Selling naked calls OTM & covering them just before ITM?
- Thread starter anon9812
- Start date
Yeah, you might be right. Personally I think it's easier to just go back in time and buy tons of MSFT, AAPL and AMZN at their all time lows. My time machine is almost ready to go into production.
lol are you for real?
So you're marked at a 3X loss on a strike touch and you're going to repair it with spot.
lol "unlimited downside of previously naked calls"
Typically we discuss the risk of loss on calls somewhat differently. Upside risk of naked calls. Downside risk of naked puts.
Price the loss at a strike touch. Ostensibly the strike was chosen either via delta or you figured it was the smallest credit you were comfortable shorting.
Price a strike touch on day1. What's the loss? Solve for the spot required to breakeven at the strike and then mitigate with volcorr and skew assumptions. Or price it out a week, whatever your expected hold is, then substitute with one tenor a week inside the one you're short (shorting 5/19 and what-if with 5/12). Quick and dirty pricing on a one week hold.
Your upside calls will rally in vol to skew, absent vol-corr (OTM gains vol to moneyness and loses vol to mkt as it rallies). In this vol-regime skew will have more impact than vol-corr, especially if the strike trades ITM.
Price a strike touch on day1. What's the loss? Solve for the spot required to breakeven at the strike and then mitigate with volcorr and skew assumptions. Or price it out a week, whatever your expected hold is, then substitute with one tenor a week inside the one you're short (shorting 5/19 and what-if with 5/12). Quick and dirty pricing on a one week hold.
Your upside calls will rally in vol to skew, absent vol-corr (OTM gains vol to moneyness and loses vol to mkt as it rallies). In this vol-regime skew will have more impact than vol-corr, especially if the strike trades ITM.
What loss are you taking about? I’m not going to buy them back, I’ll let them expire and keep the collected premium.