down - no need to buy puts for insurance - but there's definitely a rationale for buying calls as insurance.

Compare that with stocks, where the vast majority is long and - if they're going to buy insurance - it would be puts.
 
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.
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Except for daytrading SPU8 (scalping a point or two on 3-lot trades) I haven't added to the SPTUJ position.
Looking for a short SPU8 daytrade around 1282 OB.


I am bidding on SPX 1125 put - yeah, I want to hedge and release margin.
Still want to sell the OTM calls in the 1365 to 1380 range.
 
Well, I agree that naked puts selling strategy depends much on the chance. It can bring you serious losses, yes, but only if you do not control your losses. stop losses can be used in options trading. If you sold an October 2$ put you may place a buy stop or a stop limit order at 3$. So if the option's price will go up to 25$ for instance, you will lose only 1$.
 
Nothing wrong with selling naked Puts, it's the abuse of leverage that kills, not the strategy. The amateurs here think "how much can I make selling Puts ?" Professional here think "how much can I lose selling Puts ?". Stands out like a soar thumb who's who on this thread !
 
Hi Dmo,

It's very interesting.

Quote from dmo:

Imagine you work in a widget factory. Your co-worker Hal comes to you and says "You know that order for 100 widgets we're supposed to deliver in 2 days? I looked on the shelves and we only have 85." "Damn," you say, "we're short 15 widgets."

That's the common use of the word "short" and if you think about it, it's no different from the way it's used in the markets. If you're short something it essentially means you don't have it but you're going to have to acquire it. If you go short wheat futures it means you've made a contract to sell wheat in the future, so between now and then you're going to have to acquire the amount you've contracted to sell. You're short it.

When I said we're all short wheat, I didn't mean in the formal sense that we've all made contracts to sell wheat in the future. I simply meant that if I look at the amount of wheat products my family and I are going to consume over the next year or two - I don't have that much in my cabinets. I'm going to need to buy it. That puts me in a "short position."

That's not just a technical semantic turn of phrase. I am really and truly short wheat in the sense that I am now concerned about the price of wheat going up. I will lose money if the price of wheat goes up. If I were long wheat (owned an elevator full of the stuff) I would be worried about the price of wheat going down. But my position is the opposite. My concern is that the price of wheat will go up, which will cost me. So in every real sense, I am short wheat. So is almost everyone I know.

By proxy, much of huge corporate America is short wheat. Kellogg's is short wheat, General Foods is short wheat, whoever makes Wonder Bread is short wheat - simply by virtue of the fact that they're going to have to keep buying it into the future.

So how do you and I and Kellogg's and Wonder Bread hedge our "short wheat" position? One way is to buy calls. Hence the fact that otm calls in wheat generally trade higher than otm puts. The same is basically true for all natural resources. Most of the world is going to have to keep buying metals and energy into the future, so we're all "short" them. We're not worried about the price of these things going down - no need to buy puts for insurance - but there's definitely a rationale for buying calls as insurance.

Compare that with stocks, where the vast majority is long and - if they're going to buy insurance - it would be puts.
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I've got some questions 'cause I think your way sounds interesting and pragmatic.

-How that way would you explain a smile?

-Options are traded since 600 BC. CBOT released puts around 1977 (there were only very active OTC markets before,... just like today LOL). Skew (smile, smirk....) appeared first time after 1987 stock markets crash. How would you please explain those facts the way your previous post?

Thanks
 
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