I'm curious how rare this really is for the vets around here. I'm wondering when was the last time you shorted naked PUTs, (and why). I almost for the first time broke my cardinal rule and did this on Friday when I was watching crypto crash over the cliff. I sold out every COVERED call I could in order to hedge at least a little. It was at that moment, I thought of (just briefly), about rapidly selling a bunch more, even though I would not be able to cover. But decided against it, due to the fact even just a 1-month contract is a LONG time where the Fed can come out and say "We are sorry the markets got spooked, so what we are going to do is stall raising rates until next year after all." Then I'm caught in a 10x-20x rally, lol.
Actually I predict Fed to blink today but not as harsh as you. Because market makers are short gamma, smart money is short, retailers are considering selling. Best timing to do so and rack the market up a little. Sometimes i short naked puts to enter positions or I use naked sells to get the right delta. But that's it. Know of too many people who got their asses handed.
I have plenty of books that state otherwise, but I've always thought it not exactly a hedge either. More of a softening to a blow.
May I introduce you to my friend the takeover? Unless you're only talk about index products then you would never short naked calls. Selling calls is also never a good hedge since the further the market falls, the less short deltas you will have. Think about trading a risk reversal next time aka. buy puts/sell calls. Spot/vol correlation should do much more for you here
In March through June of 2020, I was selling a lot of naked calls far OTM. The volatility was so high that you could still collect premium going two weeks out at strikes around the recent highs. It was not a lot, but it helped. The limitation was that liquidity dried up on everything except QQQ, SPY, SPX and a handful of large ETFs. I stopped selling puts almost completely. Been that way for about a year. In hindsight, it would have been profitable, but I just didn't feel comfortable doing it.
Not a veteran, but there’s one case where I would consider a naked call: Let’s say stock is near technical break out level. We know that break outs are prone to fail or at least retest. So, sell call above break out level, but far enough to buy shares below strike if it does break out. So you end up with covered call with technical support level at your back. Yes, there’s a chance of some news that will not give you a chance to “hedge”, so don’t pick crazy ass stocks. Obviously, not a strategy for a strong bull regime.
Selling naked calls in stocks is a suckers bet... Not wild about it for indices either..Run some backtests and see for yourself.. With that said I do upside ratios on the indices and large cap stocks and pray to the Sticky Delta Gods every morning