Writing naked calls in a down market

calls have premium which erodes into expiration,i think u meant deep in the money calls,when they are deep in the money in equities say a 30 call in a 40 dollar stock,there isn't much premium so u could buy it instead of stock,called synthetic stock,for a lot less than actually purchasing stock,100 shares of a $40 stock is $4000, one $30 call of that stock would be worth $10 and a little premium,so you have the equivalent of 100 shares for $10 times a 100, $1000,spx went from 1100 to 1400 over that time period so they went up just like stock,out of the money calls say 45 calls at $1.25 on a $ 40 stock will go out worthless if the stock doesn't reach $45, pretty simple really,what mm's do often is own the stock and sell the out of the money calls against it,if the stock goes down the option goes down and you cover your losses,if the stock sits there, the premium in the option erodes and you make money, thats the simplest of option strategies
 
i see u changed the question,whenever u are long premium in a dull channeling mrkt you are going to lose money as options erode over time,to use options in a simple beginners way u could buy call or put spreads instead of stock or futures,u would have limited upside and downside,good for a newer smaller acct,better yet is to be short sprds and take the time decay in your favor ,if you were short put sprds in the spy over last 2 months u would have done very well,,u want to take them off 10 days before expiration and roll into next month, if there is any chance of assignment
 
write calls when the underlying is up, write put when the underlying is down. if you can figure when to do it in the short term, you will make money. the key is "when" this can be Quant or fundamentals.
 
Credit spreads are far better than writing naked options. The risk:reward is superior. Interestingly, if you are that good at predicting 30-day direction, then why not just trade the underlying?. Anyway, say you believe the market will be below current levels in 30 days. So, write an ATM call and hedge it with a long OTM call (bear call spread for a credit). This trade still needs to be managed--at what strike for the long, when to take a profit, when to exit, what legs to exit, etc. This isn't a buy-and-hold strategy--no option strategy is.

If you believe that the market is heading up, then write an ATM put and hedge it with a long OTM put (bull put spread for credit). Again, this trade needs to be managed as well.
 
Quote from jwcapital:

Credit spreads are far better than writing naked options. The risk:reward is superior. Interestingly, if you are that good at predicting 30-day direction, then why not just trade the underlying?. Anyway, say you believe the market will be below current levels in 30 days. So, write an ATM call and hedge it with a long OTM call (bear call spread for a credit). This trade still needs to be managed--at what strike for the long, when to take a profit, when to exit, what legs to exit, etc. This isn't a buy-and-hold strategy--no option strategy is.

If you believe that the market is heading up, then write an ATM put and hedge it with a long OTM put (bull put spread for credit). Again, this trade needs to be managed as well.
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IMO if he's good at predicting 30 day moves even 60% of the time he wouldn't be on here asking that question.:D
 
selling premo is a very seductive strategy.....it is the crack/cocaine of trading

so a lot of lazy traders are attracted to it

the high % accuracy is very comforting to the ego

but there is absolutely no substitute for having an accurate view of the underlying direction/trend or lack thereof.....otherwise u will lose your shirt whether being long volatility or short it............and if u know the underlying direction/trend inside/out then there is no need to short premo or mess with options cause that severely limits your upside.
 
2 things chew,what is your opinion on the mrkt here,and 2,those short put or call sprds are a great way for the newer,less skilled trader to build equity and confidence while he's learning to trade,they move much slower and don't shake out the newbie so fast
 
i'm not holding any overnights right now

on monday i will sell at 1430 and 1435 on the september es contract and then sell all pullbacks once we break

i will hedge the swing position by daytrading the june contract

i see the 200 sma as resistance and 50 sma as support......and i don't think we break the 50 sma until a series of bad initial claims and non farm payrolls force bulls to admit it will be a long recession.......they will then head for the exits en mass and we will be near 1200 by late summer

i was thinking about selling naked calls all the way down but i prefer to just short futures outright and hedge with my daytrading
 
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