Are naked puts really this safe????

Quote from RedDuke:

I have some additional information on the fund.

First of all, my decision was not to invest.

The fund took in a lot of additional capital, and unfortunately lost 20% within 1 week, more like in 2 days during last market turmoil.

According to someone whom I know personally and who is invested the the fund, investors who were in from the beginning of the year saw their 100% up for the year turn into 20% up for the year.

Thanks to all who contributed and still continue to contribute to this thread.
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What a poetic and fitting final reply to the op's original question.

And while those who got in early saw their 100% gains trimmed to 20%, those who got in later lost quite a bundle.
 
Quote from dmo:

What a poetic and fitting final reply to the op's original question.

And while those who got in early saw their 100% gains trimmed to 20%, those who got in later lost quite a bundle.
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Spot on. I am sure there are some selling naked puts doing fine (losing money but limited losses and surviving), but the way this fund advertised it as though it was little or no risk was a perfect set up for them to get their asses handed to them. I want to see them explain these losses to the investors who saw their own portion dive into huge losses (i.e. not those who got in the beginning but later on).
 
Quote from RedDuke:

Hello,

I have a question about naked options, in this particular case – naked puts. I pretty much know nothing about options besides general terminology. I attended a meeting for capital raising for 1 small fund (around 10mil under management). The only thing they trade is options on S&P 500.

The manager said that they utilize various strategies which are very safe and depend on market conditions. The only danger, according to him was the leverage they employing, but let’s set this one aside for now. When I asked him about how they trade, he said that right now they basically sell out of the money naked puts. I immediately asked about the danger of such strategy, we all heard many stories about people loosing everything by trading this way. This is what he said:

They are not risky because you can always cover the one that you sold and sell the following month thus not having a loss. Basically he would sell October Put for $2 and if the price would approach the strike, he would buy back this put for 3 and immediately sell November Put for 3 and thus protecting himself. He did not loose anything except for commissions. It seems like average down, but since this is index it is not as volatile as stock.

What do you guys think? It just sounds weirdly simple. Can you please share your insights.

Thanks,
redduke
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i am not reading your post but if your asking on a website about it you should not be in it. naked options are not for the small guy.
 
any spread less than 40 points would have had a decent vega hedge.

Quote from Johno:

Which spreads would have been your picks of the day?

Regards

Johno
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we can all be content in quiet satisfaction now that such expertise has been bestowed.

Quote from brokerboy:

i am not reading your post but if your asking on a website about it you should not be in it. naked options are not for the small guy.
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