Is there a way to set a stop loss when writing naked options

Discussion in 'Options' started by lasner, Jan 21, 2010.

  1. lasner


    I want to write naked options in commodity markets and was wondering if there is a way to set a stop broker tells me there isn't
  2. sounds a bit like issuing a license to steal.
  3. Lasner,

    Writing naked options isn’t recommended unless you have very, very deep pockets and don’t mind an occasional massive loss (just ask Mark Cook). Having said that, it is your money so the only thing I would recommend to contain a loss is to buy an option above (if selling calls) the strike price of your naked options (thus they aren’t naked but you get the point). How far above it based entirely on your risk tolerance and how much pain you can endure. This will protect you from a monster move up for whatever reason. The farther away from the current price, the less you will pay in premium for your protection but the more risk you bear. Pick your position tolerance. Not sure that is what you want to do but that is what I would do if writing options.

    Best of luck

  4. You could get this effect by placing, for example on a naked call, a buy order on the underlying that triggers at the stop effective stop you wanted. This would limit your loss much like the stop you wanted. You would need to adjust or close out these positions manually though. (You'd also need enough capital in the account to create the position.)
  5. lasner


    Yeah I'm not going to do anything crazy...three months out and $250 option. if the option price doubles I will exit. It's not risky at all. There has to be a pretty big move for the option to double....if it does I'm out
    $250. I'm just looking to add some income to my account
  6. NHS


    If you have a safe way to this let me know. If you are naked you are naked. It is not always easy to get out.
  7. lasner


    Like I said I plan on being three to four months out. writing naked options in inverse markets....example gold and dollar. I'll write two calls in both markets one acts as a hedge against the other. Not really that risky. I guess I can't place a physically stop
  8. so so
  9. lasner, this kind of stuff works until it blows up in a really bad way.
    Forget about naked options, even far OTM Verticals and Iron Condors carry a good amount of danger (-ive gamma).

    At least try to use a vertical spread instead of naked options to cap the $risk amount.

  10. Exactly. And repeat after me: remember Vic Niederhoffer, remember Vic Niederhoffer, remember Vic Niederhoffer, remember Vic Niederhoffer....
    The guy who refused to go vertical.
    #10     Jan 25, 2010