Sashe Registered: Aug 2002 Posts: 358 09-05-07 06:22 PM just hedge your deltas and gammas and you'll be fine Right up until the market does something major against your position in a short time, thats when you find out that you're definitely not fine! Best Regards Johno
a529612 The rationale is that the delta is a measure of risk, whereas the value of an option is not. If the risk is low (Delta <0.30) I'd let them run, if the delta is high (>0.80) I'd do something about it (either close out or leg / roll). In other words, let winners run and close losers. Hope that helps.
@ a529612 let the options expire! the options are fair priced and the expectancy is still the same: high probability that option is worthless to very low credit -- lower probability that option will be worthless to bigger credit. Insted of closing the short option I whould open a OTM backspread (for a credit or +/-0) some days bevore expiration to be prepared against a black swan or a surprising move in the underlying.
Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure
Hi Sashe, Use %allocation of your risk capital, mine is 2% per position for example, diversify across markets, use statistical approach to minimize the black swan exposure Would you care to share your thoughts a bit further on what this statistical approach might look like. Best Regards Johno
What I was trying to say that do not sell naked on stocks with upcoming earnings, or major announcments. Look at all previous black swans (i.e. huge moves against you as the naked seller) and study the patterns that preceded that. Overall, I mean that selling naked (or even iron condors) requires lots of work. It is never sell and collect.
How do you do that when the naked short has unlimited risk in theory? When the black swan hits, it's going to be more than 2% easy.
Hi a529612, My comment was actually - Right up until the market does something major against your position in a short time, thats when you find out that you're definitely not fine! In reply to - just hedge your deltas and gammas and you'll be fine Thru past experience I can tell you all about how Black Swan events can impact on Naked Options sellers accounts, where Delta Neutral/Dynamic Hedging strategys are employed. Best Regards Johno
I usually exit for profit @70% and will take a loss if the option doubles and re-enter the option further out of the money.