Some questions about options writing

Discussion in 'Options' started by mishganux, Nov 17, 2007.

  1. mishganux


    Hi all.

    Have some questions:

    1) Suppose I have a lot of cash and a naked ITM call on expiration day. Will my broker use my cash to buy 100 shares to exercise ITM call ?

    2) Suppose I have a naked ITM put on expiration day but I have no enough cash to meat overnight margin requirement when shares will be put to me. Will my broker block my accoun until I have raised extra cash ?

    3) What to do when a sold naked put has plenty of time to expiration and is going deeper and deeper ITM ? What is the rule of thumb in such a situation ? For now I have come to:

    1) Build a diversified portfolio of many naked puts, do nothing, don't worry about several bad trades and hope that good trades will earn more then bad ones ?
    2) Use stop loss ? If so, what stop level is better ?
    3) Roll down (and maybe out) ? It fixes loss at ones and allow even higher loss.
    4) Use vertical put bull spread ? I have no experience yet
    5) Anything else ?

    Any advice appreciated
  2. Use vertical put bull spread ? I have no experience yet

    ADVICE: Learn how to trade options properly before risking money
  4. pv150


    Wow mishganush. Did you fib on the application for options trading privileges?
  5. segv


    1. Buy and read Natenberg, Cottle, Taleb, McMillian. Do not trade options at all until you have completed this step.

    3. If after completing step 1 you still think that a portfolio of short naked options held to expiry is a good idea, please abandon option trading forever.

    There is no such thing as diversification in a flight to quality.

    The market can and will gap through your stops.

    You are getting warmer, read as much as you can on the topic, including some of the information embedded in old posts on this forum.
  6. rickf


    Agree that you NEED to do your reading first before jumping into trading, let alone naked trading.

    That said, boy I do hope this was a simulated (paper/hypothetical) trade you're talking about here, or next week's sure gonna suck for somebody.....
  7. What was #2? Wear a felt beret and silk ascot and use a cigarette holder?
  8. segv


    I think that for you #2 for would be to go outside and play hide-and-go-f***-yourself. ;)

  9. Why won't you just build a diversified portfolio of the far out long calls instead.
  10. Far out, man!
    Long calls!
    Whooooosh (inhales ;-)
    #10     Nov 18, 2007