You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Writing options for a living
- Thread starter torontoman
- Start date
Quote from union1411:
What a great idea!! Almost as enticing as standing infront of a moving train.
I am a newbie. Could you explain to me why this would be dangerous? He recommends exit strategies, such as if the ootion doubles in value, get out? Could someone explain why this is dangerous?
Quote from torontoman:
Has anyone read James Cordier's book on writing naked options. He is advocating writing options 3 to 5 months away. Although boring, he claims that this is a money-maker. For example, the February 90.00 crude oil call, which expires in January, is trading at about $600. So write this option NOW, and keep going every month after. You could write at strike prices ridiculously high because it's so far. So, you keep dong this every month. Come January, income starts coming in.
What do you think? and Secondly has anyone read it?
What type of risk management plan does he have (if any)?
Quote from zman7854:
Is he writing naked or are they covered? What type of risk management plan does he have (if any)?
One risk management plan is to get out if the option doubles in value. Then you may want to sell further away because the high volatility would be present.
Second, is to get out when the underlying reaches a certain value.
Another is to short a strangle.
Quote from torontoman:
One risk management plan is to get out if the option doubles in value. Then you may want to sell further away because the high volatility would be present.
Second, is to get out when the underlying reaches a certain value.
Another is to short a strangle.
Oh I forgot to add. It is writing naked.
Commodities show call-side skew for a good reason - it is not uncommon to see rapid increases to the upside. While $90 oil sound like a rather impossible story, you might see implied vols rally jointly with the asset (i.e. in case of some terror act related to middle east) and margin calls are going to be hard to swallow. We have seen oil go 10 dollars in a week not so long ago.Quote from torontoman:
Has anyone read James Cordier's book on writing naked options. He is advocating writing options 3 to 5 months away. Although boring, he claims that this is a money-maker. For example, the February 90.00 crude oil call, which expires in January, is trading at about $600. So write this option NOW, and keep going every month after. You could write at strike prices ridiculously high because it's so far. So, you keep dong this every month. Come January, income starts coming in.
Quote from torontoman:
I am a newbie. Could you explain to me why this would be dangerous? He recommends exit strategies, such as if the ootion doubles in value, get out? Could someone explain why this is dangerous?
The premium is all vega, no gamma/theta. Meaning the decay is very small, but it's highly leveraged to volatility. If vols go down, great, but he can lose on vol + direction. Since there is call skew the strip-vols are sure to increase on rallies. One small comfort is the vol-skew will flatten when spot > $80, hahaha.