Selling naked calls OTM & covering them just before ITM?

[destriero]

There is a lot of run on infinite gamma in MsDawn’s post.

 

[taowave]

If the OP said he sells the call and covers when he is down x percent,ild be quiet...and backtest it..

My beef is he is initially "bearish" via OTM calls without a hurdle rate,and should the stock scream,he flips and gets long without having quantified what he now has

They are thinking as options (volatility) traders, and your strategy is a directional one. I prefer to do the opposite, sell calls at strikes where I would want to be short, but as I said the light isn’t worth the candle.

 

[anon9812]

You are thinking at expiration.

By the time you get there, price whipsaw could come against you for more than the tiny credit you take.

Well I won't start to hedge at expiration, but any time before if the price gets sufficiently close to the strike. I want to avoid having to own the underlying since a dipping underling can outweigh the gain of the premium, but once the calls are ITM I definitely want them covered.

The point of this is to earn the premium, not trade volatility per se, although the moment of sale would happen at a time of unusually high IV and not some random moment in time. So the calls will be held until expiration.

You know what, I'm gonna backtest it with tick data and see if it's a viable strategy.

 

[destriero]

Well I won't start to hedge at expiration, but any time before if the price gets sufficiently close to the strike. I want to avoid having to own the underlying since a dipping underling can outweigh the gain of the premium, but once the calls are ITM I definitely want them covered.

The point of this is to earn the premium, not trade volatility per se, although the moment of sale would happen at a time of unusually high IV and not some random moment in time. So the calls will be held until expiration.

You know what, I'm gonna backtest it with tick data and see if it's a viable strategy.

Do you plan on covering the calls 1:1? IOW, are you short 10 calls and buying 1000 shares if it nears the strike?

 

[anon9812]

Do you plan on covering the calls 1:1? IOW, are you short 10 calls and buying 1000 shares if it nears the strike?

Yeah

Also I will add I’ll write a program for this, I won’t watch the market and submit the orders personally so emotions and human errors are out of the question.

 

[earth_imperator]

@anon9812, if your options are American Style then read about early exercise and early assignment, and let us know if and how it impacts your strategy...

And are you aware about the margin requirements for naked shortselling of options?
Take a look at the margin requirements table of this broker, for example:
https://www.tradestation.com/pricing/options-margin-requirements/

 

[taowave]

why dont you come up with a example,i.e percent of spot,IV...

 

[cesfx]

I also had those ideas when I started trading options a few years ago.
Tested them with real money, no backtesting or demo.

All good until you get hit in the face.

Then you realise what people meant by picking pennies in front of a steam roller, or like a friend told me "you'll eat like a bird and shit like an elephant".

 

[destriero]

I know a guy who's worth >100MM and has traded vol for 20Y in bank stocks. He was on the underwriting side of the biz. He made 5 last year shorting vol on bank stocks. I asked him, "isn't the vol bottom decile?" and he answered that he has no idea where the vols are.

You gotta be in the market to make it!

 

[Specterx]

I know a guy who's worth >100MM and has traded vol for 20Y in bank stocks. He was on the underwriting side of the biz. He made 5 last year shorting vol on bank stocks. I asked him, "isn't the vol bottom decile?" and he answered that he has no idea where the vols are.

You gotta be in the market to make it!

Is the punch line that he blew up post-SVB?