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

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

  1. thaitye


    This is too sound of advice. People create their own cruxes by attaching the integrity of their being to the results of their trading, to the point where the results possess the actions of the trader, within trading and in their daily life.

    Trading is a tool, you cannot let it possess you. Traders, or entrepreneurs generally follow extremely strict rituals outside of their endeavors to build the necessary structure in their life to allow for the potential chaos of their risky endeavors. The success or failure of a trader is derived more from the inconsistencies of the trader, than the inconsistencies of the market.

    You can self talk yourself as much as you want, read mantras and affirmations, however the subconscious will always be there, prodding the back of your neck, the integrity of your rational thought.

    "Until you make the unconscious conscious, it will direct your life and you will call it fate." - Carl Jung
    #41     Feb 25, 2018
    KeLo, Sprout, R3LZX and 1 other person like this.
  2. i960


    You guys are getting blown up because you're selling OTM/strangle type stuff and juicing it up to get a reasonable return. Sell closer to the money and less of it. You'll have an easier time hedging it when the bid/ask spread gets stupid as well.
    #42     Feb 25, 2018
    nbbo, truetype and Chubbly like this.
  3. R3LZX


    Thank you for your kind and not so kind words. I have a job thank you, I am an entrepreneur of ten plus years. I have also invested in the 10 year as well as municipals and indexes and startups. I appreciate all the feedback everyone has given whether I like it or not.
    #43     Feb 25, 2018
  4. R3LZX


    indeed this is very true, I have created my own identity with my trading, I was possessed by it. When i was selling calls on NG (natural gas) because i FELT like I knew there would not be supply issues between November and January and I made a killing, was it luck? No, it was because i have a serious exposure to the industry where I live. I felt bulletproof in a way i guess. False sense of security.
    #44     Feb 25, 2018
    thaitye likes this.
  5. Palindrome


    Selling Premium - Everyone Wins at first

    Trading Directionally - Everyone Loses at first

    Nothing that is worth anything is easy.
    #45     Feb 25, 2018
  6. KeLo


    A couple guys names Henry Ford and Walt Disney went bankrupt and came back spectacularly.

    Steve Jobs got booted from Apple, only to come back bigger and better than ever. There are many more come back stories.

    Learn from your mistakes, change, and come back.
    #46     Feb 25, 2018
    R3LZX likes this.
  7. R3LZX


    Thank you. I will
    #47     Feb 25, 2018
    KeLo likes this.
  8. Selling naked puts is dangerous:

    1) Sudden moves can work against you (both in assignment, margin call, or inability to roll out of it realistically)
    2) During a fast drop you might not have a liquid enough market for any stop loss orders to get executed.

    Selling credit spreads is safer:
    1) Effectively, it's a 'naked put' with 'protection'
    2) If the market moves against you 2% or 50% your maximum loss is locked in
    3) You can manage your portfolio and margin based on your maximum loss which can easily be known.

    If you have a bull put credit spread, you no longer need to worry about a stop-loss order. In fact, a stop-loss order may work AGAINST you. (Forcing you to sell when you get a 20% loss, rather than waiting longer in case the market rebounds). If the maximum loss (the spread between the two strikes) is too much for you, then you need to narrow the spread, decrease the order size, or consider an alternative strategy.
    #48     Feb 26, 2018
    iprome and R3LZX like this.
  9. @OP Kudos for posting about a loss - its good practice to be able to speak of your mistakes as well the big winners you land. If its any consolation for you, I had an Iron Condor on the index open in that period. On Friday 2nd February when I saw how the market tanked and the index came close to my sold put, I thought to myself. Now is normally the time I would hedge with a put in the following month, however I was distracted that day and reckoned

    "You know what I'll do it on Monday"

    Famous last words - it took a hell of a manoeuvre to prevent me from taking the maximum loss on the IC - I ended up with 80% of it and was mad as hell at myself. We both made the same mistake, we didnt stick to the plan, had I hedged I would have been fine - down a little but well within normal trading parameters. I size my trades so that I cannot be blown out and have capital to prevent liquidation (which was never on the cards in my case anyway) but it was a smarting blow. The whole market downturn set my account back to mid-January levels and this one trade was responsible for 25% of that, as I am oriented directionally the other losses were more fleeting.

    Anyway - what you did wrong was not to follow your plan - simple as that. Professionals dont make these mistakes because they are paid not to be on a plane when their portfolio threatens to be blown out.
    #49     Feb 26, 2018
    R3LZX likes this.
  10. ironchef


    Naked put has protection too: Max loss is the strike price when the underlying goes to zero?
    #50     Feb 26, 2018
    dealmaker likes this.