This is my first post and I am starting a journal!.I tried to find a similar journal on ET but could not find so I thought let me start one. I have been reading various posts on ET for a long time. I am not an expert on options. Just some working knowledge. I donot know much about greeks or volatility. I only sell naked puts on index and futures index.. The main ones I use are ER2, YM, Z, ESTX50, CAC40. DAX and may be one or two more. I sell very deep in the money and most of the time near month. I have following positions and all of them will expire tomorrow. ER2 575 -5 premium received $391.75 ER2 580 -5 $ 441.75 YM 9600 -10 $ 239.35 Z 4625 -10 £183.00 Z 4675 -10 £ 283.00 Z 4725 -10 £383.00 Z 4775 -5 £ 241.40 Z 4825 -6 £ 439.80 Z 5075 -10 £ 83.00 Total premium received £ 1612.20 and $1072.85.The reason I am posting this journal is to find out how can I improve my strategy and also to find other products to trade. All comments -good, bad, harsh -much appreciated. Ifd you are trading naked puts please give some of your trades. Please suggest a good book to read on this as well. Thanks so much
If you have less than a million quid then you are playing with fire. Premiums are at historically low levels right now. You would be much better off using bull put spreads. You risk would be reduced some much by using spreads that you could do two spreads for every on naked put you have know-and you would likely be more profitable. If you have more than million quid and are selling puts that are covered by 70-80 percent of the contract value in cash and are hoping to profit by gain the volatility premium in the put, well that a different story.
I suggest that you do research on the blow up of the hedge fund run by victor neiderhoffer. the partial cause was writing naked puts on stock indices,
I don´t like the fact that stops are not included in the writing game. Maybe some do? We will let time do it´s job and trust it. I prefer to trust myself. I wrote calls earlier. Puts were a little bit to scary. IF something happens. Then we will have to write puts naked (no clothes) instead of the opposite.
Some general thoughts.... I think understanding delta and vega at least will give you a better sense of how your position will react to market moves. Did I read that correctly... you are selling deep ITM puts? As was pointed out, you might get better risk/reward using credit spreads instead of the naked puts so you could limit your risk better. Are you using any technical analysis to select strike levels? Naked options is not necessarily the best strategy for a beginner in options, even a working knowledge may be dangerous in this case. Do not let a few profits blind you to the true risks and how much of your capital you are putting at risk. I trade credit spreads on the indexes and have a journal here and I never put anywhere close to 100% of my portfolio at risk. So do not put all your capital behind these trades.
when you are selling naked puts you are selling insurance. if a hurricane katrina hits you have to make sure you have enough reserves to pay all the claims.
exactly. selling risks are for insurance companies with very deep pockets or know how to get reinsurance. market makers in options are never naked. they hedge their positions
Thanks to everybody for caution and words of warning. I am very much concerned at what I am doing. As a protaction I go deep out of the money (sorry optioncoach-for using wrong words) . I go about 8-10% out to protect me. I cinstantly monitor my positions but many times my positions are so comfortable that there is nothing to worry. e.g today all my positions have expired worthless. Even on spx credit spread thread some have to adjust their positions and sometimes take small losses. When market is moving gradually against you, you always have an opportunity to adjust and close or roll over. It is 9/11 type of incidence that one can have huge losses. But that will be true for credit spreads as well. Some have voiced their concern that even credit spread is not the ideal strategy. I donot know what to do and that is why I am looking for guidance. I use only 50% of my available capital. Over last 18 months I have gradually withdrawn my original capital. What now remains is my profit in the account. Please comment freely. Much obliged. Thanks
You have to remember that in any strategy you will have to take losses. Better to take small losses than big losses. With naked puts your risk is not unlimited but it is quite significant and much larger than your initial margin. As a sort of beginner I just caution you against naked puts on the indexes. If you are dead set on doing them, then I do recommend doing credit spreads instead of naked puts. The risk is limited and controlled since you can decided how much of your portoflio to allocate (i.e. 20%) and decided on how wide you want the spreads. Volatility risk is greatly reduced as a result of the spread and so is delta risk. Like I said, naked puts are not really the best place to start so look for other strategies, but if you are determined to do it, consider and compare credit spreads.
as long as you don't sell any more puts than you have cash to purchase the index if need be you have no more risk than being long the index. the problem with selling puts is that it works. it works so well that you are seduced into piling on the leverage and eventually an event happens that takes you out. if you are disciplined enough to resist that urge to splurge i would just continue on because it sounds like you are doing fine.