Any option writers out there?

[Bingo]

Bingo,


What happens in an extreme situation like that if the people who lost all that money go bankrupt and can't pay?

Who then pays all the winners?

Cheers,
GP

Good question. I thought they were guaranteed by the ASX, but this may not be correst.

Bingo

 

[crashy]

Hi

been writing options about 5 years

favourite strategy is the straddle

 

[SuperTed]

Option writer naked only....about 1 in 15-20 i will buy. The buy legs are only done when i can sense a large ( and I mean large) move other wise you dont make money from the buy side.

1/ I write only on liquid stocks eg Banks, RIO, BHP, NWS..NCM (if im feeling real gung ho)

2/ smaller caps like QAN, WOW, TLS can be a waste of time because its you and a market maker. So it can be hard to close out at a "fair" price. OR you have to write in the money to get premium (not good)
3/ Buy options only pre large movement (if wrong get out quick)
generally on announcement. NAB was a ripper.

4/ the covered call can be good if the stock is trending sideways, other wise a waste of time (this will spark debate..but im ready to be proved wrong ;-)


If you are a buyer and can do it full time and make a living, i either think you are blessed from upstairs or FOS.

 

[The Barbarian Investor]

Interesting thread guy's..

I find this subject interesting and the 'real life' stories of anyone involved in the options market is a bonus.

The Barbarian Investor

 

[DTM]

Hi Joe

I deal mainly in options through commsec. It may have been me who took your money. Sorry if I did.

DTM

 

[tech/a]

If you are a buyer and can do it full time and make a living, I either think you are blessed from upstairs or FOS.

True of 99% of rhetoric posted on Options and Futures Mega success stories on most forums.
Particularly in Aust.

Just isnt the liquidity or volumes.
European and USA bourses ----very different.

Love the quote-----

 

[malachii]

I trade options (buying - not writing) part time - only when the option is a screaming buy. Usually do ok most months but crashed and burned big time this month with TLS. Options are like that though - they either give a great return (usually aim for 100% with 5 days) or they make a loss (like this month I'm down by the look of it about 100%!!!!!). That's what happens when you dont follow stop losses.

 

[DTM]

I trade options through Commsec full time although I do dabble in shares. I normally trade within the month, even days before expiry and always in the money. If I can see a good bargain through charts I will buy straight away and normally in lots of 15 - 20 contracts. If I start making 50% or more then I exit half my trades (try to take back as much of my initial principal investment) and let the rest run as profit. For example, I bought BIL 6.75 Dec calls last week for .11 X 20 contracts. The next day they were selling for .24 so I sold 10 contracts and took back my initial investment. Yesterday I sold the other 10 contracts for .3 so all up made 150% in 4 days. My best trades are ones where I can enter and exit the same day. My best trade was LLC when they announced the merger plans with GPT. I bought 10 contracts for .3 (October I think) and sold them the same day for .6 for 100% return the same day.

Generally I have been doing well where 70 - 80% of the time. I did make a mistake last month with NAB Nov calls as I got the expiry date wrong. I assumed that the expiry date was Friday and it ended up being Thursday. I had to exit at a loss on that Thursday, losing $3,000. I would have made $8,000 if the options expired on Friday.

My current exposure is to BHP which is deep in the money although I think I may have made a mistake with RIN as I bought $10 and $10.50 Puts for December and it looks as if this one is going to come back to bite me on the bum as the price is around $10.62.

Cheers

 

[SuperTed]

LoL DTM ..... friday expiry day

Like you i write larger amounts of contracts. I used to write 10x, but have found that after subtracting entry & closing out costs the profit was to small. Now i write minimum 20x - 100x. (essentially halving brokerage if you want to look at it like that ;-)

This is based on if you have a very good strategy you may as well double more of a very good trade then fish for average onces to make up income.

 

[DTM]

That's a very good strategy. Its a bit hard to find the good bargains on the ASX but when you do, you must do really well. How long do you hold your position for when you start hitting profit country? What do you look for when looking for a bargain? I'm still refining my trading and just burnt myself again this month playing with Puts (RIN and AMC). I promised myself two months ago never to play with puts in a bull market, but all the charts I see look set for a major reversal. I normally would give myself 2 months if I play with puts but RIN is every three months (therefore too expensive) whilst I couldn't resist with AMC when they started having all the Cartel problems coming out.

Interested to learn more.

 

[SuperTed]

I hold generally around 4-8 weeks, but depends on other variables if i am to exit earlier or later. I "write" so profit is essentially fixed at the time I sell MINUS buy back costs (if i dont wont to go to expiry that is).

 

[DTM]

Does that mean you're writing naked calls and puts? Sounds risky if it is. I wouldn't touch naked puts and calls. I'm also very careful with spreads as my first ever trade was a call spread on TLS and got exercised days before the expiry date and on the last day before it went ex-dividend. Sure learned quickly as it cost me 10K first up. I also missed to sell my RIN 10.50 Dec Put last week when the price dropped to around $10.00 because I thought it would drop more (too greedy - lost my discipline). Paid .065 X 20 ($1,300) and should have sold them at .4 X 20 realising $6,700 profit. Anyway, just another story "it was this big but it got away".

It seems your postings are on when everybody else's asleep. Are you trading the US markets or something?

 

[wayneL]

Does that mean you're writing naked calls and puts? Sounds risky if it is. I wouldn't touch naked puts and calls. I'm also very careful with spreads as my first ever trade was a call spread on TLS and got exercised days before the expiry date and on the last day before it went ex-dividend. Sure learned quickly as it cost me 10K first up. I also missed to sell my RIN 10.50 Dec Put last week when the price dropped to around $10.00 because I thought it would drop more (too greedy - lost my discipline). Paid .065 X 20 ($1,300) and should have sold them at .4 X 20 realising $6,700 profit. Anyway, just another story "it was this big but it got away".

It seems your postings are on when everybody else's asleep. Are you trading the US markets or something?

DTM,

Why would you be prepared to do covered calls and yet believe naked puts are too risky?

The payoff diagram (and therefore risk) is exactly the same!!!!

 

[wayneL]

From Charles Cottles book "Coulda Woulda Shoulda"

Story: Covered-Write: A trader once came up to me on the floor
of the exchange and asked, “What do you think about selling
the 90 calls at about 9.00, and buying the stock here at about
96.00, one to one (one call for each 1oo2 (100) shares)?” His
reasoning was that if the stock stayed at current levels,
traded higher or at least stayed above 90 he would have a
profit of about 3.00 ($300) for each one to one spread. That
assumption is correct but I then asked him, "Hold that
thought to the side for a moment and instead consider, as an
alternative, selling the same quantity of 90 puts at 3.00
naked3?” He was quick to answer, “No, never, I would hateto be naked short puts!” I then showed him that the two
trades are virtually identical. Being naked short puts is very
suitable for certain investors in certain circumstances but it
seemed reasonable to assume that the trade was not for this
particular person. End

Had the trader in the example known that a covered write was like
a short put he would have realized that he himself would not do the trade.
This is where synthetics come in. It would have been a suitable trade
had the trader been willing to be short naked puts and had the financial
resources to cover the trade. However, this trader did not know, that [highlight]for
all intents and purposes, a covered write IS a short put.[/highlight] A full
understanding of the consequences of a position beforehand is essential.
No matter how the position is viewed (including synthetically), the trader
should be happy with it, know approximately how long he wants to
remain in the trade, and know how he will handle it under profit and loss
scenarios.

Cheers

 

[crashy]

I did make a mistake last month with NAB Nov calls as I got the expiry date wrong. I assumed that the expiry date was Friday and it ended up being Thursday. I had to exit at a loss on that Thursday, losing $3,000. I would have made $8,000 if the options expired on Friday.

An option trader who doesnt know options always expire on a Thursday? How long did you say you have been trading these things?

mummy, Im scared!

 

[crashy]

for
all intents and purposes, a covered write IS a short put.

Yes I am often bugged by this misperception also.

Another one is when traders think it is more risky to write calls or puts than buying the same number of shares.

For example, some traders will happily buy 20,000 TLS shares, but show them an option trade writing 20 contracts of calls or puts and they will freak out. Little do they know, the option trade is safer and less risky because the option premium provides a buffer.

The danger as always is excessive leverage. Traders will often abuse leverage and thats when the trouble starts. Its not the options fault.....

 

[DTM]

Hi Crashy


Am still a novice and am still learning. With all the mistakes I've been posting its frightening what I've done, although I've still had more success than failures. Basically I've been trading full time for the last 2 months. Prior to that, I did an optionetics course 6 months ago and prior to trading, spent three months watching the screen and seeing the dynamics of the sharemarket and price movement. I doubled my money in the first six weeks and would have tripled it but for those mistakes. I do have a risk management system in place but its not so much based on a stop loss but on the price movement within a predetermined range and also where it ends up at the end of the day (unless its a huge drop).

I'm still learning and the more I learn the better I get. Selling naked calls or naked puts is scary to me. Yesterday, I excercised 25 X 1.20 Dec 04 call contracts for HHG. I paid $625 for the 25 contracts and HHG is at 1.44 as I'm writing. I hope that other person had the shares and if he hasn't then thats one of the reasons why I find writing naked calls scary. I tend to disagree that writing a covered call is the same as writing a naked call. Covered calls do limit your profit, but it means you can't make a loss (unless the share goes down). The other scary reason for naked puts is that companies like HIH and ION could leave you holding someone else's losses and theres no limit to those losses.

 

[wayneL]

The danger as always is excessive leverage. Traders will often abuse leverage and thats when the trouble starts. Its not the options fault.....

Amen Crashy

Merry Christmas

 

[The Barbarian Investor]

Last Thursday of the MONTH

Expire on Thursday .. unless.. the last friday of the month is a public holiday, then it's the prior Thursday ..isn't it??

TBI

 

[positivecashflow]

I tend to disagree that writing a covered call is the same as writing a naked call. Covered calls do limit your profit, but it means you can't make a loss (unless the share goes down). The other scary reason for naked puts is that companies like HIH and ION could leave you holding someone else's losses and theres no limit to those losses.

Yes a covered call does NOT have the same risk graph as a naked call... as wayneL mentioned, the covered call has the same risk graph (payoff diagram) as a naked put... so if you are saying that naked puts are scary, shouldn't covered calls be just as scary to you?

I did make a mistake last month with NAB Nov calls as I got the expiry date wrong. I assumed that the expiry date was Friday and it ended up being Thursday.

You must have gotten confused with the expiry dates of options in the U.S?