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

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

  1. ironchef


    Thanks you both for your comments. Question: If you are net long the wings, how do you select? Based on net premium collected or total risks or ...?

    And is the answer in the book?

    #31     Feb 25, 2018
  2. srinir


    It is better to read the book. It is one of the best books I have read along with the "Expected returns" by Antti Ilmanen. Latter is probably is the best book came out in last decade.

    There are many strategies he goes thru' very quantitatively.
    Basically one of the strategy is backspread (around 4 week long in duration) all the time and rolls weekly. It doesn't cost much, but provides very good protection in the events like last month or flash crash.

    He does evaluate other strategies VIX calls, futures and weekly put-spreads etc

    #32     Feb 25, 2018
  3. JSOP


    Basically selling naked options is like driving through red lights at nights. Most of the time, the roads would be clear and quite enough and you can drive through them no problem. But when you do it too often, eventually on one of those nights, you are going to crash into a car who's speeding down the street on the green light thinking it's the middle of the night.

    So just like you need to find the quietest street possible with the least amount of traffic for you to do red-light drive-thru at night, for options, you need to find as far as out of money as you can of the Strike price with as high as the Option premiums and sell them in as large as the quantity as your margin allows. And do it ONE direction only, NO Strangles. It's called Strangles for a reason: It's because you REALLY get strangled and you die.

    You basically have to get lucky to find those options with premiums that overcompensate for its future risk. That's when you make money. But once in a while, you are going to get creamed; you need to be prepared for that especially in this day and age where the volatility is so high. And I agree with one of the commentator. SL just like braking in the middle of the road would NOT help you. Hopefully you have made enough money that it would cover the occasional losses; that's the key.
    Last edited: Feb 25, 2018
    #33     Feb 25, 2018
    R3LZX likes this.
  4. R3LZX


    I understand the tail risk puts but this
    very unlucky

    Thank you for this post.
    #34     Feb 25, 2018
  5. ironchef


    Seems like the risky part is not writing options but leverage:


    What is there not to like? Selling puts/OTM calls gave higher returns, lower volatilities and almost double the Sharpe ratio. This is as close to free lunch as I can find?
    #35     Feb 25, 2018
  6. Xela


    Might that belief possibly be - directly or indirectly - the reason you have the problem?

    Is it possible that what you really need are different beliefs?

    Call me a skepchick, but this observation makes me wonder whether - after the next time you get wiped out - you'll say "very unlucky yet again" or "I should have changed my beliefs".

    Apologies if I sound unsympathetic (not actually my intention at all!!), but in my opinion the post you need to keep reading, here, is this one, from a couple of pages back. And I wish you good luck in future.
    Last edited: Feb 25, 2018
    #36     Feb 25, 2018
    freedinner, Sprout, dealmaker and 2 others like this.
  7. thaitye


    I think you're missing the mark on trading altogether. When I drill into your post, I get the strong presumption that you're looking for a concrete structure to trade within. You have to understand that trading is discretionary. Those who win are extremely competent with immense foresight. The foresight to accept ALL probabilities.

    This mentality is ubiquitous towards all professions that scale reward by performance. How do you determine who makes the most, and who makes the least? What is the deciding factor? The strength of your system? Well how does your system become strong to begin with?

    Even systematic quant traders use discretion when building their systems. They have to formulate the premise to which their system holds value. They choose with discretion which variables and factors of risk matter. They mine data, come up with sophisticated models, but in the end it is their decisions that decides the ultimate state of the system.

    So what is it that separates those who succeed immensely at a competitive environment and those that don't? This is something to contemplate.

    But nonetheless, one thing it's not, is the inability to not adapt. It is not the seeking of a structured and secure life, and the comfort of order. You have to always be on your toes, and looking to where things can do wrong. When you climb high enough in the environment, and you have an innate confidence that you have sufficiently integrated the task with your subconscious, it is then that you can enjoy the fruits of your labor. While always accepting the fact that there is always that small small chance that everything could violently come falling down.
    #37     Feb 25, 2018
    MattZ, Sprout, R3LZX and 4 others like this.
  8. samuel11


    If you are looking for stable income, may I suggest you buy some bonds?
    #38     Feb 25, 2018
  9. newwurldmn


    or get a job!
    #39     Feb 25, 2018
    i960 likes this.
  10. Xela


    Steady on: no need for that kind of language, in the forum ... [​IMG]
    #40     Feb 25, 2018
    777 and comagnum like this.