writing naked calls

Discussion in 'Trading' started by Blue Star, Jul 17, 2002.

  1. Everything I read states how risky this is (except in Elders new book). Seems like a good strategy in this bear market. They say how you are exposing yourself to unlimited loses but all you have to do if a postion goes against you is buy back the option. The only time you would ever have to deliver a contract is if the stock gapped opened above your strike price which I suppose would happen eventually if you played long enough. So what's the catch? Other than you need iron discipline. Anybody have success with this technique?
  2. Mike777


    I think the catch is in your question. You need iron discipline.
    Stocks can gap up big and that call you wrote for $2 is now worth $10. Ouch.

    Anyway my experience with it is the same as every other strategy. It is not just the odd occasion that a trade goes against you in a big way it is the constant small losses. If you write a call for $1 what is your Stop loss? Say it's $2 well you would be surprised how many of those stops get hit.

    Anyway, good luck.