Quote from Kap:
a great heading none the less
I agree with you. It was one of the reasons I decided to respond to this thread, as I felt the person summarized it so well!
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Naked put... eats like a mouse, sh!t like an elephant
- Thread starter turkeyneck
- Start date
I agree with you. It was one of the reasons I decided to respond to this thread, as I felt the person summarized it so well!
Quote from jj90:
Sure you can sell naked, just watch out for cold breezes...
And I do also doubt your positive delta guarantee.
Why naked when you can buy pants for $5 or less to cover yourself? The cold breeze may come when you are soundly snoring in the night, and find out only in the morning that what was nacked is now buried in someone else's pocket.
As for your doubt, you just need to know more. But I have no problem with you expressing your doubts--you have an inalienable right to express yourself.
The bottomline is you need to be good at predicting the stock movement (technical analysis, find the correct support/resistance etc..) before even thinking about option writing. Otherwise you will just lose more money quicker than buying stocks.
I lost decent amount of cash when first started, but am doing ok now. If you have to write naked options:
1) Pick stable stock that trade within range with very clear historical support/resistence level. For example pharm stocks and chinese stocks are bad ideas in general as they have a tendency to zap around quickly
2) Do some fundamental analysis to make sure the company is solid. For example, leh or gs instead of c.
3) Pick a strike that's 15%-30% lower / higher than the support / resistence
4) Never go further out than 2 expiration dates
5) BE PATIENT! if the stock support is 45, resistence is 60, DO NOT write when it is trading around 50 for example. Wait until it hits support or resistence
6) Research the overall market. Is it in a strong bull run that may break the resistence? Any news on the period before your option expires that may impact large moves (such as the fed announcements etc..). Any company news that may impact price moves
7) Once all of that is done, and the option is still not filtered out, then look at how much premium you will get (percentage ratio to stock price). If it's less than 1.5% or $0.3, it's usually not worth it.
8) After trade is done, put in stop loss in case of free fall.
9) Monitor the stock daily, any significant change in market sentitment or stock fundamental, cut your loss and sell.
Anyway it's a lot of work, options seem like such easy money until you try it then realized it's actually a lot more risky to make the cash than stocks.
I think options on index futures is a lot better alternative, too bad it's so difficult to find the data/knowledge that we took for granted on stock options. Been a pain in the ass to research
I lost decent amount of cash when first started, but am doing ok now. If you have to write naked options:
1) Pick stable stock that trade within range with very clear historical support/resistence level. For example pharm stocks and chinese stocks are bad ideas in general as they have a tendency to zap around quickly
2) Do some fundamental analysis to make sure the company is solid. For example, leh or gs instead of c.
3) Pick a strike that's 15%-30% lower / higher than the support / resistence
4) Never go further out than 2 expiration dates
5) BE PATIENT! if the stock support is 45, resistence is 60, DO NOT write when it is trading around 50 for example. Wait until it hits support or resistence
6) Research the overall market. Is it in a strong bull run that may break the resistence? Any news on the period before your option expires that may impact large moves (such as the fed announcements etc..). Any company news that may impact price moves
7) Once all of that is done, and the option is still not filtered out, then look at how much premium you will get (percentage ratio to stock price). If it's less than 1.5% or $0.3, it's usually not worth it.
8) After trade is done, put in stop loss in case of free fall.
9) Monitor the stock daily, any significant change in market sentitment or stock fundamental, cut your loss and sell.
Anyway it's a lot of work, options seem like such easy money until you try it then realized it's actually a lot more risky to make the cash than stocks.
I think options on index futures is a lot better alternative, too bad it's so difficult to find the data/knowledge that we took for granted on stock options. Been a pain in the ass to research
Quote from newguy05:
The bottomline is you need to be good at predicting the stock movement (technical analysis, find the correct support/resistance etc..) before even thinking about option writing. Otherwise you will just lose more money quicker than buying stocks.
I lost decent amount of cash when first started, but am doing ok now. If you have to write naked options:
1) Pick stable stock that trade within range with very clear historical support/resistence level. For example pharm stocks and chinese stocks are bad ideas in general as they have a tendency to zap around quickly
2) Do some fundamental analysis to make sure the company is solid. For example, leh or gs instead of c.
3) Pick a strike that's 15%-30% lower / higher than the support / resistence
4) Never go further out than 2 expiration dates
5) BE PATIENT! if the stock support is 45, resistence is 60, DO NOT write when it is trading around 50 for example. Wait until it hits support or resistence
6) Research the overall market. Is it in a strong bull run that may break the resistence? Any news on the period before your option expires that may impact large moves (such as the fed announcements etc..). Any company news that may impact price moves
7) Once all of that is done, and the option is still not filtered out, then look at how much premium you will get (percentage ratio to stock price). If it's less than 1.5% or $0.3, it's usually not worth it.
8) After trade is done, put in stop loss in case of free fall.
9) Monitor the stock daily, any significant change in market sentitment or stock fundamental, cut your loss and sell.
Anyway it's a lot of work, options seem like such easy money until you try it then realized it's actually a lot more risky to make the cash than stocks.
I think options on index futures is a lot better alternative, too bad it's so difficult to find the data/knowledge that we took for granted on stock options. Been a pain in the ass to research
Good advice. I would just add that point 8) "8) After trade is done, put in stop loss in case of free fall." may not help at all as gaps typically happen in non-trading hours. A stop is worthless for such gaps. That is why if one write a put on a stock, never be naked particularly when you can buy cheap pants for $5 to cover yourself.
I will throw my 2 cents in the middle just for another point of view.
I would argue that its actually ok to write naked if you keep the quantity of any one stock low enough that in the case of a TMA (I watched that one fall 50%+ today so sorry for your loss) your still not hurt.
for example if he wrote 2 or 4 contracts it would have still sucked but would not make it so emotional and so painful. This of course is in relation to his account which i have no idea the size.
So if he has a 4 million dollar account its not a big deal that the account takes a hit on 20 contracts.
I have naked GE march 32.50 puts. one for every 10K in my account. (in my case of course its GE and its below support) I think this is a good way to earn extra income. GE has to go to 32.06 to break even. You can argue if its a good idea or not to be net long GE but I think I am still using good risk management when looked at the whole picture.
I would argue that its actually ok to write naked if you keep the quantity of any one stock low enough that in the case of a TMA (I watched that one fall 50%+ today so sorry for your loss) your still not hurt.
for example if he wrote 2 or 4 contracts it would have still sucked but would not make it so emotional and so painful. This of course is in relation to his account which i have no idea the size.
So if he has a 4 million dollar account its not a big deal that the account takes a hit on 20 contracts.
I have naked GE march 32.50 puts. one for every 10K in my account. (in my case of course its GE and its below support) I think this is a good way to earn extra income. GE has to go to 32.06 to break even. You can argue if its a good idea or not to be net long GE but I think I am still using good risk management when looked at the whole picture.
Quote from Prevail:
positive delta & no risk?
Prevail incase you've not noticed over the last month or so riskfree likes to pontificate endlessly as if heâs the oracle of knowledge on options. He spends quite a lot of time crafting long winded posts which often repeat what was said earlier just with quite a few more words. He loves to incorporate stories of about those masses who seek him out as an instructor and how he likes to pick and choose those he blesses. His pompous anecdotes are meant to massage his ego and theyâre quite entertaining. I think most of all he likes to dangle phrases about no risk, like the one you picked up on, as if he holds the magic key to o risk and you should be in awe. Itâs all quite amusing for the readers.
good adivse on money management, but it's pretty risky to naked short strike 32.5 when the stock is trading at 33.4 in general. Although in this case it's GE, so if shit hits the fan since you have such a small position vs account, could just let it get assigned.
Quote from 1Reason:
I will throw my 2 cents in the middle just for another point of view.
I would argue that its actually ok to write naked if you keep the quantity of any one stock low enough that in the case of a TMA (I watched that one fall 50%+ today so sorry for your loss) your still not hurt.
for example if he wrote 2 or 4 contracts it would have still sucked but would not make it so emotional and so painful. This of course is in relation to his account which i have no idea the size.
So if he has a 4 million dollar account its not a big deal that the account takes a hit on 20 contracts.
I have naked GE march 32.50 puts. one for every 10K in my account. (in my case of course its GE and its below support) I think this is a good way to earn extra income. GE has to go to 32.06 to break even. You can argue if its a good idea or not to be net long GE but I think I am still using good risk management when looked at the whole picture.
Quote from newguy05:
good adivse on money management, but it's pretty risky to naked short strike 32.5 when the stock is trading at 33.4 in general. Although in this case it's GE, so if shit hits the fan since you have such a small position vs account, could just let it get assigned.
I understand your point so let me add a little bit.
GE is "the" stock I follow and have for years. I never said and am not saying its "risk free" or anything like that. I am saying that for me the risk vs reward is correct for me to take the trade at 44 cents a contract last friday.
Your also correct about the assignment. I am very comfortable with getting GE shares added even at an open loss is no big deal. The main point is the quantity of contracts vs account size IMHO gives me the risk management that I need.
I have no problem going into this knowing that GE could be back in the upper 20s without a major problem and lower with a major problem. I would simply start writting covered calls against the GE stock I have and also may or may not at that point write more naked puts. If GE goes really south things in general are probably shaky and I may hold up being net long anything.
Again its a whole picture thing that makes this work for me.