Selling puts

Quote from lindq:

Wrong on both counts.

1. It isn't great.
2. It isn't simple.

Short puts look just wonderful on paper, until the market or the stock falls away from you - which WILL happen - and you need to deal with the consequences of the fact that you are now holding a bunch of shit that just warned for the next YEAR and you are hugely in the hole, and you risked all this for a few pennies of premium.

Unlimited risk for a very small gain.

Do NOT sell naked. It is one of the few games in the market that can quickly clean your account, especially with the threat of terrorist actions overhanging the market.
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You are right. NEVER sell naked options. Only buy options. Please buy lots of options. If it is not inconvenient, could everyone buy some on the NASDAQ 100 and drive the premiums up? My children need new shoes and they thank you in advance.

PS: doesn't matter if you buy puts or calls...just buy!!
 
Quote from TempusFugit:


PS: doesn't matter if you buy puts or calls...just buy!!
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LOL...I'm sure you're just being funny, but for the folks reading this thread, who aren't familiar with options, I wouldn't recommend buying either.

Here's your typical scenario...(or at least it was years ago when I traded options)

  • Stock XYZ is trading at $50 a share, so you buy a $55 call that expires in 30 days for $3.50 ($350.00)
  • The stock rallies to $52.00 a share, so you call your broker to see what you can sell for...he tells you $3.75. Big deal, the stock rallies two bucks and your option gains a quarter.
  • The stock falls back to $49.50 and you get a quote of $2.50 for your option. That's right, the stock loses 50 cents in value and your option loses a buck.
  • Then the stock rallies back to $53, so you call your broker and he says it's worth $3.00. That's right, the stocks gone up three bucks, and your losing money.
  • Well, to make a long story short. The stocks going to need rally from $50 to $58.50, just to break even. A rally from $50 to $62 to get a lousy 1 to 1 ratio, and from $50 to $65.50 just to make a decent 2 to 1 trade. You figure the odds.
  • Best to steer clear of buying options outright...IMHO
 
Quote from lindq:

Wrong on both counts.

1. It isn't great.
2. It isn't simple.

Short puts look just wonderful on paper, until the market or the stock falls away from you - which WILL happen - and you need to deal with the consequences of the fact that you are now holding a bunch of shit that just warned for the next YEAR and you are hugely in the hole, and you risked all this for a few pennies of premium.

Unlimited risk for a very small gain.

Do NOT sell naked. It is one of the few games in the market that can quickly clean your account, especially with the threat of terrorist actions overhanging the market.
More...

Selling naked calls has unlimited risk,which i wouldn't do.Selling naked puts has limited risk,which is the strike price minus the premium received,and that's of course if the stock goes to zero;highly unlikely in the big cap names.Even if you are writing covered puts,you are still short the stock which is unlimited risk.Since options experience time decay,selling them makes more sense than buying them.And if you are worrying about a company going bankrupt and don't want to write naked puts on individual companies,you can write naked puts on the QQQ or DIA.
 
Then go for it since you are such an expert.

Have just a couple short puts move against you and your 50K account will turn to mush, wrapped up with falling stock that's been put to you. And the underlying does not have to go to zero to put you out of the game. You need to appreciate that you will be participating in the FULL drop in the underlying. And if you don't think that a good percentage of the stocks you write on aren't going to tank further - including indexes - then you have some big surprises waiting for you.

You've been warned.
 
Quote from NasdaqTrader:

You can write naked puts on the QQQ or DIA.
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Keep in mind, if you sell puts on a small stock, say the $10 range, you're gonna get maybe a 1/4 or 50 cents an option.

You'll probably get tired of that and want the juicier $50 and up stocks so you can make a couple of hundred in premium. Stocks that do have the potential to do some serious account damage.

And if you weren't impressed with L. Raschkes' $80,000 lesson. Take a look at Mark Cooks loss.

"I sold hundreds of options. The next day, they shut down trading in the stock and options. They didn't resume trading again until after the expiration. By the time the stock started trading again, I was down $500,000."...Stock Market Wizards...pg.103

Fortunately for Mr. Cook, his mother had the money to bail him out of his mess. It's that one unforseen event, that catches you off guard.

So, be careful big guy...:cool:
 
Quit fighting y'all.

Bottom line is that long and short option positions (naked or not) have their place in various strategies, and while may serve a good purpose for one, can be deadly for another. Neither is a "NEVER DO THIS NO MATTER WHAT B/C IT'S JUST TERRIBLE".

It's how and when you employ these strategies that count the most. There are strategies using naked puts that are great, and believe it or not, low risk with decent premium, and there are situations where you're picking nickels in front of a bulldozer. And likewise for buying calls/puts, it really just depends on the specific trade, and the trader who's handling the position.

And then there's everything else. These outright long and short option positions are merely the a,b,c's.

Goodnight.
 
Quote from TempusFugit:

You are right. NEVER sell naked options. Only buy options. Please buy lots of options. If it is not inconvenient, could everyone buy some on the NASDAQ 100 and drive the premiums up? My children need new shoes and they thank you in advance.

PS: doesn't matter if you buy puts or calls...just buy!!
More...

And use market orders please, Thank you.
 
Quote from Intrinsic:

And use market orders please, Thank you.
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LOL...once again, I think we have a poster who's just joking. For those of you who aren't familiar with options, I wouldn't recommend using market orders.

Use a limit order. It's your money. Get your price...:D
 
Quote from SumJurk:

LOL...once again, I think we have a poster who's just joking. For those of you who aren't familiar with options, I wouldn't recommend using market orders.

Use a limit order. It's your money. Get your price...:D
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Thanks for clearing that up, Einstein.
 
Quote from Hello_Dollars:

Thanks for clearing that up, Einstein.
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You seem to be forgetting there are people reading these boards who don't know what a market order is. I just felt the post might be confusing to them.

Sorry, to have upset you.
 
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