options question?

N

nasdaqmadness

A few of us traders not very educated in options were wondering if this would work? Lets use QQQ for this example. if QQQ is currently @ 35 and I go long QQQ and sell a Dec 36 call then in another account I go short qqq at 35 and sell a Dec 34 put. Is this viable strategy? How much risk? I could also use a QQQ SSF and do this in the same account. I guess I just like the idea of being a seller of options and not a buyer. Still trying to understand the mystery of the options world. also getting tired of all the $ I have thrown away on long options positions over the years :mad:
 
Quote from nasdaqmadness:

A few of us traders not very educated in options were wondering if this would work? Lets use QQQ for this example. if QQQ is currently @ 35 and I go long QQQ and sell a Dec 36 call then in another account I go short qqq at 35 and sell a Dec 34 put. Is this viable strategy? How much risk? I could also use a QQQ SSF and do this in the same account. I guess I just like the idea of being a seller of options and not a buyer. Still trying to understand the mystery of the options world. also getting tired of all the $ I have thrown away on long options positions over the years :mad:
More...

Am I missing something here but what is the purpose of using two different accounts?

As far as risk goes wow, there is a ton of risk. Basically, you have no hedge. You have no stock long or short which makes me wonder why you are even bothering to generate a commission for nothing. You essentially have a naked straddle which is the riskiest position out there! There are many good ways to earn premium without selling naked straddles.

Without sounding condescending, please read Natenburg first before you do anything and at least develop a working knowledge of options. You'll thank me later.
 
I'm not an option expert, but buying stock in one account and selling it in another leaves you flat, so you just wasted your commission and the spread.

What you are left with is a naked short option position. You have unlimited risk in both directions (or I guess to zero on the put and unlimited on the call). Your losses will be offset by the premium you collect, or your profit will be the premium if the stock ends up within your profit range at expiration. Theta is working for you, so every day you will profit from the decay. If the stock is stagnant, you will profit.

As you mentioned, a lot of options expire worthless, and the seller keeps the premium. You could probably make a lot of reasonably profitable trades. The problem is, one huge move and you can loose the profit from many good trades. I don't know what the long term viability of selling naked straddles is, but I do have a very small one open right now just to see how things work. Good luck.

Edit:
Maverick posted while I typed this. He has probably forgotten more about options than I know, so I would listen to him.
 
Maverick74 thanks for the fast answer. I figured that some of you guys would be awake. I have made some $ selling covered calls and it just seemed like having both positions on would have a better chance of making money than just the long stock and short call.
 
Eldredge Thanks for your reply also. I Trade futures mostly but love to read the options forum. I need to add a few good options books to my library. Some day I will understand more about the complexities of options. A most fascinating world they are indeed!! :)
 
You are essentially shorting a 34-put / 36-call strangle naked. As Eldredge pointed out, your long/ short position of the underlying canceled out each other. I don't know any other strategy can be more risky than short strangles without any hedge, especially the volatilities are so low now. I would NEVER, NEVER do this.

If you want to be a seller, you can short 34 puts and long 33 puts, a bull put spread.


Quote from nasdaqmadness:

A few of us traders not very educated in options were wondering if this would work? Lets use QQQ for this example. if QQQ is currently @ 35 and I go long QQQ and sell a Dec 36 call then in another account I go short qqq at 35 and sell a Dec 34 put. Is this viable strategy? How much risk? I could also use a QQQ SSF and do this in the same account. I guess I just like the idea of being a seller of options and not a buyer. Still trying to understand the mystery of the options world. also getting tired of all the $ I have thrown away on long options positions over the years :mad:
More...
 
I can't say that I comprehend your responses to ndmadness.

Can someone critique the following reasoning?

Two accounts: he can be long a stock in one and short the same stock in the other

No hedge? Within each account he has covered his sale. He is long QQQ and short the QQQ call. He is short QQQ and short the QQQ put. Isn't this an essentially delta neutral position? He can define his risk in the either account by placing a stop loss when the stock move exceeds the premium collected.

If ndmadness perceives QQQ as in a trading range, (s)he can be thinking to take profits as they occur in one direction and take profits/ break even / small loss on a retracement/ or on resumption of a trend. The questions are, how does the time frame of the trading range fit the time frame of the options and how much of a profit makes this trade worthwhile?

Nd is playing both sides. Greedy little guy. or gal... but is Nd incurring high risk? Not that i can see, as long as the stop loss strategies are in place based on loss exceeding premium collected.


The challenge would be in how he legs out. Depending on his money management/ trade strategy, he would have to at least consider setting stops on the "losing'" side so that the loss on the stock position doesn't become more than the premium collected. But also, if he has chosen his strikes by anticipating probable retracement levels, he has a technical chance of legging out the the "losing" side at a decent level.



 
Quote from msoszynski:

I can't say that I comprehend your responses to ndmadness.

Can someone critique the following reasoning?

Two accounts: he can be long a stock in one and short the same stock in the other

No hedge? Within each account he has covered his sale. He is long QQQ and short the QQQ call. He is short QQQ and short the QQQ put. Isn't this an essentially delta neutral position? He can define his risk in the either account by placing a stop loss when the stock move exceeds the premium collected.

If ndmadness perceives QQQ as in a trading range, (s)he can be thinking to take profits as they occur in one direction and take profits/ break even / small loss on a retracement/ or on resumption of a trend. The questions are, how does the time frame of the trading range fit the time frame of the options and how much of a profit makes this trade worthwhile?

Nd is playing both sides. Greedy little guy. or gal... but is Nd incurring high risk? Not that i can see, as long as the stop loss strategies are in place based on loss exceeding premium collected.


The challenge would be in how he legs out. Depending on his money management/ trade strategy, he would have to at least consider setting stops on the "losing'" side so that the loss on the stock position doesn't become more than the premium collected. But also, if he has chosen his strikes by anticipating probable retracement levels, he has a technical chance of legging out the the "losing" side at a decent level.
More...

Oh man. OK, look, he has no stock! LOL. I don't know what other way to say this. He has a naked strangle. His risk is not covered at all. The stop loss is meaningless. I don't care if he has 50 different accounts. The only thing that is certain from this trade is that one of two accounts will get blown out and the other will be flat. This is a really BAD idea.
 
I didn't explain in enough detail in my previous post. Let me try again. Here is the risk:

For the covered call writing, the upside risk is hedged. But don't forget the downside risk. If the QQQ down, you get keep the call premium but will have loss in QQQ.

The same with the short put and short QQQ. The downside risk is hedged. But how about upside? You get keep the put premium but the short in QQQ has unlimited risk.

So again, this has tremendous risk, both upside and downside.



Quote from msoszynski:

I can't say that I comprehend your responses to ndmadness.

Can someone critique the following reasoning?

Two accounts: he can be long a stock in one and short the same stock in the other

No hedge? Within each account he has covered his sale. He is long QQQ and short the QQQ call. He is short QQQ and short the QQQ put. Isn't this an essentially delta neutral position? He can define his risk in the either account by placing a stop loss when the stock move exceeds the premium collected.

If ndmadness perceives QQQ as in a trading range, (s)he can be thinking to take profits as they occur in one direction and take profits/ break even / small loss on a retracement/ or on resumption of a trend. The questions are, how does the time frame of the trading range fit the time frame of the options and how much of a profit makes this trade worthwhile?

Nd is playing both sides. Greedy little guy. or gal... but is Nd incurring high risk? Not that i can see, as long as the stop loss strategies are in place based on loss exceeding premium collected.


The challenge would be in how he legs out. Depending on his money management/ trade strategy, he would have to at least consider setting stops on the "losing'" side so that the loss on the stock position doesn't become more than the premium collected. But also, if he has chosen his strikes by anticipating probable retracement levels, he has a technical chance of legging out the the "losing" side at a decent level.
More...
 
Now I think about it, I kind know why this is a bit confusing.

In the two account strategy, the put and call risk are hedged and the risk appears in the QQQ positions. That's exactly the case. When you trade options, you have to consider the Greeks of ALL your positions.

The long QQQ has 1.0 delta. The short call's delta will approach -1 when QQQ is up. You are delta neutral. But when QQQ is down, the call's delta becomes 0. You are not hedged.

The same reasoning goes with the short QQQ, which has -1.0 delta.

Hope this helps. Good luck.



Quote from msoszynski:

I can't say that I comprehend your responses to ndmadness.

Can someone critique the following reasoning?

Two accounts: he can be long a stock in one and short the same stock in the other

No hedge? Within each account he has covered his sale. He is long QQQ and short the QQQ call. He is short QQQ and short the QQQ put. Isn't this an essentially delta neutral position? He can define his risk in the either account by placing a stop loss when the stock move exceeds the premium collected.

If ndmadness perceives QQQ as in a trading range, (s)he can be thinking to take profits as they occur in one direction and take profits/ break even / small loss on a retracement/ or on resumption of a trend. The questions are, how does the time frame of the trading range fit the time frame of the options and how much of a profit makes this trade worthwhile?

Nd is playing both sides. Greedy little guy. or gal... but is Nd incurring high risk? Not that i can see, as long as the stop loss strategies are in place based on loss exceeding premium collected.


The challenge would be in how he legs out. Depending on his money management/ trade strategy, he would have to at least consider setting stops on the "losing'" side so that the loss on the stock position doesn't become more than the premium collected. But also, if he has chosen his strikes by anticipating probable retracement levels, he has a technical chance of legging out the the "losing" side at a decent level.
More...
 
You must log in or register to reply here.
Back
Top