it's tempting but naked put writing is just too risky.I firstly would never do it on a stock unless i wanted to own it at that price no matter what. index is a better alternative. i also agree with AAAin theBeltway that it's better to spread.not only for risk but also for margin. if you are really greedy then at least otm strangle. just remember that anything can happen and you could find yourself blown. shivastar
My point was that a a basic option strategy can't be defined as = to bad. This is not a suggestion to anyone to do anything, most certainly not to newbs. Just to say that each strategy has its place and can be employed by a pro. trader in a myriad of ways as to be good risk/reward for said trader in said situation. In regards to how I use naked puts, I will PM you. PS - Just saw that the CBOE will be launching the VIX futures Friday. Looking forward to it. This looks to be a great new tool to play with joined with other ongoing strategies, to help manage volatility risk and exposure.
Yea, that's what I used to trade. It's still my favorite strategy. Back in the old days (late 80's), brokers required hefty accounts to protect themselves. So, with a $25,000 account I could trade maybe two otm strangles at once. But, the money wasn't that great, so I moved to S&Ps'. Then, I might make a couple of thousand in a day. Big difference from waiting a month for maybe $500 in premiums. So, I stayed with the S&Ps' and have been with them ever since. I dabbled a little in the currencies, but I preferred the volatility of the S&Ps' Then when electronic ES eminis came around, I just moved to that. Life is good!...
I have traded strangles, nakeds, credit spreads, backspreads on indexes and equities for many many years... typically I work hard to control risk and often leg into other strategies after favorable price movement on naked positions, i.e. turn a strangle into a double credit spread on swings. But as some have noted here... many times you question whether you should have traded the underlying. Further if you're not vigilant and ready to pull the trigger to protect capital with appropriate repairs and hedging, you can get busted up and give back a month's worth of time, patience and effort. An example occurred on July 17th when QLGC posted earnings. I had sold a lot of 47.50 puts and 55 calls short. My actions nearing expiry were indicative of poor risk and money management, complacency and second guessing. The premium on said puts had dropped to 25c with QLGC near 53+ having just made a new high. Well, I did not close thinking it was "impossible" for the stock to drop in a couple days that much, after making a new high. This was a bad habit of mine to hold until expiry rather than pay .15-20-30 to close not wanting to "enrich" some exchange trader on a perceived "worthless" option. Weeelll... by expiry the low was 46.34, a drop of almost $8 after a gap down post-earnings; and had you taken delivery the low wasn't reached until 8/6/04 @41.61. The ironic (i.e. frustrating!!!!) part was that I had legged into short stock a couple days earlier but "elected" to get out of the short pre-earnings figuring the run-up was a "tell" on favorable earnings (knowing full-well that they take it higher pre-earnings only to sell into any earnings news thereafter); but the market had been strengthening and gaining momentum... so I decided to not stay short. :eek: :eek: I have taken a LOT of premium dollars out of the markets selling strangles.... but lindq is correct that one or two can spoil your whole month... not week, and has for me. There is no doubt that someone who can have a high win rate selling premium should be trading more of the underlying and maybe supplementing this with certain strangle/straddle strategy with an intention to convert into spreads/calendars. I will add that I do not overtrade the accounts so in the worst case scenario delivery is an OK option; often a very viable one. But sometimes you find yourself asking "why didn't I just buy QCOM (or calls) at 46-47 rather than sell puts on every strike all the way to last months 65s"??!! regards, Ice
Yep, one of the reasons I quit doing it. I might make $500 one month, and then the next month the stock would surge to my stop in 2 days after I put on the strangle, so, because there's still plenty of time value in the put, there goes half of my last months profit in two days. Probably, the only reason I never got caught in a huge overnight gap, was I didn't do it long enough. Maybe one of these days when I've got money to burn, I'll trade in the danger zone again...