If want to sell options than only look to selling premium through spreads. Naked options will get you to Dr. Risk's book recommendation the fast way
Coach, we have been through this already. Max Ansbacher sells them for over 15 years using simple strategy as CTA with some years trading his own account, and I know some more CTAs doing this (I personally combine them with other positions, but part of position is based on naked options). It is hard to justify that once you Gents don`t know how to do this, the best way is just to label naked options "way to bankrupcy" and problem is out of head.
Selling naked means you can be further otm than selling spreads and get the same credit. This could lead to less need for adjustments.
Ansbacher claimed that he mainly sold Put options on S & P 500 futures. According to the performance record posted on his web site, he has one losing year since 1991: -5.51% in year 2000, when S & P 500 collapsed. Hence, he probably was not lying. Now, here comes the more interesting question: What is his monthly performance for September 2001? We all know what happened on September 11, 2001. Answer: 4.86%
We have but my point is that you cannot ignore the poster and simply provide a blanket answer. If you feel that a newbie to options should be compared with what Max Ansbacher or Victor Neidherhoffer (remember him)does, then you are giving quite risky advice. You could cite 1,000 CTAs who are selling naked options, it is meaningless when a retail trader with little option background or experience is asking about selling premium. So it is not helpful to advocate naked premium selling unless you have determined that the person you are directing the advice to is on the level of experience and capital of a CTA or at least has significant capital. Otherwise, how could they possibly understand the risk involved. I stand by my assertion that no retail trader with beginning to intermediate experience or with less than 6 figures in an account should have a portoflio comprised of naked options. Even with my credit spreads I never put more than 50 - 60% of my trading capital at risk so I can never blow up and be out of the game. So while advocating naked premium selling to those with lesser experience, you should at least qualify the risks and be honest and not make it seem easy just because many CTAs are doing it. I would never say Ansbacher is wrong for what he is doing, but I can assume that he has the experience, capital and knowledge of risk management to do quite well. I will not assume the average retail option trader is even close to that level (notice I said average which is where the OP seems to fall). EDIT: Just to clarify I am not disputing the merits of naked option selling or disagreeing with you on that subject, just to who the advice should be given. If someone has large 6 figure account and has been trading for years, then hopefully they have the risk management system in place to make any strateyg work for them.
omcate, nice try, but still some details are missing: 1. Ansbacher`s performance under NFA. If you familiar with this institution you know there is no way to lie. 2. If you read what is Ansbacher index, then you would know that he sells puts and calls, depending on the index readings.
If you read his article: "The Art of Option Selling", you will notice that he did claim that he sold Calls and Puts. But he also claimed that he mainly sold Puts. I am amazed that someone, who is mainly selling Puts on S & P 500 futures, and yet has a positive return(4.86%) for the month of September 2001.:eek: I honestly cannot do it.
Because his strategy relies on his index, and usually puts are overvalued, but if index shows that calls are overvalued then he sells calls. And again, if you think that CTA can lie about his performance check NFA website.
I do not have problem if you say your opinion is addressed to beginners or unexperienced traders, but I have hard time to accept simple statements criticizing completely what I and others do for living. In fact I strongly discourage traders of selling naked options. This is one of the most difficult strategies, but if you sacrifice a lot of your time and put hard work, you can do this.
Read some option books so you get familiar with them ( unless you are already) but EVERY profitable premium selling methods MUST include reversal timing( forecasting). Unless you know how to do that, you will not make any money in the longer term. Start paper trading writing naked and spreads at the same time to see advantage and disadvantage of both, learn how to time reversals and you should be ok.