Is naked option writing really that bad?

[viruscore1]

Nope. A CC isn't the same risk as a naked put writing. Stock drops 50%, you lose less than 50% with CC and you lose like 5-1000% with naked options...

Not even close...

Hope you have never sold a naked put on a stock that dropped 50%. But, I guess it would work if you write your put option with a strike price 50% below the current stock price and it drops 50+%, you face assignment. It might be better than buying stock and writing covered call. Either way the outcome is the same, long stock, just saying ...

 

[Pekelo]

if you write your put option with a strike price 50% below the current stock price and it drops 50+%, you face assignment. It might be better than buying stock and writing covered call. Either way the outcome is the same, long stock, just saying ...

Naked puts and cash covered puts are not the same.

 

[viruscore1]

Naked puts and cash covered puts are not the same.

My 3 brokers requires margin to cover all naked put writing. Not sure how they are different mechanically. Enough cash/margin is required to cover short naked put position in case of assignment. Or the trading app will return an error.

 

[caacapital]

Its the same strategy with people that write naked options. Write OTM high probablity option if OTM goes ITM write even more OTM options to cover that lost and hope it doesn't go down past that strike. The OP has been extremely lucky and/or has been picking really good spots to double down when wrong. Puts would be the thing to write in a bull market so thats not surprising that the call side is doing bad though. He is doing something right though if its been working since 08. He clearly has the capital to do it as well.

 

[ironchef]

Hope you have never sold a naked put on a stock that dropped 50%. But, I guess it would work if you write your put option with a strike price 50% below the current stock price and it drops 50+%, you face assignment. It might be better than buying stock and writing covered call. Either way the outcome is the same, long stock, just saying ...

You are talking about writing DOTM naked puts then. For a 50% moneyness on a $100 stock, you probably collect $.01-$.02 per share, so to get decent premium, you sell 1000 contract to collect $1,000-$2,000. If the stock drops by 50% your $.01 put will likely be worth $5-$10, so your 1000 contracts will cost you ~$500,000 to $1,000,000 to cover. Hopefully you have $5,000,000-$10,000,000 to purchase your stocks at a 50% discount.

 

[viruscore1]

You are talking about writing DOTM naked puts then. For a 50% moneyness on a $100 stock, you probably collect $.01-$.02 per share, so to get decent premium, you sell 1000 contract to collect $1,000-$2,000. If the stock drops by 50% your $.01 put will likely be worth $5-$10, so your 1000 contracts will cost you ~$500,000 to $1,000,000 to cover. Hopefully you have $5,000,000-$10,000,000 to purchase your stocks at a 50% discount.

My example is 8+ month otm. Try again. ..

 

[OptionsOptionsOptions]

You are talking about writing DOTM naked puts then. For a 50% moneyness on a $100 stock, you probably collect $.01-$.02 per share, so to get decent premium, you sell 1000 contract to collect $1,000-$2,000. If the stock drops by 50% your $.01 put will likely be worth $5-$10, so your 1000 contracts will cost you ~$500,000 to $1,000,000 to cover. Hopefully you have $5,000,000-$10,000,000 to purchase your stocks at a 50% discount.

ironchef

• Could you use real quotes in your example?
• Any stock will be fine.
  
• Real quotes will be significantly different than the quotes you have provided.
• I hate trade examples that use terms like: "you probably collect", "will likely be worth"

 

[viruscore1]

ironchef

• Could you use real quotes in your example?
• Any stock will be fine.
  
• Real quotes will be significantly different than the quotes you have provided.
• I hate trade examples that use terms like: "you probably collect", "will likely be worth"

Use TSLA for your example, try sep puts.

 

[monkeyc]

Naked puts and cash covered puts are not the same.

The two have nothing to do with each other.

A naked put is an uncovered put. To cover a put, you'd short the underlying. A naked put means you haven't shorted the underlying. It has nothing to do with it being cash-secured. A naked put may be cash-secured, or it may not. A naked put doesn't become "covered" simply because you have the full cash value on hand.

If I sell one SPY 250 put and have $25000 in the account without shorting SPY, it is a naked AND cash-secured put

 

[viruscore1]

The two have nothing to do with each other.

A naked put is an uncovered put. To cover a put, you'd short the underlying. A naked put means you haven't shorted the underlying. It has nothing to do with it being cash-secured. A naked put may be cash-secured, or it may not. A naked put doesn't become "covered" simply because you have the full cash value on hand.

If I sell one SPY 250 put and have $25000 in the account without shorting SPY, it is a naked AND cash-secured put

Try doing that with not enough money/margin in your account to cover your short put position. Cash secured is the same as cash covered. Give it some thought ...