he's saying risk vs reward. Yes obviously if the underlying dropped this much, you are better off with the spread vs naked. But it also limits your profit on the flip side. You are down $16 vs $7 on the losing side vs gaining $14 vs $7 on the winning side. Assuming the trade was placed based on good technical not just a random bet, i can see how it make sense to go naked, especially if it's a relatively stable index like the es. All situational...but yes most times you would never want to be naked, especially at a double top and with option expiration, fed announcement, corporate earning all coming...like what the OP did.
Going naked has its benefits for sure but so does spreading to reduce the margin and risks. I do not preach one over the other as everyone is different but the risk/reward is actually better in a spread situation since the risk is capped and in a short option the risk can be unlimited (call) or significant (put). Of course this is a difficult comparison since one cannot compare a limited margin to unlimited loss as no one is going to take an ubnlimited loss. However one can blow out on a naked position while the spreader can hopefully use less than full account balance. Anyone can abuse any position of course. ES being stable is relative to the current IV situation of course. I do short straddles myself so I am not saying one should not do them, just do not want an incorrect comparison of naked versus spread. I think in the long run, doing the spreads with an intelligent cap on margin used will last longer than the constant naked writer who could wake up on their day off (MLK Day) and find their account almost blown out. Everything in moderation is the key whether you are naked or spread.
agree 100%. margin is a killer for anyone not fully aware of its implications and trying to over leverage even slightly, all you need is 1 big down day when writing naked and you are done. Doesnt matter if it was just a spike.....
are options that are in the money always exercised, even if not at breakeven point? and options can be exercised early correct?
No, ITM options are not always exercised early. Calls are usually exercised early due to dividends, puts are exercised early due to the cost of carry. Your breakeven point is meaningful only to you and no one else, and it has no bearing on the early exercise decision because: (1) the breakeven point only applies at expiry, and (2) early exercise is about choosing the most economical alternative.