Are naked puts really this safe????

[Free Thinker]

Quote from 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.

actually its been a good month for my naked put selling program. i am working on my best year and my best month ever. if the iwm is over 70 at the close tomorrow every put i sold will expire worthless. my maximum risk through the whole month was that i end up with 8000 shares of iwm in the 67 range.
it is leverage that is dangerous. not the act of selling a put.

 

[dagnyt]

Quote from JohnGreen:

Getting back to covered calls. The reason they're a poor hedge is really simple...

Nobody said they were a GOOD hedge.

They are a minimal hedge. But minimal is more than no hedge at all.

Mark

 

[ML_QUANT]

Well, what you say makes sense in the form that rather buying the stock outright sell the puts?

I agree, if that is the intention then, you also benefit from the Time Decay if it goes your direction and to the contrary, the worst case scenario you end up with the stocks which you meant to buy anyways only having reduced the potential loss?

Quote from vhehn:

actually its been a good month for my naked put selling program. i am working on my best year and my best month ever. if the iwm is over 70 at the close tomorrow every put i sold will expire worthless. my maximum risk through the whole month was that i end up with 8000 shares of iwm in the 67 range.
it is leverage that is dangerous. not the act of selling a put.

 

[MasterAtWork]

Quote from dagnyt:

Nobody said they were a GOOD hedge.

They are a minimal hedge. But minimal is more than no hedge at all.

Mark

Hi Mark,

Take no offense, but the risk between CC and long the stock, especially for short term options, is somewhat the same.

In fact, if one takes john's numbers above, risk on 100k pure long stocks strategy and risk on CC 97k or 95k are alike. If the underlying drops 30%, it won't be the first 3k that will hurt, rather the next 27k.
So there is no hedge at all, just compensation for foregoing the upside gains.



But there is something great with covered calls, that's they match perfectly irrationality.

If you ask people whether they prefer to own now 3000$ or 30% odds to earn 10000$, they mostly will answer 3000$ ( they prefer to have now part of what they could earn later, like covered call).
Now,If you ask people whether they prefer to pay now 3000$ or 30% odds to lose 10000$, they mostly will count on their chances ( they prefer to deal with probabilities now rather taking the loss, like trading without stop loss).

We are all humans.

 

[ZEAK]

Quote from ZEAK:

Ok, thanks for breaking that down for me. Understood.

This is educational, not fun though, as it cut through support at 38 and kissed 35. For a split second there something in me said "sell another one, quick!" But I know that is just fear talking and was able to ignore it....just. I will let it play out as at the moment I can handle the worst case, want to keep it that way.

Thanks for your thoughts!

Well, for my first option, the sale of a put at $40 gave me $1.68.50. Teck closed at $38, so I got put the shares but really my cost is $38.32, not including commish. But I feel I got lucky, as it went below $35, but happened to rally hard before expiration. Feel I have been "let off" with a warning.

If I would have sold another at $36, I would be sitting good, but that would be excessive leverage, as not enough funds in the account currently to cover the second should it get put to me, so I didnt. Would have could have should have.

Think I will go read up more on options and paper trade them for a while, just so much to know.

 

[dagnyt]

Quote from ZEAK:



Think I will go read up more on options and paper trade them for a while, just so much to know.

An excellent idea. And if you follow through, you should do well.

Have a bit of patience. You have the rest of your life to trade options.

Mark
http://blog.mdwoptions.com/options_for_rookies/

 

[sengko]

Sell Put looks simple, it’s actually a risky strategy which is only used by advanced traders.

If you are beginner, then i suggest using vertical spread so you can control the stop loss.

Now the stock market is not stable Sell Put will bring a great damage.

That's my thoughts, hope this will help

 

[jagmot]

Quote from JSHINV:

I haven't been on ET in a couple of weeks. But, in light of today's events, I thought I'd stop by this thread. I was wondering are those who were proponents of naked put sales, are you still proponents? Or even covered calls or cash secured puts? Don't get me wrong I love options. Use them all the time to hedge the underlying. Which for a trader like me they are best used for. Oh, I know what popular literature says, that covered calls are hedges. Not in my book.

Yes, but again its all about leverage. Cash covered is fine, naked..not so much.

Also see my post about getting hit on 'naked' calls. I put naked in quotes because it was not meant to be leveraged but still happened as I sold early thinking that the Sept calls were too far away and would expire worthless.

http://www.elitetrader.com/vb/showthread.php?s=&postid=2079208#post2079208

 

[JSHINV]

I've already discussed this very issue. I don't like covered calls. I do not like cash secured short puts. I don't like naked put sales. Your choice. Do what you want.

Quote from jagmot:

Yes, but again its all about leverage. Cash covered is fine, naked..not so much.

Also see my post about getting hit on 'naked' calls. I put naked in quotes because it was not meant to be leveraged but still happened as I sold early thinking that the Sept calls were too far away and would expire worthless.

http://www.elitetrader.com/vb/showthread.php?s=&postid=2079208#post2079208

 

[dagnyt]

Quote from sengko:

Sell Put looks simple, it’s actually a risky strategy which is only used by advanced traders.

It's a bullish strategy, and is not quite as risky as owning stocks.

For anyone who <b> wants to accumulate stock</b> it's a fine method.

But for trading purposes, for those who are looking to make very short term trading profits - then I agree, it's risky.

It really depends on your investment objectives. Obviously not everyone has a similar outlook. Thus, to claim a method is 'too risky' for everyone serves no purpose.

Put selling is okay for those with a specific investment objective. It's not for most investors/traders. Selling a put credit spread is a more intelligent, less risky trading strategy than selling puts.

Mark