feb 27, 2007; sp was down nearly 80 intraday and the vix popped 70 percent, in one day. this was a non gap event and predicted the massive volatility seen recently.
"Selling stops" is for hobbyists like Niederhoffer and Ansbacher, regardless of AUM. Selling dgamma is not for traders.
Our paper trading heroes in this thread would have simply 'traded around' a situation like that and magically have come out on top!!!!
No what you said makes no sense. Buying or selling options is not safe. Anyone who attempts to call an option strategy safe, especially naked options where risk is unlimited or significant is blind to the risks. They have risks no matter what anyone does or whatever hedging they assume to put in place. The only question is how much risk one is willing to take on and how they choose to manage it. (i.e. selling $300,000 of of put spreads in a $1,000,000 account will not lead to a blow up if a large loss is taken on the position). You miss the point of all my posts. My whole point is that calling or representing naked puts as an easy money maker or safe strategy is extremely incorrect. It has a terrible risk/reward ratio and anyone who loads up with leverage is going to get blown out sooner rather than later. Reducing leverage and exposure will make sure that a blow up is avoidable but the returns are also less. I sell naked straddles here and there to adjust or take advantageof volatility but my exposure is merely a percentage of my account versus high leverage. Most people here who talk about selling naked puts never mention volatility or even the basis for their market analysis. As most people know I sold credit spreads on the indexes for some time and simply let it go when the VIX jumped last summer and the market got more volatile. The market changed and I simply adapted. naked put sellers who sell year in and year out without taking into account vol changes or market conditions to either adjust the strategy or risk are nto investing wisely. Also anyone selling naked puts such that 100% or more of their account is at risk with a >1 sigma move (which no doubt is being done) is also asking for it.
In my view, there are 3 types of naked option selling. 1) You naked sell option as you would to the underlying based on your technical/fundamental(or whatever) analysis. Example, if ES is moving towards a necktie resistence at 1285. Instead of shorting 5x at 1284. I could naked sell 5x 1290 call instead. The advantage is even if i am wrong and ES moves above 1285, i still have some buffer on my stop loss (from theta decay etc..) where if i short the underlying directly, i lose the exact move and a hard stop. The downside of course is less profit based on the delta and also vol spike. 2) You sell naked options as a way to enter the position. Instead of buying the stock out right, you can sell naked contracts of the same position and trim your cost basis further, or if it never hit the strike, you keep the premium. You can adjust the entry strike depends on your view of the stock (if i realllly want it, sell itm, if it's a normal play, sell atm/otm) 3) Leverage, instead of shorting 1000 shares (10contract) based on my margin, i will be greed and short 50contracts IMO 1) and 2) are perfectly valid trading strategies, 3) is where you get killed and where naked short selling gets a bad rap.
Sell 50 SPTUJ @1.25 (September SPX 1150 puts) Sell Stop SPU8 @1200 Will consider any of the the following, depending on market conditions: - adjust sell stop SPU8 higher depending on possible rate of decline of SPX. - sell more SPX naked puts if market goes above 1300 - sell SPX 1125 or 1075 puts if SPX approaches 1225 - buy back SPX 1150 puts & sell SPX 1225 puts if SPX moves up, a big range up day, to say 1350