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

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

  1. There is a funny myth about this - naked puts are very dangerous and covered calls are a conservative, safe trade.
    However, the two trades (at the same strike / expiry, of course) are exactly identical in their P/L outcomes and holding results. Not accounting for bid-ask spreads, but on SP instruments, this isn't really an issue.
     
    #61     Mar 3, 2018
  2. We all still remember the story of Karen Supertrader: Too Good To Be True? who was selling naked options till the market went against her. How To Blow Up Your Account discusses it and tells a story of Victor Niederhoffer who had one of the best track records in the hedge fund industry, compounding 30% gains for 20 years. Yet, he blew up spectacularly in 1997 and 2007. Not once but twice.

    And lately, we heard about The Spectacular Fall Of LJM Preservation And Growth fund who lost 80%+ in 2 days and went out of business.

    What most experts are missing is the simple fact that the problem is not the strategy. The problem is leverage. Strategies don't kill accounts. Leverage does.

    Now, OP "just cruising along with the normal expectation" of 12%/month?? Seriously? And now he is surprised that he blew his account? Most fund managers don't make 12%/year, but he expected to make 12%/month..
     
    #62     Mar 3, 2018
    Sprout likes this.
  3. Bekim

    Bekim

    Not if you time it right
     
    #63     Mar 3, 2018
  4. One thing we do is buy 2 for every 1 sold, for a credit. If you can invert vega, crash become much more manageable. sorry for the losses.
     
    #64     Mar 3, 2018
  5. Mugono

    Mugono

    That conditionality is awesome :)
     
    #65     Mar 4, 2018
    KevinD likes this.
  6. R3LZX

    R3LZX

    Thanks Kim for your insight. I was normally selling about 24 and buying about 12k in a back ratio. This wasn’t the case because I neglected to buy the 12k closer to the money. And of course I was way over leveraged.

    Bottom line I was over leveraged and had no parachute whatsoever. My fault
     
    #66     Mar 4, 2018
  7. R3LZX

    R3LZX


    Elite, this is definitely a lot safer, when I come back (and I will come back) I will definitely be looking at this strategy.

    As I type this I am moving out of my office and this has been a real wake up call, I urge all of you moving forward to please please please listen to me and do not over leverage your accounts. in the event you are selling naked top or bottom, make sure you only risk a minimum of about 5% of your portfolio, and if its SPY etc, make sure you actually own the ETF you are selling options in, And aditionaly that you protect that with a put / call purchase of at least half of that amount!
     
    #67     Mar 4, 2018
  8. R3LZX

    R3LZX


    Thank you very much for this advice and this post
     
    #68     Mar 4, 2018
  9. R3LZX

    R3LZX


    Over leveraged, GREED, and of course downright stupid. 100K account. sold 24K (roughly) on Feb 5th without buying any protection puts closer to the money. (normally would buy half this amount for balance)
     
    #69     Mar 4, 2018
  10. R3LZX

    R3LZX

    Kim these are excellent articles. and I see that you wrote them, Thanks for sharing them. Also just so you know, I was correct on my NG trading for the months of Nov, Dec, and Jan. I am exposed to this industry, so I had a good idea I would be right based on raw fundamentals. With the boring but very liquid ES I simply got over confident, thought the bottom was in after Fridays sell off. Very much like the decision Victor Niederhoffer made. and what a foolish decision it was. I was selling the 1800's. so I was far OTM, but again no protection and over leveraged.
     
    #70     Mar 4, 2018
    Kim Klaiman likes this.