Roll Call: Options traders
- Thread starter EMini-Player
- Start date
good advice...
I sell naked at times, but keep the risk to reasonable levels so that when QLGC gaps down 7 points in expiry week.. you don't lose more than is tolerable and can be re-couped with good trading.
Selling naked, for an inexperienced trader... is a siren song, an apple being offered by the market vixen claiming to provide the garden of option with seemingly little 'risk'!
Ice
:cool
Well put. Every so often the market mavens (Aka Wade Cook, Jake Bernstein and their ilk) polish this poison apple and roll it out as a good income strategy. Problem is options newbies like DblArrow come along and buy a basket. If they're lucky, their first few will be sweet and life will seem good. They can't figure out why survivors are trying to warn them! They think to themselves, "Why, this is easy! I'll do it again, and again."
But they all eventually die, and it is not a pleasant death. Nothing more sad in this business than watching a newbie try to repair a busted naked put or call, especially in an overleveraged account. I know, I've counseled my share of them. Poor suckers are back slaving for a wage in dark cubicles. If only they'd listened. But they don't. They all think they know better.
Quote from iceman1:
What is your background in options... self-taught, floor etc. ?
Ice
Self taught. School of hard knocks. A few years back, like our friends on this thread, I thought I had discovered the holy grail with selling options. "Why," I asked a well known options broker, "Can't I do this on a regular basis and earn a solid income? After all, I have three months of gains and no losses. And look at me. I'm a smart guy!"
His reply, "Because Shit Happens."
But did I listen? Of course not. From there I ventured into just about every strategy with software development, backtesting, trading, the whole package. Now, I will only buy long term calls on maybe 1 in 50 stocks that I swing trade.
The bottom line - which I attempt to bring to every trader who has just "discovered" the "magic" of options - is that whatever the strategy, if they aren't already consistently successful in predicting the movement of stocks for at least two years, options will only accelerate and magnify their mistakes. And with some strategies they risk complete ruin if pushed too far.
But what is most amazing is that people will come to a site like this to supposedly gain from the experience of others, and just not listen, unless they are told something that they wanted to believe in the first place. So, go figure. A sucker born every minute. The brokers love it.
There are pros and cons to both options trading and just trading the stock/SSF outright. But I believe that the point lindq was trying to make is that generally when trading options, most people (and don't take this the wrong way) but especially those new to options trading tend to take on positions that are much to big for the acct they are trading. Put it this way, even if you're dealing with 25 delta options, and you sold a 20-lot of calls, you have to ask yourself if you are comfortable being short 2000 shares of the stock at that strike price, if that size is not something you (or your acct) can tolerate, than perhaps you are abusing the leverage offered by options. There are the obvious benefits of being short options, time decay being the biggest, and yes you can get just as hurt (or worse) in a position in stock/ssf, I think the point to be made here is trade within you limits.
Vega
Vega
At the time I was looking at this trade in particular - I did not have the ability (margin wise) to short the stock; I could have done a 100 or 200, but the profit potential that I calculated selling the calls with the margin I had left had greater potential, that I thought I saw. Of course things can and do happen, and thus the stock went down much more than I had anticipated, so perhaps I could have had more had I sold the stock. SSF's not availavle on SONS.
As I said I am a bond and note trader that is where most of my time and margin is spent. Just going thru the stocks, I saw the potential for stagnation, didn't expect SONS to drop as it did, and the rebound today. Stagnation or only slightly upward turns into profits. Does it not?
Don't recall saying that naked calls are better than shorting, just said in this trade I thought I saw more potential.
And as of the close of SONS had I shorted it, I would have about .30 on 200 at most so +.60; as it was, I made little better than 2X that. Sure SONS could go down, but at this point it is mute as I will wait for a couple weeks and look again at Aug option.
That was my rational on this trade. Goals are simply to add money to the account, and I expect to gain experience and wisdom (should I last long enough, been around 6 yrs and still here).
I do appreciate your input.
Chris
Quote from vega:
most people (and don't take this the wrong way) but especially those new to options trading tend to take on positions that are much to big for the acct they are trading.
Vega
I agree, this is a major problem for me, I tend to extend the account to the max and have often paid for doing so - but not to the point that I am not willing to do so again. (and probably unfortunately so)
Make 'em pretty, Chris