Does anyone use this strategy? I have been selling naked calls and puts over Crude Oil Futures with moderate success. (On 60K capital) Win ratio is about 80-90% but usually one loss could wipe out 4-5 profitable trades. I employ a risk management technique by buying a call or put to protect my position should the underlying price threaten my strike price. Sometimes I hedge with futures contract and use the profit to buy long option. Overall, I still come out ahead after 100+ trades over 2 years period. If anyone had some experience with optons wrting over futures contract, please feel free to share it. (I am still 24 and need to be enlightened by veteran traders out there)
That's a lot of extra work for nothing. Just close the position once your lose reaches the premium you receive. I don't know why everyone that writes time thinks they must hold to expiration. sheesh
However hedging giving me staying power in the position or sometimes I can reverse turn a losing position into a winning one Eg: Sold Call at Strike 80 for $300 when crude oil price is at $65 then Crude Oil moved up to $67 breaching main resistance line, I wrote another option at Strike 80 or higher than purchase a close to money option. Sometimes I profit slightly if Crude Oil moves beyond by long call option but remains below my short options.
I am not an option trader. I thought that the purpose of hedging a position was to square it. Yet you're seeking to "stay in the position". Isn't there a contradiction ?
Hedging is a word that takes on many meanings by the user I believe. A hedge could simply be a way to reduce one's risk exposure by some degree. For example a protective put limits one's risk on a long stock position significantly and a short futures position hedges a short put position slightly. Both are hedges of sorts.
Okay, I agree, we could call this "partial hedge" for instance, or position reduction as you say, right ? So, as said Joab, and in my very humble opinion from someone who doesn't trade options, why not simply sell half your position when you want to reduce it, rather than buy options ? Tell me if I'm wrong, but it seems to me that what you're rather looking for, is take a slightly different position. The new position you describe seems to me more like a strangle or some sort. Which is different from hedging the position. It's just taking a different position.
Gotta squeeze out that last little bit of juice to exp, man. Can't let go of perceived cash in hand. Premie is a drug.
lol, I agree premie is a drug When I write a naked call, my initial view of the market is bearish. However if the market proves me wrong, I turn the position into ratio spread by buying a long option closer to the money and sell another out of the money option to finance this purchase. With the above strategy, I have reversed market view and turn to a semi bullish / bullish strategy which can turn into profit. Hope this makes sense Optioncoach: do you sell naked calls / puts over a futures contract?
Are you completely familiar with all the greeks? Options writing is a fools errand to make consistent money. There is nothing free just blindly writing options. The market rules. EVERYTHING is priced into the market. This includes time premium. Over the course of 10 years, you will likely find yourself near breakeven, less a whole bunch of trading costs (spread, commission, etc.). The only purpose of naked option writing, is another method of implementing a trading strategy based on what you perceive is a market outperforming method of the UNDERLYING index/instrument. Others who tell you differently, do not really understand all that is involved, sorry.
I am not blindly writing options, my result speaks louder than words. Its a good way to make consistent money. Market is not efficient sometimes premium can be relatively inflated and underpriced.