Closing naked put positions

Putzer, you have lost more in mere months than most lose in a lifetime. It's really a shame what happened to your portfolio 2 years ago, that made you so angry, bitter and resentful, of disciplined and successful investors like his me. I tried to teach you and your pals about risk management, but you just wouldn't listen. And now, you are all broke, angry, bitter and resentful former investors, who lurk here for some unknown reason. Sad. Very sad..... and pathetic!

NEXXXXXXXXT !!!!
 
<<< Putzer, you have lost more in mere months than most lose in a lifetime. It's really a shame what happened to your portfolio 2 years ago, that made you so angry, bitter and resentful, of disciplined and successful investors like his me. >>>

Gody3 is clearly one of the trolls from the Option and Futures board I discribed earlier.
Just like bruce_ follick.
I'll be ignoring them both, and I suggest others do the same.
You won't get any civil, useful, or intelligent discussion from either of them.

Put Master!
 
Quote from heech:

I've decided that the right thing to do in *most* cases is to hold until expiration.

If that's what you have decided, then that's the right decision for you. But the general advice not to do it is aimed at rookies. People who lack experience to make that decision.

I'm convinced that closing early has saved me a lot of money and that's why closing is the right decision for me.

I've being doing this a lot longer than you have (since 1977) and I'm not saying your decision is wrong for you. But it's a poor choice for a beginner.


But think about the numbers here from a dispassionate, probabilistic point of view. Think about the numbers by taking the *opposite* side of the trade.

I don't believe that's fair. If short a position, I'll close it to eliminate all risk.

That has no bearing on the separate decision of buying that same position as an opening transaction. I would never buy those. Nor would you. But because I have the risk in my account, I would, and do, buy to close.

There are people on this thread who passionately argue you shouldn't "risk dollars to make nickels". This is classic trading psychology.

We feel *more* emotional pain from losing out on profit, than we do from losing more on a losing position.

So, I think I have to ignore the anecdotes.

I don't believe this is relevant. I do not close so that I don't lose my 'profits.' I don't look at that money as 'profits.' I look at it as my money. I earned it. It's im my account. I do not want to risk 'my money' to make those last few nickels. That's my comfort zone. I have no opinion as to whee your comfort zone and risk/reward decisions should be. But I know mine and I know that rookies must be given conservative advice so they begin with a chance to succeed.


I know some of my positions will come back and bite me, and emotionally it will be painful... but I also firmly believe that on average, for each "could have closed" position that bites me and loses a dollar, I'll have 12 "could have closed" positions that make me another dime each.

But what about the once every five years when you lose not $1, but $10. What about that one?
More...

Mark
 
Quote from dagnyt:
But what about the once every five years when you lose not $1, but $10. What about that one?
Mark
More...
Mark,

I respect your experience, and I also don't for a second believe my strategy is "dominant" or superior (in the academic sense). So, don't take this as me trying to change your mind.

But I will say: your comment about the profits being "your money" is exactly the market psychology I'm talking about.

Walk away from this issue for a second, and onto straight equities trading. Why is there so much emphasis on "training" rookies to let their profits run while setting stop losses? Because it's against human nature. Human nature is to be conservative when winning and gambling when losing... despite what the statistics show.

I still the odds work out, even if once in five years the $1 turns into $10. I still believe the statistics would show holding on for that last $0.05 is usually the right thing to do.

It's like hitting on 16 when the blackjack dealer's showing a face card. It hurts to do it, but it's the "right thing to do". :)
 
You know, I do recognize my situation is a little different from most. I'm really trying to squeeze blood out of a stone with my trades.

I'm working with ATM options, and only expecting to make ~0.20 per contract on average, and that's why I take so many positions. That's why the extra 0.05-0.1 mean so much to me.

For someone taking only a few positions a month and looking to make $1.00 on it, their situation is very different.
 
<<< I still the odds work out, even if once in five years the $1 turns into $10. I still believe the statistics would show holding on for that last $0.05 is usually the right thing to do. >>>


Regarding your discussion with Mark, I think the issue is not whether one should hold for that last $0.05 or not.
The issue is how deep OTM is your stock, how many days remain until expiration, how volatile a stock and/or industry are you in, how much margin are you on, are earnings pending, how concentrated is your cash in this particular trade, how much premium is still on the table, ect...

If I'm deep OTM, in a non volatile stock, with just 10 days to go, not over concentrated, with $0.10 - $0.15 still on the table, ect, I have a different R/R perspective than if there was less on the table, more days til expiration, I'm on sig margin, in a volatile stock, ect....
It's all about the "context" of the trade in question.

Put Master
 
Quote from heech:

Mark,
I respect your experience, and I also don't for a second believe my strategy is "dominant" or superior (in the academic sense). So, don't take this as me trying to change your mind.

Why would I believe you were doing that? I didn't try to make you change your mind. This is just a discussion.

But I will say: your comment about the profits being "your money" is exactly the market psychology I'm talking about.

The profits <i>are</i> my money. This is a blind spot for far too many investors.

The position is priced where it is. I have a choice. I can close or I can hold. The fact that I have that choice means it is my money. It's right in front of me. I earned it by taking the risk. To look at it any other way - and I know you will continue to do so because it truly is a blind spot - is ignoring the facts.

If I choose to 'hold' then I am risking money that is in my account. Just the same as if I opened a brand new position today, Except for commissions.

How is it any different? the fact that it's an old position is not relevant. It's a brand new trade every day when I can exit if I want to do so. Thus, it's MY money at risk.

Walk away from this issue for a second, and onto straight equities trading. Why is there so much emphasis on "training" rookies to let their profits run while setting stop losses? Because it's against human nature. Human nature is to be conservative when winning and gambling when losing... despite what the statistics show.

Here's a thought for you: How about this for the answer: Because the people doing the teaching don't know any better.

You buy stock. Your money is at risk. It goes up. Your choice: buy more, sell, or hold. It's a new investment every day and the money - your money - is at risk. the fact that it's a winner means nothing. It's a new decision every day (or minute).

Let winner's run is an acceptable idea - if you use stops to protect your assets.

The crucial corollary is to cut losses. That's the important part and that's the part people cannot easily do.

Why is that crucial: Stocks can run and run. If you cut losses quickly it will never run against you. No big losses. If you use trailing stops on a winner, you can collect when it runs.

But without combining both parts, I think the advice to let 'em run is inadequate.

I still the odds work out, even if once in five years the $1 turns into $10. I still believe the statistics would show holding on for that last $0.05 is usually the right thing to do.

if I had access to the data I would take that bet in a heartbeat. You are also ignoring the mental strain that comes with those losses. That's worth something. peace of mind is valuable. Trading in a comfort zone is intelligent. Closing your eyes to risk maks no sense (to me). Obviously you have a different point of view.

Saving myself from those disappointments makes it more than worthwhile to exit early Sometimes I begin a new trade, and sometimes I sit safely on the sidelines. But I want to exit when I can pay 25 cents for a spread with 6 weeks to go. I'm confident I can use that margin to earn more than 25 cents in another position. And I don't care how FOTM it is. I have my bid in at the opening. Sure I may try 20 cents, but I'll raise it to 25 cents after a short time.

It's like hitting on 16 when the blackjack dealer's showing a face card. It hurts to do it, but it's the "right thing to do". :)

Not necessarily, assuming you are counting the cards.
More...

Mark
 
<<< It's like hitting on 16 when the blackjack dealer's showing a face card. It hurts to do it, but it's the "right thing to do". >>>



Being a vegas resident, I can tell you that you are correct about hitting that 16. However, that's based on statistics.
Investing is more about common sense and risk management.

Hence, depending on where your stock is currently trading relative to your strike, the trend its been in, how volatile it's history of trading, what industry it's in, how concentrated your cash is, how deep OTM, how much time remains on the contract, how much premium remains on the table, ect...... common sense and basic risk management says, there may be times its wiser to close the trade early.

Or to put it in gambling terms..... there are times you should initiate the "surrender rule".

Put Master
 
Now here I thought I had found a post with 13 pages of intelligent discussion, until I got into it enough pages. Is there some kind of ET rule that evantually these discussions have to turn to crap?

Anyway, I know Mark is a conservative trader and following his advice is probably a good thing, if you are conservative. But leaving .10-.15 on the table when it was only a .20 - .25 spread to begin with, I don't know.

I do know that a strategy I used to setup and follow was shorting puts that had a .5 -.10 spread one day before expiration, say on the Q's. I didn't have enough margin to do enogh contracts to make it worth while. But I hit alot more winners than I would have lost keeping the same 1000 contract size for $3000 profit. For someone with enough capital I think it is a good trade in most market situations if you have a gambling streak to your trading.
 
<<< Anyway, I know Mark is a conservative trader and following his advice is probably a good thing, if you are conservative. But leaving .10-.15 on the table when it was only a .20 - .25 spread to begin with, I don't know. >>>


I also respect that Mark is encouraging traders, particularly rookies, to take a conservative approach to investing.
To lock in those profits when you got them.
Afterall, the only thing that hurts more than taking a loss, is taking a loss on a trade that was once profitable.

Where I disagree, is that he recommends treating all trades the same, regardless of each ones one circumstances.
He doesn't care is that put is 10 days or 3 days from expiration. Or whether its 15% OTM or 30%.
He should be TEACHING those rookies he's trying to protect, when to consider closing a trade down.
He should be TEACHING them to "analyze" their trades for potential closure.
He should be TEACHING them the skills of "risk management".

Simply saying close everything down early, once you've got most of the profit, regardless of anything,... teaches them nothing.
While Mark dislikes me, he is an excellent teacher. That's why I find it so surprising that he would rather encourage investors not to think, not to analyze, not to "consider" when it's time to manage risk and close it down, and when to leave it open.

Put Master
 
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