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

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

  1. i960


    Dude, vega. You should not be selling options until you know all the inputs which drive the pricing of an option. You were selling tail risk puts with VIX at like 10-11. It went to 50.
    #21     Feb 25, 2018
    rtw and samuel11 like this.
  2. maxinger


    I sold naked option efore.

    It was very painful experience.

    selling naked option is inherently terrible due to its terrible risk reward ratio.

    I will never do such thing anymore.
    #22     Feb 25, 2018
  3. If you're naked you can hedge with ratio backspreads. Take no/very little loss until it dips into the strikes toward expiry while you have high protection during a quick spike in vol. You typically want to go out further in time, strikes further away and more contracts than your shorts for more vega and vomma.

    I wasn't hedging short vol but rather a speculative position, it went nuts on Feb 5. However it would work almost perfectly with extreme short vol positions like naked strangles. Have a guess what 1.55 premium went to on Feb 5/6..
    jan17e.png feb6.png
    #23     Feb 25, 2018
    Mugono, iprome, ironchef and 2 others like this.
  4. wildchild


    Selling naked puts is akin to picking up pennies in front of a steamroller. Sooner or later you slip and fall and get crushed.

    Stop loss isn't going to help either since a big event will trigger a selloff and you are not going to be able to get out in time.

    Spreads make more sense. You have a predefined risk and reward.

    BTW, it sounds like you may not have a full understanding of the terminology of the products you are using, which means you likely don't understand the products. Maybe I am misreading it but you ask whats the safest way to do naked puts, then suggest put bull spreads are the safest. A put bull spread by definition is not naked. Also, if you are doing bull spreads why have a stoploss. Just structure the spread such that the max loss for the spread is the most you are willing to risk. The risk/reward is predefined when the spread is entered.
    #24     Feb 25, 2018
    tommcginnis and R3LZX like this.
  5. R3LZX


    You are correct, a bull spread is straight even, I am referring to back ratios
    for example:

    Sell 100 ES 1800's @ 1.00
    Buy 10 ES 2300's @ 25.00

    where the second trade is 50% of the naked put (these are not real quoted prices)

    for the most part, this is what has been so un nerving and why I feel the stop loss should be set for the puts to be bought back at a given interval because regardless of the buy side there is unlimited risk
    #25     Feb 25, 2018
  6. R3LZX


    This is exactly what I usually do, and of course did not do. I had the terminology mixed up with bull spread, but its back ratio. as TD Ameritrade defines it. with a highly liquid future like ES do you initiate stop losses in addition to the Back Ratio?
    #26     Feb 25, 2018
  7. ironchef


    But books, education websites (e.g. tastytrade) and gurus I read, watched and talked to, all touting selling/writing options for profits and the path to riches? They cannot be all wrong.

    Could OP's case be an exception and OP was just unlucky?
    #27     Feb 25, 2018
  8. wildchild


    I would have to look at some real numbers but in that case you would build up a lot of profit if it fell below 2300 and didnt go below 1800. Once below 1800 you are getting hammered though.

    It sounds like you are looking for a strategy to collect premuim. You can do this by selling the puts, just make sure you have a cover at a position that works for you.

    The key to trading is survival when everything goes against you, because sooner or later it will.
    #28     Feb 25, 2018
    R3LZX and ironchef like this.
  9. srinir


    You are doing the opposite of @QuasWexExort is doing. He is long the wings compared to you.

    You should read the book "Second leg down"

    #29     Feb 25, 2018
    R3LZX likes this.
  10. mfocus


    It seems to me a credit or debit spread will limit max losses, is there any scenario and special situations (e.g. liquidity) that a credit or debit spread will incur losses more than what is predefined?
    #30     Feb 25, 2018