How do holds work when selling naked options?

jj90 · Feb 14, 2009

I am referring to the 1987 scenario that others have pointed out. If you couldn't get that, well..... Is english your 1st language or are you just overcome with insecurity that we aren't all kowtowing to your briliance?

sirziggy · Feb 14, 2009

Quote from jj90:

I am referring to the 1987 scenario that others have pointed out. If you couldn't get that, well..... Is english your 1st language or are you just overcome with insecurity that we aren't all kowtowing to your briliance?
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The 87 scenario is what spured the 20% discussion. Dow lost 22% that day. Mathmatically, if you incured the loss, you'd be looking at roughly 10-15%.

We can all argue this all we want. If the entire stock market once again lost 20%, from his 80p strike, and he didn't do anything until right at the close when he BTC the puts, his losses would have been 16.00 per share on his 1k shares. Offset by the income received from the original sale of the calls and puts.

In normal trading, I would venture to say the largest 1 day loss in either the q's or the spy was around 10% over the past 12 months. And that's the market losing 900+points. That would still only make his losses about 5-8% if he just closed them out. It's not hard to make up 5%, it's hard to make up 50%.

TWORIP · Feb 14, 2009

Quote from dagnyt:

The ignorant cannot be educated.

Please tell me sir ziggy's credentials and experience.

Best of luck to you.

What happened to me is that I learned from my over-confidence. I was a CBOE market maker at the time and quickly discovered that there's no need to earn the last few nickels (they were 'teenies' at the time) on a trade. I learned to respect risk. I learned that selling naked options does not increase profits by enough to take the risk.

As an individual investor, I maintain my discipline. That's the path to success.

Take the advice it or leave it. Your choice.

For those who think my advice is sound, take a look at my recent book The Rookie's Guide to Options.

Mark
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First off, why did you take all the "dol"s out of my quote that you quoted there lol!. I thought you preffered that word.

Second you still have not given us a clear picture of what actually
happened when you supposedly went bang on selling all these 1000's of naked options. What strategy were you using, what didn't you do that made you flop? If you are so helpful, let us know please?

I saw one of your books, the "buy and hold". How has that worked out for you and the people that took that advice the last 18 months?

I am not sure what sound advice you have given me that i didn't already cover or eliminate the need for?

Seems to me you are trying to save your rep, bash my strategy which you still have yet to do successfully just to sell your books to the newbs?

TWORIP · Feb 14, 2009

Quote from sirziggy:

To address some. I've been trading almost 20 years. I use a multitude of trading strategies and this happens to be one of them. However, I am simply offering up my .2 on the pro's and con's.

1. I never said you won't lose money, you're putting words into my mouth. I said, in case of a 20% market move, you aren't going to go broke as many seem to assume.

2. What do you mean I assume you carry the trade to exp? If the trade goes against you, you can roll it all the way up to expiration and close the other leg. I am taking assumptions in my answers. Who's to say the market didn't go up, you close the 1.25 for .50 and then it drops and you close the other side for .50 and lock in 1500? There is no correct answer for that. I'm addressing the fact people think you will incur catastrophic losses in a 20% move. I would close the trade a few days before to take the risk off the table. Perhaps Tworip does that, I don't know. I'm just using what has been posted thus far.

3. The strategy he mentioned was closing or rolling at the strike. Obviously, if you hold it and pray, you change the dynamic of the game. However, isn't that true for any so called trading strategy? You buy a stock at 20, you should sell if if it loses 8-10%. Most don't sell it at 18, then it drops to 12, so you hold on and pray??? Isn't that why most have lost so much in the past 12 months? The pray and hope strategy?

4. To address this. I'm assuming in a 20% market he just BTC the position and take the 10-15% hit. Obviously, I would have to agree to disagree that on something as liquid as the spy or q's, you couldn't roll you way out, what goes up ALWAYS come down and what goes down, ALWAYS goes up. Aside from bankruptcy or something. But the spy or q's won't go to zero.

5. I agree on with you on this. If you don't roll or reduce risk or do something, you will be screwed everytime.

6. This is true on stocks, options, ETF's, commodities, etc.

7. Please expand on 2008?

8. I agree it's good for accumulating stock, but I for one, don't mind buying SPY or QQQ's at a discount. It is what it is.

9. Calls is more risky but I think if you stick to a game plan, you're fine. With PM obviously you have more then 100k in account value so you could always just buy 1k spy and sell calls and puts and don't have to worry about the unlimited upside issue. You could also just create a spread and buy the a few strikes up, depending on your risk tolerance.

10. Overconfidence and greed are killers. People lose because they stray from a system or thing they can outplay the big boys. Keep with what you know and don't stray from the original strategy. We all know, you should know your exits before you ever enter a trade. So my advice, know what you're going to do in a bad situation before putting on the trade.
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Woah again sir ziggy!
I like that alot. Do you have any books out?

sirziggy · Feb 14, 2009

No Two, no books, just life experience.

I'm trying to give you some contructive critism. As long as you stick to your strategy, you shouldn't be killed in normal trading. As long as you can afford to lose 10-15% in the 2 times per 100 years the market losses 20%, then you should survive. Since you spoke on Port Margin, obviously you have over 100k in the game, so just live careful.

jj90 · Feb 14, 2009

sirziggy, I don't disagree. I never said one couldn't make money selling options and that the OP's idea was shit. I'm simply reiterating the inherent risks that other's have already pointed out. My gripe and I believe of many others is that the OP believes that it is the holy grail of trading and he comes off as being egotistical. The OP's tone is that my strat works, I don't need to listen to your guys input. Well then, why ask a simple question about margin that could be found on the OP's broker's website? Why keep asking for our input to the pitfalls of the strat? If one is asking for help, than either take it or leave it. No need to say my strat is better than yours. There's a reason 20 other people in this thread are saying the same thing. If he wants to assume the risk, great, carry on.

TWORIP · Feb 14, 2009

Quote from jj90:

sirziggy, I don't disagree. I never said one couldn't make money selling options and that the OP's idea was shit. I'm simply reiterating the inherent risks that other's have already pointed out. My gripe and I believe of many others is that the OP believes that it is the holy grail of trading and he comes off as being egotistical. The OP's tone is that my strat works, I don't need to listen to your guys input. Well then, why ask a simple question about margin that could be found on the OP's broker's website? Why keep asking for our input to the pitfalls of the strat? If one is asking for help, than either take it or leave it. No need to say my strat is better than yours. There's a reason 20 other people in this thread are saying the same thing. If he wants to assume the risk, great, carry on.
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Lol so now that you actually realized you are out of your league, you refrain from challenging the strategy all together and agree with what we say?? Now all you are arguing is that i seem like i am a mr know it all, and attemp to put words in my mouth of me saying this is the holy grail of trading strategies? Pathetic. Maybe you should go buy that "buy and hold" book for newbs.

sirziggy · Feb 14, 2009

I'll say this.

1. You can lose money buying calls and puts
2. You can lose money selling calls and puts
3. You can lose money going long stock
4. You can lose money shorting stock

Find a strategy, test it, trade it, share it. That's what this is all about.

I'm always happy to answer any questions that come my way if I know the answer. If not, I'll always give my opinion. lol

TWORIP · Feb 14, 2009

Quote from sirziggy:

No Two, no books, just life experience.

I'm trying to give you some contructive critism. As long as you stick to your strategy, you shouldn't be killed in normal trading. As long as you can afford to lose 10-15% in the 2 times per 100 years the market losses 20%, then you should survive. Since you spoke on Port Margin, obviously you have over 100k in the game, so just live careful.
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Thanks ziggy. That was just what i was looking for - good advice. Also good catch on the PM, i am trading with a bit of capitol. I would'nt be as "confident" in my strategy as i am if i thought there was a big chance i were to lose it all.
Let me know if you ever have any more advice for me, i would like to stay in touch!

dagnyt · Feb 14, 2009

Quote from TWORIP:

...you still have not given us a clear picture of what actually
happened when you supposedly went bang on selling all these 1000's of naked options. What strategy were you using, what didn't you do that made you flop? If you are so helpful, let us know please?

Supposedly? I were it were only supposedly. Who would want to make up a story about losses. These pages are filled with made-up stories of profits.

Flop? Just a huge loss. Sad, but I recovered because I was a good trader and learned that taking too much risk was the only obstacle to success.

Clear picture? There is nothing I can tell you about what I was doing that would be in the least helpful, but I'll give it a go anyway.

It wasn't a strategy. I was a market maker and took down the positions that public and professionals were buying/selling. What I chose not to do was cover reasonably far OTM options prior to expiation. I wanted every last 1/16, and chose not to buy them in. I didn't try to hedge them. Just ignored them. That's not a strategy. Made a good deal of money doing that. Again and again.

But every so often a major stock market move would occur. Sometimes it wasn't a big enough move to hurt. But once I got a taste of how bad it can be, I learned to avoid shorting too many naked options and I also learned the benefits of holding thru expiration. there's nothing more to tell. Today I sell zero naked options and that has i proved my performance. I make enough money to not need the additional risk.

All I'm trying to do is to offer the benefit of my experience. I know just how you feel: some old-timer trying to tell you what to do. That was me in 1977. Too smrat and too confident to listen. Now, I'm trying to save you from losing more than you care to lose. It's ok if you don't care. Perhaps some other readers will.

Rolling is not something that is always attractive, nor is it a strategy that always works. Especially when the rolled position has to be rolled yet again.

I saw one of your books, the "buy and hold". How has that worked out for you and the people that took that advice the last 18 months?

Despite your sarcasm, in NONE of my books did I ever recommend buy and hold. In fact, my strategy was buy and don't hold.

The subtitle is "A Conservative Strategy for the Buy and Hold Investor." The purpose of the book was to teach investors NOT to buy and hold, but rather to buy, write (slightly ITM) covered calls, and then sell the shares. Hardly buy and hold.

And yes, I know writing CC is nowhere near the best long-term strategy. But it is a fine way for rookies to get their initial experiences using options.

I am not sure what sound advice you have given me that i didn't already cover or eliminate the need for?

Not sure I understand. You do sell naked options, don't you? How can you possibly 'eliminate the need' to stop doing so? By rolling when you get in trouble? That is not going to do it for you.

Seems to me you are trying to save your rep, bash my strategy which you still have yet to do successfully just to sell your books to the newbs?

My reputation needs no saving.

I am not bashing your strategy. I am warning you of the risks. You may claim to be aware of them, but IMHO you do not act as if you are aware.

I don't sell books by bashing you or anyone. I offer advice here, I post a blog that often has advice for traders and investors. If people like the way I write and agree with my investment philosophy, then perhaps they'd like to read the book. I get extremely positive feedback from people who have read the Rookie's Guide, so I know that buyers have been pleased.
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Mark