Are naked puts really this safe????

[Daal]

the only put sellers who did okay in october are the ones who post on ET

 

[IV_Trader]

Quote from Daal:

the only put sellers who did okay in october are the ones who post on ET

 

[GammaTheta]

Are naked puts really how safe? This is what happened to put writers in Sep and Oct.

LJM:
SEP -15%
OCT -59%

Zenith:
SEP .16%
OCT -10%

ACE:
SEP -50% (on average)
OCT ?

performance figures either direct from manager websites or third party tracking database

 

[RedDuke]

Quote from GammaTheta:

Are naked puts really how safe? This is what happened to put writers in Sep and Oct.

LJM:
SEP -15%
OCT -59%

Zenith:
SEP .16%
OCT -10%

ACE:
SEP -50% (on average)
OCT ?

performance figures either direct from manager websites or third party tracking database

Who are these put writers?

 

[luckyd1976]

Quote from kinggyppo:

I doubt anyone was modeling 70% volatility on the index, where will the market be if it hits 100%? I wonder where and if they covered. I am sure they are in good company in a world of hurt. I thought the market would reverse at 55% to 60% vol, incredible spike down.

Kinggyppo Is right.

I have taken a beating on my MidTerm Options portfolio (Credit Spreads) And I dont care who you are...

NOBODY saw these VIX numbers! (or factored them in)

Thank god Im diversified with a Daytrading strategy and LT Strategy. Prior to all this craziness My Midterm Options were the easiest most reliable Income producer. But the market changed.

 

[short&naked]

The short answer to this thread's question is: No. Not over the long term. Not if you want to build capital over time. LJM just crashed and burned. The manager has been selling options for almost 20 years...

http://www.ljmpartners.com/content/history.html

 

[Daal]

Quote from short&naked:

The short answer to this thread's question is: No. Not over the long term. Not if you want to build capital over time. LJM just crashed and burned. The manager has been selling options for almost 20 years...

http://www.ljmpartners.com/content/history.html

a political breakdown leading to a turn down of the paulson plan would make Berkshire Hathaway chart look quite similar

 

[hajimow]

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

I have done that and I have lost big time. There is no safe trade unless you hedge your trade.

 

[dagnyt]

Quote from hajimow:

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.

It doesn't always work that way. In today's environment it's likely he would buy back the October put for $10 and then try to find a suitable November put to sell for $10.

That cannot always be done.

And again, when the markets tank as they have been, that November put could easily move to $30. Then what does he do? He does what other naked put sellers do: he goes broke.

Many years of profits can disappear when unexpected events occur. To survive, you must allow for the unexpected and limit potential losses by selling put spreads instead of naked puts.

Of course, this is a bullish strategy and you are not forced to play.

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

 

[chrismontez]

Well since you mentioned these were naked puts on indexes and therefore not as risky as stock puts, the 520 puts on the OEX I was trading in September for about $300 finished almost $10,000 in the money in October. ( Unfortunately, I didn't roll them over) The Nov. 520's are currently about $8500 in the money. So if you had shorted those 520 puts in Sept for $300, you would have to buy them back in Oct. for about $10,000. If the fund was leveraged in shorting them, they might have to come up with more $ than the fund had.

There is supposedly a way to short puts on stocks and mathematically figure out how many puts you need to BUY on the corresponding index to cover a meltdown and still make money. It requires more margin than I would ever have.