1. Most brokerages won't approve a beginner for naked puts. 2. There's a lot of risk in writing naked puts that a beginner must understand before diving in. 3. Yes, similar to covered call with less commission. 4. Writing naked puts is my main strategy, but it's not as much of a trade for me as a potential investment. Some here will point out that I'm not a trader. I agree. __________ http://mytradersjournal.com/stock-options/
You're kidding, right? If not then could you please explain how a long call equals a short put? I would be particularly keen to hear your explanantion of how they have the same risk profile since you say they are 'equivalencies'. db
First I have no interest in being taken to the woodshed by the options MM. Perhaps I should have said that a long call has a similar risk profile to being long 100 shares of stock. I was speaking in terms of rough hedging. If you are long stock and you need to hedge you can buy a put etc. I don't think the average retail options trader understands this idea. In other words if you f**k up a trade, that options can help get you flat or close to flat. Charles Cottle does a good job explaining this. Maybe you can articulate this better.
I'm pretty familiar with Cottle's writings and I'm pretty sure that nowhere does he say that a long call has a similar risk profile to long 100 shares of stock. As a matter of fact, the two are completely different risk propositions. One (the long call) has a limited risk profile in the debit you paid and a (theoretically) unlimited reward potential. The long stock has very large risk to the downside (all the way to zero) and also theoretically unlimited reward potential. Turning your long stock position into a married put by purchasing a put is a fine hedge that turns your position into a simple synthetic long call. Cheers db
1. And yet they will approve beginners for CCs (same risk) and naked stock (even riskier). 2. What additional risks can you identify over and above CCs? 4. Do you ever hedge your entire portfolio by buying OTM puts on an index?
1. I know, it pisses me off. I can't sell naked puts in my IRA, but I can write CCs all day long. 2. None, except for someone who doesn't pay attention to what the underlying value is from his naked puts and margin requirements. I made that mistake when I first started and on a dip in the market had a market call since I was over extended more than I realized and had to buy back some decent picks that recovered after I took a loss. I keep a spreadsheet now for a very low-tech view of % cash to underlying value if all were assigned. I don't let it get less than 50% (aka 200% invested). 4. Not yet. I've been planning to recently, but haven't yet. I'm sure I'll pay for it eventually, again.
Switch brokers..asap...thinkorswim allows ALL defined risk options trades in an IRA...basically everything except naked calls.
You are correct on both counts. I did not mean to misinform the OP. Long call = risk limited to premium paid. Short Put = unlimited or unknown risk Cottle speaks about position dissection for a retail trader which I think makes sense. That you should understand conversions and reversals so you can offset. This takes some time to understand but is beneficial. "Position dissection (taking out synthetics) works under the premise that locked conditions such as conversions, reversals and boxes can be removed from the position because they are basically flat and can be used as filters to uncover and detect different aspects of a position that may not be apparent" Charles M. Cottle, Options Trading: The Hidden Reality
naked puts have the risk of a margin call happening at an unopportune time. you could get called and thus liquidate some positions at a loss whereas the CC writer could ride out the storm if they wanted to. Example: the underlying drops 25%, causes a margin call for the put writer, then climbs 30%. The CC writer is generally in a better position in this case.