Naked option sellers: When do you profit take?

Discussion in 'Options' started by a529612, Sep 4, 2007.

  1. For those of you who are into naked option selling, at what percent would you start to ring the cash register and run with the money? You know your risk of expiring ITM increases big time when you try to ride the position into worthless if there are still plenty of time left before expiration. Thanks!
  2. I doubt most of them "ring the cash registers." From what I have seen, most of the option seller hoopla, besides that Liberty company that keeps spamming with this message, is way overblown.

    They make their 36% a year, until some nasty event blows them out of the water, and they cannot keep rolling up or other methods to get out of the way
  3. as someone who actively trades long and short future options; i can tell you i close out positions when i have some profit. usually it is in the 30-50% range. for instance, a short option sold @ 4 gets bought back (if possible) from 3.2 to 2 points. i almost never leave short options to expire. this is a job and not a set it and forget it way to trade. good luck.
  4. Div_Arb


    I learned the hard way that the last 20 cents in these types of trades can become the most expensive. Sell way the heck out of the money, close at 20 cents and have a nice day. Oh yes, watch the vols in the process.
  5. Don't look at the option $ because it's meaningless, look at the Delta.

    Depends on other positions and the VaR as a portfolio, but as a rough guide, I'd run a short option delta < 0.3 and close out a short option delta > 0.8. Anything in between just depends. As I say, look at the Delta not the $.
  6. What's your rationale behind those #s?
  7. They make their 36% a year, until some nasty event blows them out of the water, and they cannot keep rolling up or other methods to get out of the way

    I am always worried about this scenario happening . What is the solution? I sell credit spreads but I have experienced that does not help much as well. Comments much appreciated.
  8. Brandonf

    Brandonf ET Sponsor

    I only have limited experiance with selling options, but I've been taking profits at 30 to 50% for the most part and not holding for very long. It's going well so far, but I also do not plan to compound the account for long as the risk of a blow up will always be there. As such I will sweep profits out of the account on a pretty regular basis as another means of risk/money mgnt.

  9. Sashe


    just hedge your deltas and gammas and you'll be fine
  10. lar


    Depending on how we get there, I like to let them expire while keeping in mind the last few drops in the "time value" bucket may cause trouble. If the last few tastes of theta are becoming troublesome, I am as likely to offset there as I am to roll up or out for a credit. It depends on what the market (IV/SV) is doing at the time and how much time is left.

    Additionally, I prefer a continuous approach instead of a discrete one (thanks Barefoot) which complicates the simplicity of the OP's question.

    Lastly, I try to disconnect my exit from my entry to keep them independent variables. This helps me not cut my gains short or let my losses run. I try not to be stupid about it although sometimes stupidity seems to find me anyway.

    Peace and gtty,

    #10     Sep 5, 2007