So, let me get this straight, you aren't engaging in positions consisting of only naked options. You are hedging with the end result being a position net short options? You are front spread sometimes, backspread other, maybe some sort of butterfly or conder, ratios, always looking to capture some of decay. What's so secret about that? While factually correct to say that you are naked options, in option trading parlance, it implies a highly risky strategy. It is entirely possible to be net naked options and have perfectly manageable risk. People mainly run into problems with options in their overuse of leverage. If somebody wants to sell naked puts, I say go right ahead as long as it isn't leverage. If they want to lever to the hilt to do it, their screwed because one day they are gonna wake up broke. Some firms will engage in a put selling strategy as Metooxx mentioned, It is not bad if you have the capital and somebody in every pit like Tiberhill or arbitrade. The rule that I learned for running a single position is that you should never be net short puts. Net short calls are o.k. because stocks will typically act differently to the upside, MMs haircuts(margin) work like this, 20% move up or down and 50% move to the downside, stay within that your fine, if not, you get a phone call.
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Selling premium
- Thread starter NKNY
- Start date
Quote from Trajan:
So, let me get this straight, you aren't engaging in positions consisting of only naked options. You are hedging with the end result being a position net short options? You are front spread sometimes, backspread other, maybe some sort of butterfly or conder, ratios, always looking to capture some of decay. What's so secret about that? While factually correct to say that you are naked options, in option trading parlance, it implies a highly risky strategy. It is entirely possible to be net naked options and have perfectly manageable risk. People mainly run into problems with options in their overuse of leverage. If somebody wants to sell naked puts, I say go right ahead as long as it isn't leverage. If they want to lever to the hilt to do it, their screwed because one day they are gonna wake up broke. Some firms will engage in a put selling strategy as Metooxx mentioned, It is not bad if you have the capital and somebody in every pit like Tiberhill or arbitrade. The rule that I learned for running a single position is that you should never be net short puts. Net short calls are o.k. because stocks will typically act differently to the upside, MMs haircuts(margin) work like this, 20% move up or down and 50% move to the downside, stay within that your fine, if not, you get a phone call.
Tis interesting the narrowmindedness that exists with even the experienced traders. Way too much thinking inside the box.
to: maverick, dreamer, and nyc
you all trade options successfully in different ways that obviously works for you guys, a lot of roads go to Rome. For educational purposes only as a few of us, (me included to do not have enough capital to trade the big options), as the SP is presently at
900.36. Assuming there is a 50/50 shot at up or down(probably true) which trade or spread would you put on at this time.
Thanks for your input.
you all trade options successfully in different ways that obviously works for you guys, a lot of roads go to Rome. For educational purposes only as a few of us, (me included to do not have enough capital to trade the big options), as the SP is presently at
900.36. Assuming there is a 50/50 shot at up or down(probably true) which trade or spread would you put on at this time.
Thanks for your input.
Quote from dreamer:
Read all the books and then ask yourself, "What do they not discuss?"
Most DO NOT discuss the timing of entries and development of risk management models or the rules of exiting positions. They DO NOT discuss the use of options in systematic trading. They all can break down the probability of an option trade being successful based on delta but I have yet to see a mechanical options system tested with reports.
What they all DO discuss is the risk graph, the break evens, margin issues etc.
What is missing is the when of entry and exit criteria. What is it you think they DO NOT discuss?
Quote from stokhack:
to: maverick, dreamer, and nyc
you all trade options successfully in different ways that obviously works for you guys, a lot of roads go to Rome. For educational purposes only as a few of us, (me included to do not have enough capital to trade the big options), as the SP is presently at
900.36. Assuming there is a 50/50 shot at up or down(probably true) which trade or spread would you put on at this time.
Thanks for your input.
Speaking for myself, I wouldn't put on the trade on the S&P because the return is inferior and the futures are so volitile.
Having said that, if I were to consider the trade, I would go with the current trend. Short puts if up and short calls if down.
dreamer,
i like your logic, but i see no edge to that trade. Right now we are not trending up or down, somewhat down all year but very choppy. Although i do not trade the spx now there is great potential there. In my account(stocks) i am 40% long and 60% short. The edge comes from strong longs(sorta) that go up more than the shorts and weak shorts(sorta) that go down more than the longs.
Right now SPX dec 900 puts/call are about 26bid/27ask. What is a strategy that gives an egde regardless of which way the market move.
Anyone else throw in two cents two, all hypothetical or as some guys say, paper trading.
i like your logic, but i see no edge to that trade. Right now we are not trending up or down, somewhat down all year but very choppy. Although i do not trade the spx now there is great potential there. In my account(stocks) i am 40% long and 60% short. The edge comes from strong longs(sorta) that go up more than the shorts and weak shorts(sorta) that go down more than the longs.
Right now SPX dec 900 puts/call are about 26bid/27ask. What is a strategy that gives an egde regardless of which way the market move.
Anyone else throw in two cents two, all hypothetical or as some guys say, paper trading.
maglia rosa
Guest
Quote from dreamer:
Speaking for myself, I wouldn't put on the trade on the S&P because the return is inferior and the futures are so volitile.
This is implying that vol is cheap, then 1) why wouldn't you buy options on the SPX and 2) if the SPX has high volatility for you, then what products are you selling options on?
On 1), I understand you're only selling options, so I guess that rules it out, but thinking outside the box, it appears illogical to me to pass on a 'cheap vol' buying opportunity.
Quote from Maverick74:
Metooxx, I thought this is what LTCM did. Only they diversified over thousands of positions not hundreds. In fact I think they had over 30,000 positions if I remember correctly. Of course in times of panic, Everything seems to move in the same direction, against you, and quickly.
Yes they did.
However I was referring to say you have half your capital in short calls, the other half in short puts.
And, that is only a very simplistic example, don't try it, it won't work ...