Naked ATM call now waaay OTM...

Discussion in 'Options' started by heech, Jun 25, 2009.

  1. heech

    heech

    That one's easy.

    Short ZC and ZW until they're close to zero, or margin runs out at discount broker. If the latter happens first, move to new discount broker before check clears, repeat.
     
    #41     Jun 25, 2009
  2. erol

    erol

    you can write a program/script to automatically trade for you?

    That is awesome.

    How do you do that?
     
    #42     Jun 25, 2009
  3. Good question.

    The answer is, I will never do that. Not without buying the next strike put for 10 cents.

    Mark
     
    #43     Jun 25, 2009
  4. I was a CBOE MM for over 20 years and I guarantee you that today, more than ever, market makers pay that last nickel to get those short options off their sheets.

    MMs don't trade like you. They do a lot of volume and they go into and out of a lot of positions. Many times when options are covered for a nickel, they get the chance to resell them at a dime or 15 cents. But, that's not the reason for covering. It's just intelligent risk management.


    And to reply to a previous question of yours - they are unlikely to hedge options that are FOTM and priced at a nickel. If they don't buy them back - they are carried naked.

    But, it sounds to me as if you do hedge those nickel options. When the delta is essentially zero, how many shares of stock would you own to hedge a 100-lot of options? Isn't the downside risk of whatever that hedge is greater than paying $0.05 and exiting the trade?

    These are serious questions, None of this is criticism.

    Mark
     
    #44     Jun 25, 2009
  5. I don't know how many times it has to happen to get to you see that it will happen again;, nor do I know how many black swan events it takes to convince you that it WILL happen again (and again and again), but calling it 'dogma' is hardly fair.

    It has happened far more often than predicted. Roubini made a name for himself based on how frequently these unexpected events occur. It is not dogma to present evidence. It is dogma to believe something contrary to the evidence. I believe you are ignoring th evidence.

    There's loads of financial advisors telling people to just hold their stock - that the market will come back eventually. Is that dogma? Isn't it just telling people that what has happened before is likely to happen again?

    BTW, I disagree with the concept that the market has to 'come back.' It probably will, but there is no guarantee that it will do so in time to do the people who lost boatloads of money any good.

    And there may be no guarantee that remaining short nickel options is going to cost you thousands of nickels one day, but the probability is essentially .99999999 that it will happen. Unless you plan to quit trading very shortly.

    We all take on risk and we manage as we see fit. I was warned again and again that failing to buy in my teenies (when options traded in fractions, a teeny = 1/16) was going to cost. Well, I knew better. Very foolish decision on my part. This is just one of those lessons you are going to have to learn for yourself.

    Although you are a gazillion times more intelligent than putz master, I remember warning him that selling LEAPS puts was risky - not because the stocks would tumble, but because IV would skyrocket one day and he would get wiped out. He loved ridiculing me. But now, he no longer sell naked puts. He learned the hard way.

    Mark
     
    #45     Jun 25, 2009
  6. Not quite.

    i suggested you would lose 1,000 nickels.

    That is not anywhere near a catastrophe. A catastrophe is losing it all.

    Mark
     
    #46     Jun 25, 2009
  7. spindr0

    spindr0

    As an aside, there was an article recently in one of the option magazines that cited Robert Shiller's book (whoever he is). It suggested that brokers and financial advisers act in accordance with conventional wisdom rather than think out of the box and use their own judgement. As a result, investors are prone to suffer immensely when the bubble pops.

    Furthermore, advisers must follow the general consensus because it's mandated in the prudent person rule which is embedded in ERISA. It's the law. IOW, an adviser is legally innocent if he loses your money while diligently following the crowd.

    Obviously, the article is far more cogent than my memory but it explains why most underperform the S&P.
     
    #47     Jun 25, 2009
  8. heech

    heech

    #48     Jun 25, 2009
  9. erol

    erol

    thanks heech...

    the plot thickens...:eek:
     
    #49     Jun 25, 2009
  10. You know when I used to trade the Q's and OEX, I always thought selling 1000 OTM puts for a nickel on the Q's a day or two before expiration was a good way to take in $4000 a month with limited risk. Back then, the amount the Q's would have to move for the put to get in the money made it so, I never saw it happen.
     
    #50     Jun 30, 2009