New option trader question

Discussion in 'Options' started by BudFox, Mar 27, 2002.

  1. BudFox



    If you WRITE a put option that is quoted at $2.50 bid and $3.00 ask, how much would you receive as a retail trader?

    I would think you would receive $300. ???


  2. If the spread is that wide your best bet would probably be a limit order at 2.95

    Wait a few hours, maybe days, but you should get filled at your price eventually.
  3. BudFox


    The size of the spread is hypothetical.

    I was just trying to figure out whether or not you would get filled on the bid or ask when writing an option as a retail investor.
  4. Then it might be interesting for you to hear that I personally (being a "retail trader" [Interactive Brokers, options on Nasdaq100 or Dow stocks]) have seldom experienced a situation where it turned out to be favorable to just wait on the offer. Most of the time your offer is only taken AFTER there has already appeared a bid at your price or better on a different exchange. So you might as well just wait for a better bid to appear and try to hit it. (Not that this works all the time...)

    If I were you I would NEVER use a market order with options, since they are not very liquid, plus you order will get screwed with even if it is a limit order, so just imagine how much more vulnerable a market order will make you.
  5. budfox this is for your own good.if you have to ask a question like that you have no business writing need more education\ experience before you write options.
    the correct answer in most cases is are selling to the bid.
  6. budfox, my opinion is that in the market we are currently in, writing naked puts will earn you more than "buy and hold", or maybe I should say, in the market that we were in until a couple of weeks ago. Right now, this week, option prices are relatively low. Maybe you want to wait a couple of more weeks and see if volume and volatility pick up.
  7. BudFox


    Thank you for the time you took to answer this silly question.

    I needed to double check this information for a Finance project I'm doing for class. I actually ended up answering my own question before you guys responed. For some reason I thought writing an option would be slightly different than selling one. I would guess that if a professional (floor) option trader writes an option, he would receive the ask price. But if a retail trader tried to write an option, it would be the equivalent of selling one he previously owned, thus he would get the bid price (whether selling or writing the option.)

    BTW, I would never write naked options or trade them. I find that the option market is too often illiquid, spreads are huge, bad fills, etc. You can't compete against the MM's on the floor. So why (day)trade them?

    I'll stick to listed stocks, thank you.

  8. God#9

    God#9 Guest

    In my opinion writing naked puts now would be one of the dumbest things you could do.

    If they're anywhere decent value I'll buy as many as you can sell
  9. ktm


    IMO, a lot of the answers to these questions depends on who you are, your experience and your strategies. I constantly sell naked puts as a proxy for covered calls. Of course, I combine this with extensive fundamental research and I actually wish to own the stock at the price I will be put to. For me, naked put writing makes sense and has been very profitable. I wouldn't recommend it for someone new and I agree that someone who has to ask probably shouldn't be doing it, but I wouldn't just dismiss the strategy altogether.
  10. me too. I write puts sometimes if its a stock that I want to own - i.e. not a stock I want to daytrade, but one that i want to swing/position trade.


    ...even writing puts for a stock that you want to own you should still learn some basic greeks
    #10     Mar 28, 2002