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

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

  1. monkeyc


    Nakeds aren't dangerous unless you make them that way, which many people do. I've sold them for 20 years and have gone through Black Swans far worse than this. It's all about taking appropriate leverage.

    If you blew out when ES fell only 10% in 4 days, then you were over-leveraged. On my Black Swan richter scale, Feb 1-6 was a 5 out of 10 -- nothing special. I expect events like that happen every 2-3 years.
    #51     Feb 27, 2018
    shatteredx and R3LZX like this.
  2. spindr0


    And yet you sell covered calls which is equivalent to short puts. Unless you leverage yourself, it's the same result, good or bad.

    No one can jump in front of you. How fast you draw and shoot your order for execution determines what your fill price is (whatever the ask price is).
    #52     Feb 27, 2018
  3. spindr0


    And yet the public is sold a bill of goods that selling covered calls (equiv to short put) is a safe strategy. Safe for the broker, not the investor.
    #53     Feb 27, 2018
  4. spindr0


    Also known as "With short puts and covered calls, most of the time you eat like a bird and sometimes you sh*t like an elephant."

    Yes, spreads make more sense and for those who own the underlying, collars (both are equivalent).
    #54     Feb 27, 2018
  5. R3LZX


    you are correct, I should have only been selling 5% to 7% of my total account. with a 50% put purchase closer to the money as well for safety. Thanks for your input
    #55     Feb 27, 2018
  6. MattZ

    MattZ Sponsor

    If you look at the landscape of CTAs, Funds, and other money managers who were engaged in shorting volatility, you would see that professionals were just as affected as retail if not more on Feb 5, 2018. This was reflected in two ways:
    1) The losses and drawdowns that pros had 2) The additional funds some FCMs had to infuse to meet regulatory requirements.
    #56     Feb 27, 2018
    TrustyJules likes this.
  7. Could you please clarify what does it mean? You were getting 12k credit (12%) per month in 100k account?

    Sorry if you mentioned it elsewhere.
    #57     Mar 3, 2018
  8. Mugono



    My 2 cents:

    Selling wings have terrible risk characteristics. Sure, the risk premium may, at times, be attractive but I suspect with this strategy; leverage and time / theta is the sauce needed to generate acceptable $ profits.

    The main downside with OTM selling is the accumulation of gammas and vegas, which both work against the OTM put seller. Food for the @op to consider as possible mitigants for this strategy:

    (1) Bound the short strike by purchasing a further OTM strike does help. Increase the number of contracts, as appropriate. The risk / reward is at least bounded.
    (2) I like the idea from @QuasWexExort of buying further out in time (ratio) backspreads. The short premium will help (partially) pay for the long premium.
    (3) The OP could also think about selling OTM puts further out in time. This is effectively a vega (not theta) play but has the benefit of being less exposed to gamma (gammas will accumulate but not as quickly as the front month).
    (4) Sell closer to the money / ATM. Higher premium and exposure to theta, vega, gamma is at its maximum. The gamma declines as the underlying moves against you so is easier to hedge. May need to actively manage this position unless the downside is capped (i.e. converted to a vertical as per (1)).
    Last edited: Mar 3, 2018
    #58     Mar 3, 2018
  9. Bekim


    The safest way to sell naked in my opinion is to only sell enough that you can take the shares when assigned. You might get screwed for a bit but you won’t blow up you account.
    #59     Mar 3, 2018
  10. Mugono


    The only downside will be that the $ dollar profits will be lousy :)
    #60     Mar 3, 2018