If author would not mind I will ask newbie question too. Those of you who prefer strategies of selling options. When IV is very high how do you decide when selling naked call/put and when selling ratio (1:2) spread with the same delta is better? What are + and - of both strategies? With ratios I see few negatives - worse fill, because 3 options are involved and, I think, bigger margin is taken for ratio. Plus is that you can win more than credit received and your break even is better. Thank you.
More newbee option questions
- Thread starter Neural
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I prefer the ratio to straight selling naked any day of the week. You can do more with it defense wise as well. I'm just and remain terrified ever ever selling naked from an experience with a call in minneapolis wheat over a decade ago. I don't dance around that fire anymore.
I've been trading stocks for well over ten years, I work in risk in the banking industry and I design risk algorithms for a living (just not related to the stock market). I thought I'd throw this in to show I'm not a complete newbie, just new to options, and wanted to discuss with people who know more than I do.
The money I set aside for options I'm happy to lose all of it as I learn, I prefer using real money instead of paper trading as I find it much more educational when using real money. Hence setting aside a portion I'm happy to lose I find is the best way. (we'll call it the cost of education)
Once I feel comfortable (could be months/years) then I'll start to drip feed in some more money from the real account.
The money I set aside for options I'm happy to lose all of it as I learn, I prefer using real money instead of paper trading as I find it much more educational when using real money. Hence setting aside a portion I'm happy to lose I find is the best way. (we'll call it the cost of education)
Once I feel comfortable (could be months/years) then I'll start to drip feed in some more money from the real account.
I like your balls. What strategies are you thinking of implementing?
I am also a student of options and been trading for over a decade. I love options and find this forum a gold mine, although you have to know how to look and learn "Greek" metaphorically speaking.
What I like is the opportunity of risk control and the multidimensional take on trading. You can be neutral, moderately long or short, heavily long or short, or even include two or three out of the five scenarios in the setup.
Thanks to some priceless contributions here on et and with more learning of the greeks, I am now finally realizing:
how to short volatility and be positive theta without risking my shirt in risk/reward. I am learning about the beauty of butterflies, the notion that a naked put = covered call and that two verticals can have wings.
Coming from trading single legs or regular spreads, mostly afraid of the risk of anything else, forget diagonals, it is an eye opener. I still do single legs but mostly as an hedge, often in collars, the balance you have with verticals offers better control and reward to risk.
I am also more careful about the instrument I am trading, making sure I am not messing around with margins and ib algo: cash or future settled if it involves credit trades close to itm with early assignment risk, or stocks that I can manage with my account size. Lastly, execution, limit buy on bid, sell on ask and hustle, as some of those bid/ask spreads are serious.
Next step will hopefully be diagonals and skew.
I found this recently, it works on browser and app, it's free. I find very helpful and I am glad to share:
https://optionstrat.com/
Amen
At the moment nothing special, I've had good results by sticking to analyzing industries I know and buying those stocks I think are underpriced. So I wish to do the same but now using options for leverage.
Certainly a lot of different ways to trade. Everyone looking for their niche. I think with a bullish basis then you could look into the following possibilities to use options towards your goals. Top of my thoughts would be directional call flies with a few months of DTE. These can really pay off handsomely from a R/R perspective. I'd say bull call spreads are simple to implement. Poor man's covered calls and also the wheel on stocks you want to own. Breakout stocks you could look at some back spreading options. Happy to walk you through these and provide some examples. Can send some good videos on set ups. If you have the skill to identify the winners that's the most important piece. The struggle is with options there are options. Often you need to have not just the direction right but the size of the move in the underlying and the timing window for it to take place. But nail them all on a trade and it feels pretty good.
you’re a virtuous man, caroy