I agree, extreme danger right now. Maybe this isn't "the big one" but it seems to me there is even more to worry about right now than there was in 2015 when UVXY went up 350% and probably even 2011 when TVIX went up 650%. I was nearly taken out completely in 2015 and know several people who were. Including one who naked sold $6,000 worth of UVXY calls that went up to $1,200,000 in value. amazing.
And guess who ends up being on the hook for that loss? The broker... and then in the end you and me, because they will increase fees etc. - the stupidity of some affects us all -
An acquaintance of mine recently got approved for naked options. Added some cash to his account, so he had 45K or so in cash. Sold 6 December $91 UVXY calls naked for 3.30, proceeds of 2K. So he has cash of 47K in the account and naked short 6 calls. I advised him to close them immediately at tomorrow's open. Because while it is very likely UVXY will close under 91 in December, it's possible it could have a big spike first. If UVXY went to 100, those calls would go from 3.30 to about 40 I would think. And in a 2011 type scenario where UVXY goes to 225, the calls would be worth about $150 each or $90,000, meaning his 45K account is now worth NEGATIVE 45K. So am I being alarmist, or should be shut down immediately tomorrow? Even if the calls are around 5 or 6 he will only lose 5% of his account, and live to fight another day. I told him all the old horror stories but he has been paper trading and making bank, so not interested.
Yes, the broker ate the loss on those accounts- and I fear we're going to see some more if this North Korea thing takes off- also I wonder why brokers allow naked selling options?
Alternative strategy is to sell UVXY short on vol spikes. Seth Golden has gone from $500,000 to $12m in 5 years doing this New York Times reports. He is on twitter, youtube and blogging about it. Links are in this thread. https://www.elitetrader.com/et/thre...reets-complex-fear-gauge-proliferates.312670/
https://finance.yahoo.com/news/legendary-volatility-pioneer-says-one-100400769.html?.tsrc=rss A legendary volatility pioneer says one of the market's hottest trades is like 'betting on the roulette'