Naked ATM call now waaay OTM...

Quote from dcvtss:

If you don't mind me asking, how much of a percentage of your strategy is the commission on hedging costing you?
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About 0.3%-0.5% of gross each month... assuming leverage of about 3x1, ~1%-1.5% of my equity.

It had been 0.5% when I just blindly took liquidity, but I've lowered it by half by trying to use limit orders when the opportunity is available.

But the downside there is of course increased slippage... so I might be giving up that 0.2% and more on actual trading results. I'm still not sure what I'll do in the long run.
 
Quote from dagnyt:

The question is: Why would someone who believes in hedging risk want to take the chance of seeing a gigantic gap one morning - perhaps after a nuclear bomb destroys a major city, or a major assassination, or maybe just global panic for no good reason?
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I delta hedge, but I don't do so with the attitude I'm hedging away risk. I realize my positions are risky... again, I start with ATM positions, so I'm losing money on every trade, every day. (On my equity leg... I lose anywhere from $3k, on a decent day, to $15k on a bad day. I should post my trade blotter from NinjaTrader in the trade journal section some time... scare the $hit out of some people.)

As far as the risk that you're talking about... other than those who're *completely* market neutral and/or trading option spreads, we all have the same risk.

Why would you sell a $0.50 put, if there's a risk that a giant earthquake might destroy California tomorrow? After all, your short option can go from $0.50 to $10.50 just as easily as my short option can go from $0.05 to $10.

Let me just put it this way. I think there are a lot of people who sell $0.05 options because they think there *is* no risk, and they don't position manage accordingly... they load up on the $0.05 options, and think it's free money. Those are the people who need to be warned, because once every few years, they'll be wiped out.

I sell $1 options, and I position manage accordingly.
 
Quote from heech:

Make up your mind, is it a risk argument, or is it a margin/equity argument?

I have a lot of money sitting on the sidelines earning 0.01% a month. My decision to pick up an August position has *nothing* to do with the current July positions.
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I don't need to make up my mind. I've told you what I think of 5 cent positions. As for what you perceive as arguments:

1) It's not a margin issue since you indiicated that you have more margin available than you need. I take your word for that.

2) It's a risk consideration, albeit an unlikely but possible event. Why have the obligation to buy or sell 100's of shares hanging over your head (assignment) or possibly having to buy the option back for 25 cts or 50 cts or whatever. It's a nickel today. Give it back and move on with total less risk.

3) The object of investing is to make money. Replacing an almost worthless July position with an August position will give you more premium per day. It's a better investment/spec. Would it bother you to have 74 July and 1 Aug position instead of 75 July positions?

Would you sell any OTM July option today for 5 cts as an opening position? If so, then we agree to disagree. You like 5 ct positions, I don't. If not, then it's a silly argument. Close the position.
 
Quote from heech:

Thank you for the well considered response.

It's still very much an open debate in my own mind, as well, which side of the risk/reward balance this decision falls. But I simply don't agree it's a catastrophic risk...

... what keeps me at night isn't the probability of APWR gapping back up to 20 overnight, but rather what you alluded to: my other 60 still ATM positions gapping down 20% because of something happening in Iran.

I've tried to lessen the risk by dividing evenly between puts/calls... which means I only sleep uncomfortably, rather than not sleeping at all.
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Yes, your risk is not the one call position. My post was as much to point out the real risks to newbies reading along.

As for sleeping uncomfortably, I have spent a great deal of time going over hedging techniques/scenarios/plans to help my slumber. I always come back to the basic conclusion that hedging costs money. either outright or in giving something up. If I just reduce the size (i.e., remove the risk) then it's a much, much simpler way for me, personally, to trade, without all the complicated and expensive hedging.

This is not to say I won't occasionally buy some puts to reduce the downside risk to stay within my parameters, but I like to keep it simple.
 
Quote from heech:

I think I've come in here with a reasonably humble attitude. I'm very open to learning on every angle.

However, I have to say, there's a lot of dogma about the way things "have to be". I don't think there's a lot of free money out there, but the assertion that my code will lose a thousand nickels on any particular position is really nonsense.

My code is delta- and gamma- hedging using the underlying, on a every-minute basis, for all of my positions. There's of course no way to hedge completely against a 9/11 type event (especially if it happens with the markets closed)... but short of that, I know what my likely losses are.

So unless you happen to be a veteran of a trading strategy that's doing the same thing... frankly, why should your risk profile be the same as mine just because we trade the same instruments? Is the risk profile of someone writing naked options the same as someone buying call spreads, just because they're trading options?

I know there is no free money out there, so I'm not claiming that I've found a huge pool of alpha, and am rolling in the returns. I'm just about break-even in real time results, in fact. I'm not going to give you backtesting results, because they're meaningless (and obviously positive or I wouldn't be trading this). But in the 3 months that I've had this thing on full throttle, I've been -3%, +4.5%, -1%.

So, could I have a down month where I'm -10%? Absolutely. Could I have a down month where I'm -50%, or more? Very, very, very unlikely.
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Well there's your answer. We're full of dogma; tho possibly we're veterans, we're not doing what you're doing; we have different risk profiles; and you know what your potential losses are.

Rhetorical question: So why did ask for our opinions?
 
Quote from spindr0:

3) The object of investing is to make money. Replacing an almost worthless July position with an August position will give you more premium per day. It's a better investment/spec. Would it bother you to have 74 July and 1 Aug position instead of 75 July positions?
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For my strategy (in its current form), the longer I trade the more I lose. There's a sweet spot on the theta curve where I believe I can hedge for less cost than the premium.

This is why I have so much cash on the sidelines, rather than putting them into August positions immediately.

Would you sell any OTM July option today for 5 cts as an opening position? If so, then we agree to disagree. You like 5 ct positions, I don't. If not, then it's a silly argument. Close the position.
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As I mused to myself on page 2 of this thread... that's an open question. It might be a valid and profitable strategy, especially considering the volatility smile.

I would have to position manage accordingly.
 
Quote from AmbushHillbilly:

As for sleeping uncomfortably, I have spent a great deal of time going over hedging techniques/scenarios/plans to help my slumber. I always come back to the basic conclusion that hedging costs money. either outright or in giving something up. If I just reduce the size (i.e., remove the risk) then it's a much, much simpler way for me, personally, to trade, without all the complicated and expensive hedging.
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One size does not fit all. Hedging is not for everyone and you have found the size that fits you. It's not right. It's not wrong. It's just your comfort zone. So, dya have any 5 ct puts I can buy?? :)
 
Quote from spindr0:

Well there's your answer. We're full of dogma; tho possibly we're veterans, we're not doing what you're doing; we have different risk profiles; and you know what your potential losses are.

Rhetorical question: So why did ask for our opinions?
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Having years of experience + knowledge of hedging tactics is a positive. I'm here to learn from that. Hell, I *have* learned from that. There's a lot of conversation that I've sat in here, just absorbing concepts... only to have it crystallize into "knowledge" and understanding months down the line.

Insisting that trading 0.05 cent options (on either side) is a guarantee of catastrophic failure is dogma.

I'd just point out market makers some how manage to trade 0.05 cent options (or hold 0.05 cent option on their books to expiration) without catastrophic failure.
 
Quote from heech:

For my strategy (in its current form), the longer I trade the more I lose. There's a sweet spot on the theta curve where I believe I can hedge for less cost than the premium. This is why I have so much cash on the sidelines, rather than putting them into August positions immediately.
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Well, here's my last comment. Cover for a nickel and wait 3 weeks until the next sweet spot arrives.

Or not.
 
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