I am trying to assist you in saying that from your response it is clear without ANY doubt that you are precisely the kind of person who should not be shorting options. 1. You have a trading account with limited margin. 2. You are trying to push the margin with short options. 3. You apparently have somewhat limited trading experience. Understand that a stock can easily rally 5-6 percent in a single session, or overnight. Happens every day. But what if you had been short calls? Don't think it will happen? Wrong! You may devastate your account, and if you receive a margin call when the stock runs against you, what are your plans? For all this risk, you are gaining what? A small premium, and even if you bet right and the underlying goes to hell you are limited in your gain? So you are going to risk huge potential losses for a few bucks? Now, to this scenario, add the following: - Short selling of ANY kind, is by definition, a high risk proposition. Particularly in a market environment that is now showing a decided upward trend. - Options of ANY kind, are by definition, a high risk proposition. - Naked calls, are by any definition, the highest risk of any options strategy, and one of the very few investment schemes on the planet that can literally take you out of the game overnight. And you want to take on all this? A guy who has been trading bonds?
lindq, thanks for all the info. Currently, I'm only going long on calls/puts, i.e. if I see a stock moving up, I will buy ATM/ITM calls or puts if it looks like it's tanking. -FastTrader
lindq, All points valid and taken into consideration. However there is nothing new in your statement - all of which I realize (don't know how you define limited trading experience, but very true in the option department), and most I agree with. But, (the inevitable but...) if my analysis suggests, as I read in a Market Wizard book, I see money sitting on the floor I will go and pick it up. Someday I might get slapped for doing so, but again I am willing to take the risk. Thanks for your concern. Make 'em pretty, Chris
Lindq has just given you the best advice you will receive on this site, and it was in reply to your challenge to give more information. It is a fact of nature, not an opinion, that naked calls are a quick path to ruin, especially in circumstances like yours. So why did you ask in the first place if you didn't want to hear the answers? And people wonder why they don't get solid advice here? Why would anyone with profitable experience want to bother posting?
I've been trading strictly options for 14 years now and have never and plan to never sell a naked call. I have done it with puts in very special and rare situations. I'll go long puts before I'd consider short naked calls. One thing your research can't show you is IV. You may be correct in your prediction of direction and even magnitude but IV may increase or collapse and ruin your game plan. I've been in positions, long puts, and had the market decline and so did my puts....because the IV collapsed. Others have offered good advice and one piece that can't be stressed too much is; Beware of position sizing relative to your account. I would also suggest you try index options as you don't take on so much company specific risk. They are much more liquid generally.
Good points. My rule of selling naked options is annual return on equity no more than 20%. Try to do more than that will wipe you out someday. If I am still in the market 5 years from now, I may try 30% return. It's a big money play.
The implied volatility is a lot lower than four months ago. One of the reason it's not a very good time to sell options. Without a good sense on volatility, one should only trade the underlying.
I heard his advice and opinions - does that make them the only viable option and must follow? I did wish to hear his opinion that is why I asked - and there was nothing in there that I have not heard or come to the same conclusion myself. Doesn't mean I didn't hear it. As I said, I appreciate his advice and opinion, gives an outside perspective similar my own - however as I stated I am boneheaded and will try it anyway until such a time as I have my butt handed to me. There is, more often than not, bickering due to a difference of opinion on this site. If I choose not to heed his or anyone elses advice it that wrong - no - its called a market. Why do those that give advise and opinions get so put out when newbies or people trying something for the first time do not follow and heed that advice; never ceases to amaze me. Then also you did as a large majority of the posters here do also - berate someone for not taking some elses advise. Jump in a thread and add NOTHING constructive. Make 'em pretty, Chris
This is good - something constructive. IV is something I have not considered and know almost nothing about. This I will have to look into and learn about. Position sizing is a weak spot for me - as is trading against the trend - I know this but do it anyway - something I have been working on for a few yrs. Have considered indexes and looked at a few, might have to put a few more chains into IB and watch them. Thanks, Chris