Buying Naked Calls

Discussion in 'Options' started by Bushwacked9, Nov 9, 2019.

  1. destriero


    @raVar puked, "And generally if that time is evaporating more quickly the closer we get to expiration?"

    Understood. Relativistically. As in you're on Earth and Bushwhacked is close to a supermassive black hole and trading opshuns as your counterparty. So time for option traders is relative? Gotcha. Great notes!
    #11     Nov 9, 2019
    Stamamarti likes this.
  2. No that comment was to destriero who commented on your stuff.... Not directed at you
    #12     Nov 9, 2019
    raVar likes this.
  3. Any recommendations?
    #13     Nov 9, 2019
  4. raVar


    lol ... Doesn't surprise me.

    No worries
    #14     Nov 9, 2019
  5. destriero


    I don't typically buy singles unless it's intraday or legging into a combo or spread, or unless they are distinctly a proxy for the underlying (shares) to reduce haircut. So you're trading GOOGL and don't have $65K in net liq to short 100. Buying the Dec 1400P at $100 is a practical alternative to $65K in shares.

    Carry is embedded in the vol (options) and the only significant exposure is delta. Microstructure plays a role with displaying greeks on the front-end, so price the same strike call for its greeks. Delta (100+P(D)); gamma(same); theta(same); vega(same).

    One minor advantage is that while you have some decay the option has some value-add as a stop. Intraday in a liquid series? I typically go ATM and spread it off by the close.
    Last edited: Nov 9, 2019
    #15     Nov 9, 2019
  6. raVar


    I took a moment, and read through your question again.

    IF I was going to do it by buying a put option singly (which, I wouldn't buy a put option singly, I'd personally probably just buy a cheap IV Put Spreads with 45 DTE that were at .30 Deltas ... if it were me, and keep doing it and rotating into new ones).

    But if someone put a gun to my head and said: "raVar? You HAVE to use naked options. With a bearish bent, and you have to buy PUT's" (the title of the thread confuses me somewhat, so I am assuming that despite good news, I have a bearish bent?)

    I'll tell ya what I would do. No recommendations. Just what I would do, if I had those sort of stipulations put on me, and those sort of restrictions.

    I'd wait for 20 Day Standard Deviation of say something like TSLA, to hit oh ... sort of where it's at now ... LOL ...

    Then I'd wait for a major structure ... something like ... oh, where it's out right now ... lol, that $350 area.

    Now, I'm a bit confused, because you talked about BUYING naked puts, but you're expecting the stock to go up? And if my periodicity was something like several months?

    With those restrictions ... I'd probably take 1% of my account total, and then buy the 440 Puts in Jun of 2020. Right now, they are going for 114.00 at the moment ($11,400 for one put)

    On cheaper stocks, those Options would be a lot more cheap. On Union Pacific, similar puts go for 28.80 ($2,880).

    The cheaper the underlying, the cheaper Deep ITM Puts, six or seven months out are going to cost (though there are other variables such as IV, IVR, etc.)
    #16     Nov 9, 2019
  7. Crap!! Ya just noticed my title ... I was working with both in back testing and had a question on the call side ...

    Thread title should be Buying Naked Calls... But I can't seem to update it :(
    #17     Nov 9, 2019
    raVar likes this.
  8. destriero


    In that special case--your counterparty will have to be inside the event horizon. Be sure to be short the calls bc he cannot collect.

    #arbitrage #HolographicUniverse
    #18     Nov 9, 2019
  9. Overnight


    Just send a PM to @Baron or @Magna to do it for you. Oh, I think I just kinda' did it for you by virtue of bringing the thread to their attention.

    #19     Nov 9, 2019
    Bushwacked9 likes this.
  10. raVar


    Ah, gotcha.

    No worries. Then simple to just flip it in reverse for similar principles.


    IF I was under the gun, and someone told me that I had to by Naked Calls, and the periodicity was six or seven months? For instance? If there was a base underlying assumption that the stock market will rally for seven months? (Note, I don't have that assumption. But I'm not saying it's wrong either. To trade, we all start out with our own base underlying assumptions).

    Same thing, only in reverse.

    I'd buy calls on the SPY, out six to eight months in the future ... with strikes three or four deep ITM.

    Actually, as I give it more thought? That's probably the best way to approach it on the put side too.

    Buy the calls, six to eight months in the future, with strikes three to four deep ITM. That way, if I'm right? Then hopefully the falling IV will help me enough to overcome some of the other math, and my delta's will thus improve with the passing of time (though time is working against me). BUT IF I'm right, then that might be the best way to go. Mathematically speaking. Six to Eight Months in the future ... 4 or 5 strikes deep in the money.

    At the moment, one of those Calls in June is going for about 16.50 or so ($1,650)

    Now if you're WRONG? You didn't have as much tied up in going farther in the money.

    But you can't hold them for the full six to seven months, or the theta is going to bleed out, and drain the worth of your option. You may want to look at options that are a year or two away, if your periodicity is six months.

    But again, I have to stress? That's IF I was buying single naked call options, which I don't really do. I'd more prefer to buy Call Spreads, around .50 Deltas or so, 45 DTE, and keep rotating into new ones if I'm right.
    #20     Nov 9, 2019
    trader1974 likes this.