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Selling Naked
- Thread starter nugya
- Start date
To all thread subscribers:
Sorry, I have been busy and unable to monitor the thread until today. My comments on selling hedged premium seem to have been the focus of some conversation. I wanted to establish two "facts" (as I see them). First. selling premium is big business, and the folks who engage in this business are professionals, with special skills, experience, and training. Second, if you have the skills, or if you are obtaining the skills, and you want to get some experience, just be sure to protect yourself by hedging, and if your are smart, understand further that if you don't know how to hedge, and you insist on jumping in, you don't really understand risk and sooner or later your goin down. If on the other hand you take the time to learn about true risk management, you will make less money at first but you will be around to see all the hotshots blow up their accounts. For anyone still interested in selling premium, a good book to read is "The Options Edge" by William Galllacher. Any of you options "studs" who think you understand risk, just mouse on over to www.wilmott.com, log-on and try to follow the math (primarily stochastic calculus) behind derivative risk management at the institutional level. If you step onto the playing field, one of these guys (or somebody like them) is often on the other side of the transaction.Welcome to the NFL rookies. Steve46
Sorry, I have been busy and unable to monitor the thread until today. My comments on selling hedged premium seem to have been the focus of some conversation. I wanted to establish two "facts" (as I see them). First. selling premium is big business, and the folks who engage in this business are professionals, with special skills, experience, and training. Second, if you have the skills, or if you are obtaining the skills, and you want to get some experience, just be sure to protect yourself by hedging, and if your are smart, understand further that if you don't know how to hedge, and you insist on jumping in, you don't really understand risk and sooner or later your goin down. If on the other hand you take the time to learn about true risk management, you will make less money at first but you will be around to see all the hotshots blow up their accounts. For anyone still interested in selling premium, a good book to read is "The Options Edge" by William Galllacher. Any of you options "studs" who think you understand risk, just mouse on over to www.wilmott.com, log-on and try to follow the math (primarily stochastic calculus) behind derivative risk management at the institutional level. If you step onto the playing field, one of these guys (or somebody like them) is often on the other side of the transaction.Welcome to the NFL rookies. Steve46
Quote from Ikspec:
Klutz,
Simple excercise (no pun intended)...
ES at 1000.
You go long 1 future.
OR
You sell 1 naked put, front month.
ES opens at 500 tomorrow. Where have you lost more? And does it matter at that point?
Q.E.D.?
First, aside from weekends and 4:15 to 4:45 EDT, the ES does not close. Second, even if you did wait til the open, the ES from close to the next morning's open has never ventured more than about 30 pts at the open (equal to about 200 pts on the Dow). This includes 87 and 9/11 and many other smaller shocks. If the ES managed to get cut in half overnight (which I think is impossible due to LL), I think my stock acct might be the least of my worries.
Quote from steve46:
To all thread subscribers:
Sorry, I have been busy and unable to monitor the thread until today. My comments on selling hedged premium seem to have been the focus of some conversation. I wanted to establish two "facts" (as I see them). First. selling premium is big business, and the folks who engage in this business are professionals, with special skills, experience, and training. Second, if you have the skills, or if you are obtaining the skills, and you want to get some experience, just be sure to protect yourself by hedging, and if your are smart, understand further that if you don't know how to hedge, and you insist on jumping in, you don't really understand risk and sooner or later your goin down. If on the other hand you take the time to learn about true risk management, you will make less money at first but you will be around to see all the hotshots blow up their accounts. For anyone still interested in selling premium, a good book to read is "The Options Edge" by William Galllacher. Any of you options "studs" who think you understand risk, just mouse on over to www.wilmott.com, log-on and try to follow the math (primarily stochastic calculus) behind derivative risk management at the institutional level. If you step onto the playing field, one of these guys (or somebody like them) is often on the other side of the transaction.Welcome to the NFL rookies. Steve46
I frequently visit (and sometimes contribute to) Wilmott. There are some very sharp minds over there. For many, NFL stands for "Not For Long".
Quote from Ikspec:
Klutz,
Simple excercise (no pun intended)...
ES at 1000.
You go long 1 future.
OR
You sell 1 naked put, front month.
ES opens at 500 tomorrow. Where have you lost more? And does it matter at that point?
Q.E.D.?
You are missing the point,
What if the mkt opens tomorrow at 1050. Your future is in the money by 500 pts. but if you had opted to sell a naked put instead then you will only make the premium that you received for selling the put [35 ticks p'haps?]
The point is that if you are long the future, then your upside is unlimited and for all practical purposes so is your downside [altho it is quantifiable] but if you sell naked options then your potential profit is limited to the premium that you receive while your lpotential loss is unlimited in the case of calls and probably 20 times the size of the premium received in the case of puts
sent the last post before I had finished,
About the market opening down 500 pts and does it matter, of course it matters because the guy buying the future at 1000 is giving himself a 50/50 chance but the guy selling a naked put is not getting those odds..............all he gets is a small premium and exposure to unlimited loss.
I know which option I prefer
About the market opening down 500 pts and does it matter, of course it matters because the guy buying the future at 1000 is giving himself a 50/50 chance but the guy selling a naked put is not getting those odds..............all he gets is a small premium and exposure to unlimited loss.
I know which option I prefer