Are naked puts really this safe????

[ML_QUANT]

http://www.thinkorswim.com/tos/displayPage.tos?webpage=lessonGreeks

The Greeks have given us feta cheese, philosophy, mathematics, and the Oedipal complex. They also tell us how much risk our option positions have.

There are ways of estimating the risks associated with options, such as the risk of the stock price moving up or down, implied volatility moving up or down, or how much money is made or lost as time passes. They are numbers generated by mathematical formulas. Collectively, they are known as the "greeks", because most use Greek letters as names. Each greek estimates the risk for one variable: delta measures the change in the option price due to a change in the stock price, gamma measures the change in the option delta due to a change in the stock price, theta measures the change in the option price due to time passing, vega measures the change in the option price due to volatility changing, and rho measures the change in the option price due to a change in interest rates.

Quote from atticus:

Compute the theta on the Sep 1220 call.

 

[atticus]

Thanks for the lesson, but I assume you have a point? Calc the theta of the natural 1220C, as they are fungible. Was I not clear enough?

 

[ML_QUANT]

Yes, the point was for the newly found articles that I found based on your quotes to be easily accesible by others like myself who need to learn about the greeks etc without doing the search themselves.

Quote from atticus:

Thanks for the lesson, but I assume you have a point? Calc the theta of the natural 1220C, as they are fungible. Was I not clear enough?

 

[atticus]

Quote from ML_QUANT:

Yes, the point was for the newly found articles that I found based on your quotes to be easily accesible by others like myself who need to learn about the greeks etc without doing the search themselves.

Ahh, ok, fair enough.

 

[ML_QUANT]

Well, shortly after got filled at 39 for the Oct. 1220 put and a couple of minutes later went short the ESZ at 1219.25 and this morning the housing market helped te ES to drop and got out at buying the put back at 54.50 and the ESZ at 1194.75!
Although I did not wait to hit my 1175 target but cleared a nice 9 points.
SLD 1 ES OCT08 1220.0 PUT Fut. Option ESV8 P1220 39.00 USD GLOBEX 01:03:15 OptTrader 1.76
SLD 1 ES DEC08 Futures ESZ8 1219.25 USD GLOBEX 01:10:40 2.35
BOT 1 ES OCT08 1220.0 PUT Fut. Option ESV8 P1220 54.50 USD GLOBEX 09:05:04 OptTrader 1.76
BOT 1 ES DEC08 Futures ESZ8 1194.75 USD GLOBEX 09:05:07 2.35

Quote from ML_QUANT:

How do u calculate the time decay?
I just put in an offer at 41 with ES at 1220 and I expect 1175 to be hit shortly.

http://www.theoptionsguide.com/synthetic-short-call.aspx

 

[ML_QUANT]

The ES just went through 1170! Had I been greedier to wait for my target I would have picked up about 9 more points but no complaints...

On the other hand, this was an amazing lesson for those in avor of naked put selling, here it is ES down more than 60 points in less than 24 hours!

Naked put selling = Russian Roulette, only gauranteed to get shot.

 

[GTS]

Quote from Jahajee 09-16-08 08:58 PM:

Now, SERIOUSLY, does anyone really believe the markets will revisit today's low anytime soon? SP Futures is now at 1220, almost 60 points from the low today! That's a big range day, a key reversal day, about 5% from the daily low!

And, 220 SPX points away from my SPX 1000 puts. But, just to suppress the fear and angst I will buy SPX 1050 or even 1100 puts tomorrow or during the week. Yes, the markets will rally into expiration but will soon retrace and give up most of the gains. I expect to sell some calls on any move above SPX 1280.
But, I don't see us going below 1160 during the next two weeks or so. I have been wrong many times before but fewer times when I was right.

Chalk up another time that you were wrong.

 

[makloda]

Quote from Jahajee:

Now, SERIOUSLY, does anyone really believe the markets will revisit today's low anytime soon? SP Futures is now at 1220, almost 60 points from the low today! That's a big range day, a key reversal day, about 5% from the daily low!

Famous last words of hubris.

 

[JohnGreen]

Getting back to covered calls. The reason they're a poor hedge is really simple. You own stock or indexes worth 100K, you sell 30 day (current or next month depending on what day of the month it is) puts ATM... that gives you about 3-5 K depending on volatility. Now the market dives like this week... now, you're stock drops 10-20% (typical of many stocks this week). So... your stock has lost 15-20 K. You have 3-5 K of protection. That means a net loss of between 10 and 15K. Of course, you're better off than a person long stock, but you still have net losses that are 2-3 X what your protection gave you.

If you need a real hedge, you buy a put. It costs you that 3-5 K, but you are really protected dollar for dollar on the way down.

The real trick is to figure out when you need the protection because in the long haul, buying the put regularly would be pretty costly.

 

[Nanook]

Quote from JohnGreen:

You own stock or indexes worth 100K, you sell 30 day (current or next month depending on what day of the month it is) puts ATM...

Calls?