Wiped out selling naked puts with no stop loss or credit spread

Discussion in 'Options' started by R3LZX, Feb 24, 2018.

  1. R3LZX


    So I had about 100K in ES and was just cruising along with the normal expectation that it would easily bring in some pennies as always, (about 12K) I've done this same trade many times with CS, and NG, as well as NQ and RTY. I am not new to any of this, I've been picking up pennies in front of the steamroller for quite some time. Sell a strangle, don't sell too much or it will easily move against you etc etc. Keep it 15% OTM. But this time, Feb 5th I got cleaned out.

    I was stupid, I had no stop loss, and had not purchased any puts closer to ITM. Again I was stupid, and was going to adjust my trade later, but was traveling and I got liquidated. false security in the low vix market that we have had.

    The would haves and could haves all come to light, if I indeed do decide to get back in, and manage to come up with some money somehow someway, I would like to know if any of you guys have a multi year track record with this strategy of Credit Put spread Bull put Spread (same thing) of ES, SPX, etc. with a stop loss of course for added protection.. I figure half of something is a whole lot better than nothing. I know selling options is dangerous, and as I type this I'm closing my office and running my small business form home and have a lot of financial problems, but I am a trader at heart, and truly believe that there is a long term way to make this trade consistently work.

    I guess the real question is: If you are going to sell naked puts, what is the absolute safest way? I personally think that Bull Put Spreads seem to be the best way to go, with a stop loss to prevent risk of ruin. (turtles anyone?)

    Should I give up? No. but God I'm having a hard time here with this.
  2. you need a better understanding of the risk you are taking , selling puts and just cruising along is not a plan. /es puts for example have reduced buying power compared to SPY. how much buying power were u using for those /ES puts?
  3. Robert Morse

    Robert Morse Sponsor

    That would depend on your clearing firm but in most cases ES options/SPAN margin , is very similar to Portfolio margin. Reg-T vs SPAN, SPAN is much better,
  4. R3LZX


    well I had 100K and was selling 12k my buying power was somewhere around 60k I believe. Point is I should not have let the trade sit and should have done what I normally do (credit spread). Hindsight perhaps I should only have around 7% involved in the actual trade. thanks for the response
  5. Cabin111


    I don't know a lot about options...Just what I have read and heard (over 20 years). I have always heard that the naked put option is the most dangerous option out there. Even with a stop loss, if there is no market (think 2000 tech bubble or 2007 financial crisis) your assets can be completely wiped out. Also couldn't the large institutions still jump ahead of you in different ways?? Just asking...

    I keep one account a Schwab and one account at Fidelity (besides Roth IRAs)...If I make a major mistake, I have only risked 1/2 of my account funds. I made one huge mistake one time. I put an extra 0 on a trade. Instead of 1,000 shares I put 10,000. I caught it later in the trading day...Ended up with about 3,200 shares. Thought...What have I done!!?? I held on to the stock and have made about $10,000. when you include the dividend. Go figure...

    Now, EVERY trade I double and triple check before I place my order...
  6. srinir



    In the above OP case, would SPX or SPY puts fared better? That night ES was crazy, but not sure whether SPX or SPY puts would have been liquidated too in the night.
  7. Robert Morse

    Robert Morse Sponsor

    You can't liquidate SPY options before 9:30am ET. Not sure if that helps or hurts.
    lawrence-lugar likes this.
  8. srinir


    Thanks. Is it the same for SPX puts?
  9. Robert Morse

    Robert Morse Sponsor

    They trade pre-market from 2:00 a.m. to 8:15 a.m CT. I have no idea if those brokers that have access would liquidate then or after the open.
    srinir likes this.
  10. R3LZX


    And in my haste to get on a plane I have lost 100K. This is a significant amount of money. I will consider multiple accounts myself. Seems like a good mental hedge.

    it may have there is a good chance things would have cooled down, SPY is not near as high with regards to premiums, but then that is why I'm in this situation.
    #10     Feb 24, 2018