On Friday I sold 25 NIO puts by accident that worked out well. They were near $5 I knew was a blip and closed them out near the Close cheap. I thought you have to have special permission to sell naked puts. I buy and sell covered calls or puts because there is a risk limit. The privilege of selling naked calls or puts is best left to trading gods like Destiero and others. Schwab and Etrade you need level three permission. How do I get rid of access to naked calls and puts with IBKR.
Never sold Naked Puts until Friday accidentally. IBKR Question.
- Thread starter TrailerParkTed
- Start date
Have you asked IB whether this is possible? My impression was that you only can get permission to trade options or not. But not that you can specify which category of options you get permission for.
well. It seems like you have enough $$$
in your trading account to sell naked puts.
I sold a naked option before.
It was a horrific nightmare.
I will never ever sell naked option again, now and forever, till
end of time.
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Naked Puts are identical to Covered Calls.
when I was a newbie trader,
I sold the naked option (I think it was RIMM option) and collected $50 happily.
Because thousands of professional talkers and writers
said billions of options would expire worthlessly.
Less than 2 days later, I had to cut the loss because
the stock was not moving in my favor.
I lost $2000! and had many sleepless nights.
Wasn't it naked calls that wiped him out... on nat gas if I recall?
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1. Leverage. You can normally make only a small amount on a naked put, so traders often go overboard on the size of their play... waaaayyyy overboard.
2. Let's say you have a stock portfolio and you write puts "conservatively" with notional value only equal to your portfolio value. Then along comes a market smashola. Likely the value of your portfolio will decline enough that you don't have enough capital to buy the stock when put to you. So not only do you lose value in your portfolio decline, you lose it AGAIN in your put position... double the loss.
3. Only "safe" way to write puts is "cash-backed". That is you keep enough in cash reserve to pay for the stock when put to you regardless of what the market does. Players don't like to write cash-backed as it ties up your money just trying to capture the put premium.
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Not at all. With covered calls your "risk" is that you miss out on capital gains above the strike price in exchange for the premium you collect. With naked puts, your risk... while not unlimited.... is still very high should the stock have a catastrophic decline.
I'm not an option expert by any means (I know just enough to pass the options portion of a Series 7 exam), but this post and my one before are of the most basic nature of options. Every new option player should understand these before getting involved.
"Writing naked" is potentially very high risk! (Like trying to pick up dimes in front of a steam roller.)
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