Andy, Although I've never sold naked options on the SPX, I believe the margin required to do this would be very, very high.
The margin Requirement's on this would be ridiculous unless you had MAD MAD bank. OX's Margin Req: Unsecured Short Puts & Naked Calls (Equity and Index) 25% of the underlying market price + the premium - amount out of the money OR 10% of the underlying market price (or strike price for O-T-M puts) + the premium, whichever is greater.* Cash Secured Short Puts 100% of the exercisable value
Just ran a quick check on OX using the 1220 Dec puts. If you sell 10 contracts naked, the margin required is $283,435 and your credit would be $2,300. ryan
MARGIN! Did you know that selling 10 DEC SPX 1160 Puts @ $0.40 would bring in $400 and require $159,113 in margin (from ToS). Higher strikes is more credit but more margin. I cannot see how selling naked puts is preferable to selling credit spreads. At least the spread hedges substantially against IV increases, the naked puts have detla/gamma risk and significant vega risk, not to mention that margin requirement.
Yes, yes, yes,.... I should have stated that you'd have to move to options on SP instead of SPX (same mechanics) so you could use SPAN margin -- that's a given. So, why not sell naked options? Yu-Dee Chang, Ansbacher, Zenith Fund, Oxeye,... and several other premium selling funds do it.
Well naturally now that I took off the call spreads, the SPX is down almost 8 points! Figures.... Well from a technical standpoint I still feel safe with 1220 put strikes. Also I read somewhere that the week after Thanksgiving is often weak (who knows why?). As long as no big show drops I will not make any moves on the put side, worst case scenario sell another 100 for more premium. Want my other theory? In addition to overbought conditions I also think people are selling to take losses for tax time and to fall outside the wash sale rule by selling 30 days before the end of the year and then buying again in JAN. I have heard this does happen and since we have had a nice rally, perhaps some people/funds are looking to take some easy losses by selling set losers to reduce gains from recent rallies. That's my story and I'm a stickin' to it....
Is SPAN margin on options on futures that much better than credit spread margin on S&P? Remember that SP is $250 per point as opposed to $100 per point on SPX. ES is $50 per point so margin is less but so is credits. You need to use real numbers with a real trade to determine what the actual margin is for comparison just like we produced for the SPX exmaples. I do not have access to ES or SP quotes so you might have to help us here. I still cannot see how a naked put has a better risk/reward profile than a credit spread or margin requirements but I do not know the SPAN requirements. Also, if I had millions in funds, I would also sell naked puts for more premiums since margin is not really an issue. They have so much cash that selling puts ties up nothing as it would for us For example if I was managing $50 million, I could see selling $20 million in margin worth of puts. Honestly I would still do the spreads perhaps but it is easy to see why big boys do it, they have so many resources and can use the futures quickly to hedge since they are like products. For me selling 20 naked puts on the SPX pretty much locks me up for good. Also if those guys jumped off the Brooklyn Bridge.... lol
I have been studying the history of the SPX, and XEO for the last 37 months ,37 cycles from settlement to settlement. I used CBOE website for the setllement values and yahoo finance for the closing values. I have these files on word documents. I compiled some statistics regarding these two indices and their monthly behavior. The files are not complete yet, but I can share some of the findings that have regarding the SPX up months for the last 37 months: I considered a month as A cycle: from settlement to settlement No of months studied = 37 from 10 /17/02 till 11/17/05 No of months the SPX settled positive= 22 No of months the SPX settled negative = 17 The SPX went up 4 months in a row= 0 times The SPX went up 3 months in a row= 3 times : The first time was from 8/15/03, 9/19/03, 10/17/03 for total points of 1.8 + 48.55 + 11.64 = 61.99 points. The second time was from 12/19/03, 1/16/04, 2/20/04 for total points of 53.47 + 45.91 + 13.24 for the total points of = 112.62 points The third time was from 5/20/05, 6/17/05, 7/15/05 for total points of = 33.08 +30.75+4.18 = 68.01 points SPX went up 2 times in a row = (not including the 3 months cycles)= 2 times: The first time was from 5/16/03, 6/20/03 for total points of= 64.70 + 57.40 = 122.60 The second time was from 11/19/04 , 12/17/04 for total points of 78.28 + 6.04= 84.32 No of times SPX was up one month and finished down the second month= 8 times The biggest monthly gain (cycle)= was 11/ 19/04 = 78.28 points The second biggest = 11/17/05 = 71.06 points. Labib Imtanes
Very interesting stuff. As a trading approach for call spreads, I wonder if it makes sense to double and roll up within the ucrrent month as much as your margin will allow, and then if that fails, keep rolling up and out to the next month. In the period where the SPX rose 3 months in a row, asssuming you'd originally sold strikes 45 points OTM (from the nov 2003 SET), if you'd done this, you would've eventually recovered by May. Although those would be some incredible nail biting, long months and I'm not sure I'd have the wherewithal for it. Probably better just to take to take the pain and close it out in the first month and then try again the next month.