You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Naked option sellers: When do you profit take?
- Thread starter a529612
- Start date
a529612
The rationale is that the delta is a measure of risk, whereas the value of an option is not.
If the risk is low (Delta <0.30) I'd let them run, if the delta is high (>0.80) I'd do something about it (either close out or leg / roll). In other words, let winners run and close losers. Hope that helps.
The rationale is that the delta is a measure of risk, whereas the value of an option is not.
If the risk is low (Delta <0.30) I'd let them run, if the delta is high (>0.80) I'd do something about it (either close out or leg / roll). In other words, let winners run and close losers. Hope that helps.
@ a529612
let the options expire! the options are fair priced and the expectancy is still the same: high probability that option is worthless to very low credit -- lower probability that option will be worthless to bigger credit.
Insted of closing the short option I whould open a OTM backspread (for a credit or +/-0) some days bevore expiration to be prepared against a black swan or a surprising move in the underlying.
let the options expire! the options are fair priced and the expectancy is still the same: high probability that option is worthless to very low credit -- lower probability that option will be worthless to bigger credit.
Insted of closing the short option I whould open a OTM backspread (for a credit or +/-0) some days bevore expiration to be prepared against a black swan or a surprising move in the underlying.
Quote from Johno:
Sashe
Registered: Aug 2002
Posts: 358
09-05-07 06:22 PM
just hedge your deltas and gammas and you'll be fine
Right up until the market does something major against your position in a short time, thats when you find out that you're definitely not fine!
Best Regards
Johno
Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure
Hi Sashe,
Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure
Would you care to share your thoughts a bit further on what this statistical approach might look like.
Best Regards
Johno
Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure
Would you care to share your thoughts a bit further on what this statistical approach might look like.
Best Regards
Johno
Quote from Johno:
Hi Sashe,
Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure
Would you care to share your thoughts a bit further on what this statistical approach might look like.
Best Regards
Johno
What I was trying to say that do not sell naked on stocks with upcoming earnings, or major announcments. Look at all previous black swans (i.e. huge moves against you as the naked seller) and study the patterns that preceded that. Overall, I mean that selling naked (or even iron condors) requires lots of work. It is never sell and collect.
Hi a529612,
My comment was actually -
Right up until the market does something major against your position in a short time, thats when you find out that you're definitely not fine!
In reply to - just hedge your deltas and gammas and you'll be fine
Thru past experience I can tell you all about how Black Swan events can impact on Naked Options sellers accounts, where Delta Neutral/Dynamic Hedging strategys are employed.
Best Regards
Johno
My comment was actually -
Right up until the market does something major against your position in a short time, thats when you find out that you're definitely not fine!
In reply to - just hedge your deltas and gammas and you'll be fine
Thru past experience I can tell you all about how Black Swan events can impact on Naked Options sellers accounts, where Delta Neutral/Dynamic Hedging strategys are employed.
Best Regards
Johno