Selling Options Naked

[dagnyt]

Quote from jficquette:



There is huge money in options and pretty low stress too. I need to get back into them.

John

Huge profits are available, but no one gives you the money.

Risk must be taken. If you believe selling naked options - to achieve a higher return - is better than selling option spreads - with reduced risk and reduced profit potential - is a good idea, then by all means, go sell them.

But to suggest that others sell naked options (I m not referring to puts with very low strike prices) is irresponsible, and shows you do not understand how to manage risk.

Mark

 

[Mr.Consistent]

I also agree. Not to have any naked options is a very useful rule for new option traders who don't understand all the hidden risks of possible consequences. However for experienced and traders it is a limiting belief.

For example on a well diversified index using strategies such as "Ratio Call Spreads" is relatively safe way to sell rich IV under certain circumstances, even though you'll have more short contracts than long. Though I wouldn't do it on a stock

 

[drcha]

Since my trading desk is in a front window of my house, I do not sell options naked.

Seriously, though, selling NPs is a way to buy stock. It is not a way to consistently make income.

 

[Robert Weinstein]

Lots of interesting posts to this topic.

I agree with much that is said but one big spot that just screems out at me is the idea that there are rules that must be obeyed by all.

For example the "never sell naked options" rule that so many think is golden. Firstly, what may be right for you may not be the best answer for someone else.

Selling naked calls or puts is less risky then shorting or buying a stock. Yet people will suggest a stock to buy or to short few think or say "hey wait a minute, thats a lot more risky then selling naked options"

Now I am not saying anyone else should be selling naked options but the point is the same that different and conflicting trades at times can be profitable for different traders. what really can make you money is not that you should or should not do something but that your thinking in ways that you may not have.

Best of Trading to you all

RW

 

[dagnyt]

Quote from Robert Weinstein:

Lots of interesting posts to this topic.

I agree with much that is said but one big spot that just screems out at me is the idea that there are rules that must be obeyed by all.

For example the "never sell naked options" rule that so many think is golden. Firstly, what may be right for you may not be the best answer for someone else.

Selling naked calls or puts is less risky then shorting or buying a stock. Yet people will suggest a stock to buy or to short few think or say "hey wait a minute, thats a lot more risky then selling naked options"

Now I am not saying anyone else should be selling naked options but the point is the same that different and conflicting trades at times can be profitable for different traders. what really can make you money is not that you should or should not do something but that your thinking in ways that you may not have.

Best of Trading to you all

RW

Agree completely.

But there are some very newbies who come here. And it's okay to provide advice that not quite 100% correct to help get them started on the right path.

Thus: "Never sell naked calls and Never sell naked puts unless you are willing to own shares" is good enough. It's what I practice for my own trading, and would repeat to all rookies.

For the experienced option trader, I'd say what you said. But that slight difference does not harm the beginner. Consider that they soon hear that stocks can be pinned or that maximum pain theory holds or that 80% of all options expire worthless and other garbage. Those ideas can cause harm. But 'never sell a naked option' is good advice for most traders.

We're on the same side here.

Mark

 

[dennisb]

I think it is more important for a beginner to start with small positions than not to sell naked, as others said before me naked is less riskier than a position in the underlying. Nobody says dont buy stock while almost everybody screams dont sell naked, why is that?

 

[def]

Quote from dennisb:

I think it is more important for a beginner to start with small positions than not to sell naked, as others said before me naked is less riskier than a position in the underlying. Nobody says dont buy stock while almost everybody screams dont sell naked, why is that?

leverage - it's all about how much money you can afford to lose.

 

[dagnyt]

Quote from dennisb:

Nobody says dont buy stock while almost everybody screams dont sell naked, why is that?

That's the financial pros - stockbrokers and planners who have no idea how options work

Mark

 

[spindr0]

Quote from dennisb:

Nobody says dont buy stock while almost everybody screams dont sell naked, why is that?

Because the window shades are open?

Everybody also screams buy and hold, shorting has unlimited risk, dollar cost average, etc. D'ya think that they might have it wrong??

 

[dennisb]

Quote from spindr0:

Because the window shades are open?

Everybody also screams buy and hold, shorting has unlimited risk, dollar cost average, etc. D'ya think that they might have it wrong??

I was wondering rather than making a statement.

Leverage is not really a reason not to sell naked, either 100 stocks or 1 contract Citi is not a crazy amount of money to lose, so I am still wondering.