Hi, I sold a naked call on 'GSX' 95 strike that expires in 21 th August. For now my position is deep deep in the money ,the stock skyrocket to 140... Is there something i can do to minimize my lost as possible? Thanks, Tal
Selling naked calls is a very risky strategy with the risk to the upside unlimited in exchange for a small limited reward. You are risking a complete blowout here. GSX is strongly trending up. You have to buy back GSX and the sooner, the better. Trying to repair this very bad position will do nothing to save it.
Depending on your outlook, you could roll the position if you think the price will come down and reduce losses, may do you some good on a hype stock like GSX, but thats for you to decide. Generally, you would be best advised to take the loss and apply your buying power somewhere else. If you Roll, you will have to pay the intrinsic value+ extrinsic value (if it's not a covered call/put), how many Options would you be able to sell/how many investment opportunities do you see and what is the expected IRR for these Opportunities with the same ammount of buying power. From my expierience, cutting the loss and applying that BP somewhere else is (in general) more profitable. On the other side we saw KODK going from 2 USD to 60 and it's now back at 20USD. You researched the stock, you should know best if it will come back down or if the current valuation is fair and you should cut your losses.
I could try to be nice, but that wouldn't be at all useful -so I'm going to tell you the truth. And I guarantee that you're really not going to like it. Selling a naked call without understanding what you're doing is one of the dumbest thing you could possibly do in options. I'm not saying that to be insulting; it really is. And from your question, it's clear that you don't know even the basics of options. It's like trying to play chess against a grandmaster when your experience consists of having once seen a chessboard - except there's real money on the line. So here's what you can do to minimize your losses: close the trade as soon as possible, and don't do any options trading whatsoever until you've studied, understood, practiced (in a simulator), and are at least slightly positive over a run of 100 trades. This seems like a rather expensive lesson... but if you don't close out this trade, you may find out what "expensive" REALLY means. Ditto if you keep trading without a solid grasp of what you're doing. Naked calls have unlimited losses.
GSX has come back down to $106 and change. If I were you, I close it out first and then look at the situation: 1. If I think it will stay about the same, I sell another call. 2. If I think it will come down further and back to ~ when you wrote your first call, I buy a put (I am guessing $90?). 3. If I think it will go back up to $140, I buy a call or sell a put. I think it will stay around $100 but it is just a WAG.
When did you buy this? GSX has been going up all week. But to answer your question...in order to minimize your loss, exit the position.
And yet many people say that selling naked puts is the most risky strategy, while a stock can go down to zero but when it goes up there is no limit! I wonder what percentage of option traders have read OCC's ODD prior to trading. Would you still sell naked calls after reading this ? Source: https://www.theocc.com/getmedia/a151a9ae-d784-4a15-bdeb-23a029f50b70/riskstoc.pdf;
Oops. You SOLD the call. Buy it back. Man up and eat the spread. Your obviously a deer stuck in headlights. Terrible for a trader.