Naked or spread

A

arm0211

I’ve been taught and suggested trading weekly naked puts are the way to go, rolling until successful if necessary.

Ive looked at vertical spreads to hedge risk but rolling those seem more difficult if the position goes again you.


Agree with the baseline or disagree and why?
 
Most don't see what we actually trading is risk, whether stocks, bonds, commodities or options, in some way risk is actually the only think we can somewhat control. How come so seldom we speak of drawdowns? What, no one here has them? You trade naked, you can expect some huge drawdowns, wake up one morning......death march tune. What's wrong with going out handful of months and doing credit spread, at what percentage would you care to take profit? Have answers when going wrong direction. If I did weekly, I still do credit spreads, but that is me, rather hedge.
 
With naked puts, most of the time you eat like a bird and occasionally, you sh*t like an elephant. That's not the case with a vertical since the long leg is a limiting factor.

Rolling spreads incurs more frictional costs but they're not difficult to manage. If I have a vertical that moves against me and I choose to defend, it's the long leg that I'm going to work with (rolling it to book the gain). The short leg is already toxic. I'll also sell premium on the other side as well.
 
Depends on many variables. I sell cash covered otm put option for assignment. And i use far otm put spread for expensive momentum stocks.
 
Last edited:
arm0211 said:
I’ve been taught and suggested trading weekly naked puts are the way to go, rolling until successful if necessary.

Ive looked at vertical spreads to hedge risk but rolling those seem more difficult if the position goes again you.


Agree with the baseline or disagree and why?
More...
Often, when a stock is in a downward spiral, there is no way to roll without losing money, examples: IBM, GILD, TEVA, GE... been there done that.:(

I agree with lylec305, going naked is OK if you don't use margins and are prepared to take the underlying. If you go DITM and are on margins, your fate will be like Karen the Supertrader.

I trade shorts often but do not use spreads, the management of spreads are more complex and beyond my capability. I don't know how to model underlying, IV and the rest of the greeks effectively in a spread. Maybe someone is willing to give me a hand and give me some suggestions.
 
The only time when I would do naked puts is to buy a stock at discount. In any other case, not only it exposes you to (theoretically) unlimited risk, but it is also very inefficient use of margin compared to spreads.

Selling naked options is promoted by many options "gurus". But they fail to mention the amount of risk compared to the returns. Victor Niederhoffer and Karen Supertrader are good examples how this strategy can blow up your account.

Read more: https://goo.gl/kqX5qc
 
You must log in or register to reply here.
Back
Top