They took it off, thank you for all the help!
Never sold Naked Puts until Friday accidentally. IBKR Question.
- Thread starter TrailerParkTed
- Start date
Got them taken off, no thank you for naked puts or calls! Appreciate all your help!
Even if you sold them by accident, it is good that they worked well for you.
Naked Call and Puts are my source of income. The problem with naked out of the money needs less margin and enables you to trade in higher volume compared to buying the stock. So when things go wrong, the problem escalates. In conclusion, if you don't like it, it means that you don't know how to trade it so the best solution is not to trade it.
Naked options are profitable 90% of time but that 10% loss might wipe out that 90% profit.
Long options are profitable only 10% but that 10% might be more than 90% of loss.
Naked options are profitable 90% of time but that 10% loss might wipe out that 90% profit.
Long options are profitable only 10% but that 10% might be more than 90% of loss.
Naked puts on solid stocks or ETFs are much safer than naked calls; with a put, since it's very unlikely (and in the case of major ETFs, essentially impossible) for the underlying to go to zero, you will at least hold something of value in the worst case - and be able to sell covered calls against it. With naked calls, you have no protection whatsoever; if it goes against you, your losses really are unlimited.
As to options enabling you to take risks beyond your account size, I see that as an excuse for a personality flaw. If a poker player mortgages his house to the hilt and ends up losing the house, poker is not what's at fault. By the same token, if someone goes to Vinnie "the Shark" for a loan and is shocked and surprised when the vig comes due, or when he gets kneecapped for not having it, nobody says "oh, but the poor guy just didn't know!"
My rule is to limit my notional exposure to no greater than my account size. I might expand that a bit in the future, especially in cases where my trades are well diversified, but I doubt that I'll ever go over 120%. That might be too conservative for some, but it lets me sleep peacefully at night.
If I am reading you right,you would NOT
Sell naked calls..
Ratio the upside..
Be net short puts,underlying notional greater than capital...
If vol explodes would you sell a straddle or prefer to trade Flys/Condor type structures,and how big would you get relative to your capital??
Im guessing you trade Reg T..
Sell naked calls..
Ratio the upside..
Be net short puts,underlying notional greater than capital...
If vol explodes would you sell a straddle or prefer to trade Flys/Condor type structures,and how big would you get relative to your capital??
Im guessing you trade Reg T..
You need to look at R/R for naked puts. If you get identical premium (especially without crossing a sizeable dividend payout), the outcome is the same as for Buy-Writes (covered calls), given same strike/expiry. A Covered Call is also called a Synthetic Put for that reason. Getting the same premium gives a slight boost to selling puts because you take money in, rather than put it out.
Selling covered puts is identical (as above) to a naked call. It is a high risk strategy. Please research these structures more deeply so you don't take a huge hit.
Sell spreads until you fully understand these kinds of R/R structures. Much safer.
Both you and Sailor are correct... as far as it goes. Like in the situation of one or a small number of stocks where your capital account is sufficient to handle any adversity they might suffer.
But in the scenario where the option player gets "bigger enough"... doesn't even have to be leveraged (and by leverage I mean "notional value of your option position(s) being greater than your investing capital)... the potential loss for writing puts can be much greater than writing covered calls. (And you already know the temptation to "go bigger" after making a bunch of that "easy low/no risk" naked premium money)
But as I don't want this to turn into a pissin' contest, I'll back out leaving you and sailor having the last word. After all, your statement is correct.... up to the point you made.
To clarify - you're saying the PL profile is the same, but you can leverage naked puts higher, thus getting wiped out easier. Do I understand you?
That's only part of it.
The notion of the "P/L being the same" depends upon the question asked. The OP who stated "Naked puts are the same as covered calls" is correct under 2 scenarios. We'll use a "portfolio" of $100K to illustrate... writing covered calls on the entire portfolio equal to the $100K notional value or 10 naked puts on a $100 stock, $3K in premium collected in either case...
Scenario where they are the same risk...
#1. "Cash backed" puts... all of your $100K "portfolio" is in cash to settle your put "just in case"... Market crashes 50%... you use your cash to settle the puts and now own $50K of that stock.
#2. Individual stock you wrote puts on takes a big hit and the rest of the portfolio doesn't (not a market crash). You liquidate your portfolio for the cash to settle your puts and you now own $50K of that stock.
Scenario where they differ...
#1. With writing covered calls on the full $100K of the portfolio, you now have a $50K portfolio
#2. Instead of writing covered calls, you write 10 naked puts on a $100 stock... and the market takes the same sudden hit of 50%. Then where are you?
a. Your portfolio is $50K
b. But you also OWE $100K to settle your puts. You liquidate the remaining $50K of your portfolio, but you still owe ANOTHER $50K on the puts!
The original statement as made, "naked puts are the same as covered calls" is not correct in the larger sense of risk.
You can't get wiped out writing covered calls. In fact, most long term buy and hold investors should be doing it all the time (tax considerations, excepted)!
Writing naked, either puts or calls, is potentially playing with fire! Lots of examples of "pro" investors getting wiped out with naked writes.