For those who short naked CALLs

[ET180]

Selling naked calls in stocks is a suckers bet...

Not wild about it for indices either..Run some backtests and see for yourself..

With that said I do upside ratios on the indices and large cap stocks and pray to the Sticky Delta Gods every morning

Been doing it for years. Key is small positions so if one breaches your strike, it won't cause you to lose sleep. For example, today I sold a 700 strike MSTR call expiring in Feb for 0.9. For that thing to hit its strike, the underlying will need to double in less than a month. If it's still at this same level in about a week, the premium will be cut in about half. I also frequently short SPX naked calls expiring in 3 - 5 days for around 0.40 credit. The underlying would have to move so far to hit that strike that the rest of my portfolio would be guaranteed to have a substantial profit by the time it gets there.

 

[maxinger]

I'm curious how rare this really is for the vets around here. I'm wondering when was the last time you shorted naked PUTs, (and why).

I almost for the first time broke my cardinal rule and did this on Friday when I was watching crypto crash over the cliff. I sold out every COVERED call I could in order to hedge at least a little.

It was at that moment, I thought of (just briefly), about rapidly selling a bunch more, even though I would not be able to cover. But decided against it, due to the fact even just a 1-month contract is a LONG time where the Fed can come out and say "We are sorry the markets got spooked, so what we are going to do is stall raising rates until next year after all." Then I'm caught in a 10x-20x rally, lol.

I did it 4 decades ago.

I sold naked options and collected $50 happily as professional writers/talkers
said most options expired worthless.

Then I had sleepless nights.
2 days later, I cut loss with a heavy heart and I lost $2000.

 

[qlai]

I also frequently short SPX naked calls expiring in 3 - 5 days for around 0.40 credit. The underlying would have to move so far to hit that strike that the rest of my portfolio would be guaranteed to have a substantial profit by the time it gets there.

Well, than they are not really naked.

 

[taowave]

Its a bad trade,as in picking up pennies in front of a steamroller..

Whats your return on the MSTR call assuming it goes out worthless???

If its a 1 month trade,you are looking at 3 percent..

How many would you sell?? Agreed,the key is SMALL as its a hobby not a business.....

Selling wings is a suckers bet

Been doing it for years. Key is small positions so if one breaches your strike, it won't cause you to lose sleep. For example, today I sold a 700 strike MSTR call expiring in Feb for 0.9. For that thing to hit its strike, the underlying will need to double in less than a month. If it's still at this same level in about a week, the premium will be cut in about half. I also frequently short SPX naked calls expiring in 3 - 5 days for around 0.40 credit. The underlying would have to move so far to hit that strike that the rest of my portfolio would be guaranteed to have a substantial profit by the time it gets there.

 

[ET180]

The trade doesn't tie up $35k worth of capital so the return is much greater than 3%. Although I don't really look at it in those terms. Why don't you call up your local insurance company and tell them that they are picking up pennies in front of a steam roller?

 

[taowave]

You are short a garbage call on a 350 dollar high vol stock..

Who gives a fook on the margin..
You don't get paid on return on margin,and you are smart enough to not lever up..

It's flat out dumb,and thats why your max size is a 1 lot

The trade doesn't tie up $35k worth of capital so the return is much greater than 3%. Although I don't really look at it in those terms. Why don't you call up your local insurance company and tell them that they are picking up pennies in front of a steam roller?

 

[The_Krakenite]

Agreed,the key is SMALL as its a hobby not a business...

Well- good point there to bring up. If you make too much money selling too many options, over here (Canada) the CRA will come after you and demand so much more in taxes, stating it's no longer a hobby. They will rule it as a business.

On the flip side, you get screwed again. Because if you only LOSE money doing that, then the CRA says, well it's just a Hobby and not a business, so we won't give you any tax break.

 

[ET180]

You are short a garbage call on a 350 dollar high vol stock..

Who gives a fook on the margin..
You don't get paid on return on margin,and you are smart enough to not lever up..

It's flat out dumb,and thats why your max size is a 1 lot

I was just pointing out that you calculated the return wrong. If you think it's a dumb strategy, then take the other side of the trade and buy the garbage call. Obviously, you think it has the *potential* to explode much greater than the value of the premium. Buy enough of those garbage / lottery calls and maybe one day you'll be right.

 

[taowave]

Im really not calculating the return wrong....Im ignoring return on margin as in Reg T vs Portfolio Margin...Its not meaningful ay the end of the day...Here is why..If I hand you 5 million bucks to manage,do you think you are going to get "paid" if you have a staggeringly high return on margin,but dismal return on capital??

At the end of the day,its all about return on capital,and you simply cant make a "real" living selling cheap calls..If you backtested it,you would also see that its a trade that you may want to take the other side of..Or limit your size to a 1 lot...If it was that great a trade,you would be short size