My selling options strategy. *Newbie*

If you sell a naked straddle you will most likely need a large margin amount for a position. If the stock gaps or moves strongly in one direction with IV increase, you will lose a lot of money. If you have 5 straddles on at once with margin maxed out and one goes against you bad, you will need to cover that position and possibly liquidate others to free up margin.

If you dont expect a stock to move then look at calendar spreads or Butterflies but dont jump into naked option selling which is probably one of the riskiest of all strategies for a newbie to start with.

there is no debate when one side lacks understanding of the basics of options.

SO instead of debating, why not just ask simple questions and do some research. Go to www.888options.com and start with the basics.

Quote from maae10:

What about if you think the stock is going to stay where it is?



Account is wiped out? The position is wiped out, not the account.

On stocks I don't expect to move, my strategy is to sell both calls and puts with the strike price as close as possible stock price or I'll sell a call slightly higher and sell a put slightly lower the stock price.
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I would also add Thomasett "Getting Started in Options"

Quote from Tums:

I would suggest you read "Option for Dummies" first, because you are sorely lacking in fundamental and mechanical knowledge of options.
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Quote from maae10:

The best way to learn is to debate and then get proven wrong.



How do you protect yourself against the 5% drop?
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You can't protect against that drop with selling naked options. Selling naked options means you are waiting for time value to decay, so you hold overnight. If a 5% overnight drop occurs you're out of luck.

If you try to limit the risk, you're no longer selling naked options.
 
Quote from showyouwang:

You can't protect against that drop with selling naked options. Selling naked options means you are waiting for time value to decay, so you hold overnight. If a 5% overnight drop occurs you're out of luck.

If you try to limit the risk, you're no longer selling naked options.
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Can't you limit you risk by slanting the options differently?

For example: If XYZ is trading at $51.25 and I think it's basically going to stay where it is. I can sell three different ways:

1. I can sell 52.5 calls and 50 puts

2. I could see 50 calls and puts

3. I could sell 52.5 calls and puts

IOW, you can bet the stock will stay where it is but if it's going to drift you can bet which way it's going to drift and still make (less) money if the position drifts a little the wrong way instead.
 
Quote from maae10:

Can't you limit you risk by slanting the options differently?

For example: If XYZ is trading at $51.25 and I think it's basically going to stay where it is. I can sell three different ways:

1. I can sell 52.5 calls and 50 puts

2. I could see 50 calls and puts

3. I could sell 52.5 calls and puts

IOW, you can bet the stock will stay where it is but if it's going to drift you can bet which way it's going to drift and still make (less) money if the position drifts a little the wrong way instead.
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Don't concern yourself with straddles vs. strangles. Nobody is debating the mechanics of how to sell naked.

Define the risk on this $50 naked position. Unlimited upside and bound to zero [$5,000 - straddle credit per contract] on the downside.

Best practice would entail buying the 40/60 wings to define your risk.
 
Quote from maae10:

Account is wiped out? The position is wiped out, not the account.
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OR

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Quote from maae10:

Can't you limit you risk by slanting the options differently?

For example: If XYZ is trading at $51.25 and I think it's basically going to stay where it is. I can sell three different ways:

1. I can sell 52.5 calls and 50 puts

2. I could see 50 calls and puts

3. I could sell 52.5 calls and puts

IOW, you can bet the stock will stay where it is but if it's going to drift you can bet which way it's going to drift and still make (less) money if the position drifts a little the wrong way instead.
More...
Do you understand what you are doing?
 
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