Yeh, it's a strategy for when you are bearish on volatility and think = hope that the market prices will remain stable. But it's also a higher risk/low reward strategy and is something most should stay away from unless they have an exit plan, decisive money management skills as well as the wherewithal to withstand the potential loss from deer in the headlghts moments and gaps.
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do you guys agree on this trade?
- Thread starter konviction
- Start date
Must be something in the water. We've had a trending market since the end of August, with today maybe being the downside breakdown, in which case of course volatility will get much higher than it is now, but everyone seems to want to sell instead of buy options.
And now this guy wants to sell 'em naked.
Crazy.
And now this guy wants to sell 'em naked.
Crazy.
I dont understand a few things:
1. This option strategy is highly risky if the price moves greatly against me in either direction... but whats the risk if I have the other side of the option to cover the loss?.. if I see a gap down, yes I lose money on the call, but i make an equal amount from the put, yes?
explain..
2. Because this is a naked strategy, I get paid as soon as I take the short, and the premium is a credit to my account....whats to stop me from exiting the trade as soon as I get that premium?... why do I need to hold on to it?.. Could I not flip these for a fast profit?
thanks.
ps here is my winn trade that im up 60.00 so far.
1. This option strategy is highly risky if the price moves greatly against me in either direction... but whats the risk if I have the other side of the option to cover the loss?.. if I see a gap down, yes I lose money on the call, but i make an equal amount from the put, yes?
explain..
2. Because this is a naked strategy, I get paid as soon as I take the short, and the premium is a credit to my account....whats to stop me from exiting the trade as soon as I get that premium?... why do I need to hold on to it?.. Could I not flip these for a fast profit?
thanks.
ps here is my winn trade that im up 60.00 so far.
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Quote from konviction:
I dont understand a few things:
1. This option strategy is highly risky if the price moves greatly against me in either direction... but whats the risk if I have the other side of the option to cover the loss?.. if I see a gap down, yes I lose money on the call, but i make an equal amount from the put, yes?
explain..
2. Because this is a naked strategy, I get paid as soon as I take the short, and the premium is a credit to my account....whats to stop me from exiting the trade as soon as I get that premium?... why do I need to hold on to it?.. Could I not flip these for a fast profit?
thanks.
ps here is my winn trade that im up 60.00 so far.
!. It looks like you sold the 7.50 straddle for .90. Outside of 6.60 or 8.40 the trade loses regardless of other factors.
For example, if WINN drops to 6.50, the call cannot offset the gain in the value of the put and the straddle is worth at least 1.00.
2. You have to buy the options back. It's highly unlikely that you would be able to flip them for a profit. It is more feasible to attempt this with liquid options.
I'd say you're up a little on the trade, but I wouldn't take TOS P/L at face value. It looks like they split the B/A (.05x.15 .50x.70) to price the options.
The problem is that the options aren't very liquid and to close now, you may have to pay the higher end of the spread. And you should factor in transaction costs.
I think what you did right is small size and a paper trade to boot.