Wiped out selling naked puts with no stop loss or credit spread
- Thread starter R3LZX
- Start date
Thank you.
I think admitting your mistakes and not blaming others already puts you in a separate league, and opened a safe path to recovery. Most of us had suffered significant losses at some point of our trading careers - the way we handle those losses define us as trades.
Here are couple more from our blog:
Reading the articles, the best advice in it is : whatever you do never overdimension a trade. It sounds easy but in practice leverage can creep up gradually particularly if the market went up. As it is a certainty that no single market strategy will ALWAYS win people suffer reversals. In my home country of the Netherlands the extremely venerable Transtrend - an almost mythical headgefund with a positive trackrecord going back to the seventies - lost 14% YTD in February.
By contrast the firm Flowtraders whose strategies are based on high volatility markets really struggled last year but had the best month of their existence in February.
By contrast the firm Flowtraders whose strategies are based on high volatility markets really struggled last year but had the best month of their existence in February.
Hi
That was a very interesting thread.
I had never opened a short naked put. But it seems that if you can manage a naked put that goes against you, you will be able to manage any option strategy.
So it is a good training.
The OP had a short put at 1800 and the SPX went to 2580 that day . That is a long distance. He was not wrong about the underlying price. If he could have taken the strategy to the expiration day that woudn't had happened.
The advantage of a bull put is that you can take the strategy to expiration.
I want to ask a questions to the OP.
_How your broker managed the situation, they send you a margin call ? How much time they give you to try to resolve the situation?
A question to traders. The problem was the increase of margin caused by the icrease of vega.
_There is some way to block the loss ? It is possible to do gamma scalping, or inverse gamma scalping, to try to mantain the loss more or less controlled ?
Yes, the OP didn't have the cash to short sell /ES , but it is possible to do it with a synthetic /ES ? It is posible to do it for a credit, and probably these way the margin requirement will be lower.
thank you.
That was a very interesting thread.
I had never opened a short naked put. But it seems that if you can manage a naked put that goes against you, you will be able to manage any option strategy.
So it is a good training.
The OP had a short put at 1800 and the SPX went to 2580 that day . That is a long distance. He was not wrong about the underlying price. If he could have taken the strategy to the expiration day that woudn't had happened.
The advantage of a bull put is that you can take the strategy to expiration.
I want to ask a questions to the OP.
_How your broker managed the situation, they send you a margin call ? How much time they give you to try to resolve the situation?
A question to traders. The problem was the increase of margin caused by the icrease of vega.
_There is some way to block the loss ? It is possible to do gamma scalping, or inverse gamma scalping, to try to mantain the loss more or less controlled ?
Yes, the OP didn't have the cash to short sell /ES , but it is possible to do it with a synthetic /ES ? It is posible to do it for a credit, and probably these way the margin requirement will be lower.
thank you.
TD Ameritrade does not give you all the credit when you sell a naked put or call so this makes the margin requirement go up a bit, they also use a sophisticated group of quants that calculate whats known as an EPR or an Expected Price Range, this is related mostly to IV, but there are several other factors as well. For futures, this EPR is multiplied times 3, giving a percentage number for /ES of about 12%. In the event you are getting close to this they call you and state that you are at risk for a move in either direction and your account is flagged. After your account gets closer to -50% of its total value (moving against you etc) it is set for liquidation. They have never done this to me in the past because i never got this close, the events of Feb 5th were sudden and caused my account to drop so fast it was liquidated before i was able to see it.
A back ratio would have given me the needed credit / margin to stay alive, and I was going to initiate this after traveling, but I did not, so basically this is why my account exploded. So answer your last question yes this would have worked, but I was over leveraged as well. Another poster recommended only 2%. This is a much safer number. Here I am at roughly 20% with out the credit. Greed, Foolish Stupid Mistake.
My broker emailed me and tried to call me while this was happening, I would say they did right by me in the amount of time they gave me.
As I type this my original /ES 350 options would be worth .10 cents now, verses the original sell price of $1.10. Very frustrating indeed.
Do you know your Kelly? One trader here posted a Kelly of 47%, with that, 20% trade size is not unreasonable.
My guess is the fact that you blew up your Kelly is << 50%?
on what odds offered? In the event of a precipitous drop, anything over 7% would have been catastrophic with no credit elsewhere
So glad I am not investing my money with those fund managers. LOL
So? I have lost WAY more than $100K in my trading career. LOL Still here and still trading. Losing is just the flip side of profiting. The way I see it is if I can lose that much money, that means I can also potentially profit that much money; I just have to find a way to trade better to get it.