shorting options

Quote from chrismontez:

"so are you saying she had a stop on the amount of $50...but the market ended up stopping her at $800 off instead?"

1. Options only trade during market hours, not in the after hours like SOME stocks do.
2. Maybe you don't understand how the market works with stops. If you short a stock at $20 with a protective stop at $23 and your stock announces great news after hours, and your stock opens up with a spread of $50x$50.02 the next morning, your stop executes at $50.02, not $23. It is the same for your short options.
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I think I understand what you're saying...
that person placed a stop during regular market hours, but then during after hours the market price went beyond the stop price and opened up a lot further away from the stop price she initially placed...

is this correct?

basically, does this only happen during the time the market is closed? so basically it could happen to stocks, options and futures?
 
Correct and it does happen all the time. Actual example -OSIP closed around $60 one day. After hours they announced FDA approval of a drug they were working on. Next day OSIP opened in the $90. If you happened to be short say 10 of the OSIP 60 calls with a protective stop at $65. The next day you would have had your short calls covered at $90 and you would be out $30x 100 x 10 calls = $30,000.

I have sold naked puts with good success since the potential loss is limited. But then I had one bad trade- I shorted tasr $27.50 puts for $250 each and tasr dropped to $5. I had the stock put to me at $25 when it was trading for $5.
 
I have never shorted an option but after reading some material and doing some research, shorting a call option for a particular stock is too risky any news and stock goes flying..... but u can short ETF like OIH, XLF, XHB... and so on...

what u say people?
 
Quote from z32000:

i'm still new to options and would like some help understanding them....

if say, I short a call option....this is considered a naked call if I'm not mistaken...(can someone please tell me why this is dangerous assuming the market is going in the direction I have chosen?)

potentially unlimited risk, ie 1000 point drop on your index or a takeover, naked means you do not own the underlying.

You need to understand derivatives or synthetics, my question is why would you sell a call which gives you unlimited risk when you can buy a put and achieve more or less the same thing with limited risk, if you buy a put you can only lose your premium vs selling a call which also exposes you to exercise of the option.
What books are you reading?







http://finance.yahoo.com/q/op?s=GOOG
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Going to zero would be extreme unless you were buying options for $10 the day before expiration. But here is a fairly typical trade:
I bought a GSF Dec 85 call for $300+, sold it 2 days later for $520, bought it back later in the day for $450, sold it the next day for $520, it went up to $580 then dropped back to $450 where I bought it again. Only this time it dropped further to $300 the turned around and closed around $480 the next day.
 
"my question is why would you sell a call which gives you unlimited risk when you can buy a put and achieve more or less the same thing "

Not true and this kind of thinking is what separates amateur option traders (myself included) from professionals. We pay for the privilege of benefiting from a drop in the underlying by buying puts. Sellers get paid for benefiting from a drop. They make $ in 4 out of the possible 5 moves in the underlying. We make money only if we zoom in and out for a short term gain or the underlying drops below our strike price. Option buyers are gamblers hoping for a big move in their direction, sellers are mathematicians measuring the long term reward of of making $ 4 out of 5 times versus the risk of a big move against them.
 
from my observation, it seems like no matter if you buy a put or a call there seems to already be a major disadvantage which is time depreciation....

even if it goes in your direction, the value of the call or put loses in value right from the get go. This is why I ask, why not just short them...

so is it true, if i short a call or put (naked), at anytime these positions can automatically close without my permission?
 
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