If your not using a lot of leverage, selling ATM naked premium is just fine and probably much safer than the way many of the people selling those much "safer" spreads are trading. I suspect, the real reason many people trade spreads instead of naked options is not really to increase safety, but to reduce the margin required so that they can use more leverage anyway. The nice thing about selling ATM options is that your gamma is at the peak with respect to price, so as your position moves against you, your gamma is probably getting easier and easier to manage. This means that if you were comfortable with the gamma when you put the position on, you'll probably still be comfortable as the position moves against you. I'm not advocating selling naked options blindly. In my own trading, I'm almost always looking to enter some sort of spread myself. I'm just saying don't be automatically afraid to sell naked premium. It can be done safely.
I am new
- Thread starter JSHINV
- Start date
If your not using a lot of leverage, selling ATM naked premium is just fine and probably much safer than the way many of the people selling those much "safer" spreads are trading. I suspect, the real reason many people trade spreads instead of naked options is not really to increase safety, but to reduce the margin required so that they can use more leverage anyway. The nice thing about selling ATM options is that your gamma is at the peak with respect to price, so as your position moves against you, your gamma is probably getting easier and easier to manage. This means that if you were comfortable with the gamma when you put the position on, you'll probably still be comfortable as the position moves against you. I'm not advocating selling naked options blindly. In my own trading, I'm almost always looking to enter some sort of spread myself. I'm just saying don't be automatically afraid to sell naked premium. It can be done safely.
Then the obvious question to you is: What strategy for trading stocks are you attempting to "improve" with options strategies?
If you don't have a successful strategy for trading equities, then you most certainly are not going to profit with options. You will only accelerate your losses, which is what you've been experiencing.
And if you do have a successful strategy, that should be the starting point for your study of options positions that are going to benefit from that strategy.
IMO, you are caught in the typical options/newbie scenario of believing that there is something intrinsic to options positions that is going to let you get away with not being adept at predicting movement (or lack of movement) of the underlying. I'll wager a good sized bet that more often than not, traders who are NOT successful in trading equities turn to options thinking that they can find some secret that will let them escape from accurately predicting the movement of an underlying security. But the sad fact is, those are precisely the people who should NOT be trading options. And while I can't make the judgement, you might want to ask yourself if you are in this camp.
Now, you may be a quant and the one in a million who can master a few esoteric strategies and pull a few dollars out of the spreads, commissions and decays that are likely to eat you alive.
But frankly, from your posts, you still seem to be relying on movement of the underlying to pull your ass out of the fire, and are confused about what you should be doing.
So I will second those who have already told you, unless you are successful intrading the underlying, options are not for you.
I'm not trying to answer for John but for myself....IF you have been trading the underlying (stocks) for a time with reasonable success...WHY NOT go to options? LESS money at risk, more variables to chose from.
I agree here 100%. I have respect for retail traders who trade options profitably but I personally as a retail trader feel that there are less exploitable edges in the options game. I have actually confirmed this by testing my directional equity strategies by using options. The result was a negative expectancy. The idea of commiting less capital sounds nice and im all for it but I feel its a wolf in sheeps clothing. I have yet to find a tradable options strategy for my setups. I've tested puts, calls, backspreads, verticals, calendars, credit spreads, etc... and still no pay dirt. The time decay and bid/ask spreads eat pretty much every bit of edge that exists in my strategy. Those are my experiences
Yes. Less capital at risk in exchange for all the shenanigans to be dealt with in the sidebet (options) market. No thanks. Ill just put up the extra money. If you have limited capital then you should'nt be trading stocks , futures or options anyways. It takes money to make money
Actually it isnt leverage that should bring an equity trader over to the world of options. A good options trader isnt trading options because of leverage, believe me. It is the multi dimensional aspect of their pricing model that is appealing. Often, it is this same multi dimensional aspect that throws new traders off and causes them to lose money as they overleverage themselves thinking option trades are anything more than negative expectancy trades.
You dont need to be a great equity directional trader to succeed in options but you do need to understand how options are priced as the underlying moves across time and price.
Thanks. I agree with your post. Like you suggest, I do not leverage naked positions out of being unable to cover them with the underlying. You and I are on the same page. I am not afraid. I've just sold a straddle again, but committed less money, than the last trade, I commented on in length. I sold seven calls short, and sold seven puts short. But, I will adjust with short or long of the underlying to cover the short put, with long on the shares or cover the short put, short on the shares. I feel comfortable with the trade. I will let everyone know how it goes which will be no later than the August expiration.
Sorry. I don't agree. To me stocks or more risky than options, if one really knows what they are doing with options. I am confident I have the aptitude to reach this level, even though I am not there yet. "Don't confuse brains with a bull market." What I like about as directional if one chooses not to and do volatitility plays. By the way time decay works in the sellers favor. So, I like time decay. Time decay is my friend. I have come to lean toward selling options. But, I do understand that one has to make directional decisions. Esoteric strategies? To me all the stragies are fairly straightforward, including terms like Iron Condors, Butterfly Spreads, other kinds of spreads and so forth. What is more challenging, is learning what moves implied volatilites, delta, gamma, vega and so forth. I wil master thse concepts. Believe me I smart enough to do so. I am just not experienced yet. Hence the the title of my post, "I am new."
Stocks and options really are two different instruments. Options are derivatives that require a different understanding and application than stocks. I don't agree one has to be successful in stocks to be successful in options. Stocks bored me. I was impatient with them. I hated to buy and hold. I was simply boring to me. I am doing this because it interests me. Money is secondary. Honestly, I don't need the money.
You assume a lot.
Quote from Shazbatz30:
. I have actually confirmed this by testing my directional equity strategies by using options. The result was a negative expectancy. The idea of committing less capital sounds nice and im all for it but I feel its a wolf in sheep's clothing. I have yet to find a tradable options strategy for my setups. I've tested puts, calls, backspreads, verticals, calendars, credit spreads, etc... and still no pay dirt. The time decay and bid/ask spreads eat pretty much every bit of edge that exists in my strategy. Those are my experiences
Perhaps your directional strategies are just not conducive to option strategies. I have actually found the opposite to be true. When I AM right directionally options have allowed me to profit quicker and actually more than when I just held the underlying equity.
In reading Rallymode's reply I would agree with him.