lol! Why the hating? I'm not the guy calling you during dinner to sell you insulation either. I was just trying to pass on my experience with the strategy. My lesson was don't overextend yourself, short puts = leveraged covered calls.
Watch out for these guys!
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lol! Why the hating? I'm not the guy calling you during dinner to sell you insulation either. I was just trying to pass on my experience with the strategy. My lesson was don't overextend yourself, short puts = leveraged covered calls.
Well dont Give people positive re-enforcment on a product which gives you accelerated loss, which you yourself have experienced!
ITS A BAD STRATEGY. You find me an options trader who thinks its a good strategy and ill find you a liar. Maybe WayneL can share his views, he is a seasoned options trader.
But from my epxerience and understanding, there is no quicker way to lose money short of burning it
Timmy
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Don't take the comments the wrong way bilo - we did get a bit excited with the suggestion that naked puts were for 'mum and dad' investors. Experienced options traders are at least equipped to make an informed decision on whether or not to partake.
And welcome to ASF!
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Naked puts/synthetic equiv has its place as a strategy - its not necessarily an instant loser.
As bilo points out, overextending leverage in terms of margin is the main trouble for retail.
As bilo points out, overextending leverage in terms of margin is the main trouble for retail.
Mazz,
Agreed that it is a strategy and a place, but where that is i have no idea.
Are you telling me you would sell naked puts?
The only way id sell a naked put would be if i was buying a put at a lower strike.
Uncovered is just crazy given volatile conditions.
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Leverage [margin and convexity] causes a lot of trouble.
I've seen many retailers put on bull put spreads as you've described in size with risk:reward ratios 15:1 for </=10c/spread. The loss is still massive once the short strikes are breached.
Uncovered - it is not necessarily bad, but will be contingent on risk/reward, implied vols, amount of leverage etc.
Alot of of vol bets with vanilla options are accomplished with straddles - and this is by insto's and funds.
I've seen many retailers put on bull put spreads as you've described in size with risk:reward ratios 15:1 for </=10c/spread. The loss is still massive once the short strikes are breached.
Uncovered - it is not necessarily bad, but will be contingent on risk/reward, implied vols, amount of leverage etc.
Alot of of vol bets with vanilla options are accomplished with straddles - and this is by insto's and funds.
Mazz
How can you put a value on risk reward?
You risk is nearly unlimeted at least until it worth 0.
You cant convince me this is technically sound strategy
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So how do determine r/r when you are long equities? You don't have a predetermined stop to gauge r/r?
According to your logic the risk for long equities is also limited to zero?
I am presenting an argument that just because one is uncovered, does not instantly imply negative connotations [This isn't restricted to single puts]. Being covered [as with your example: bull put spread] can still lead to huge losses.
According to your logic the risk for long equities is also limited to zero?
I am presenting an argument that just because one is uncovered, does not instantly imply negative connotations [This isn't restricted to single puts]. Being covered [as with your example: bull put spread] can still lead to huge losses.
Mazz,
Put simply a g/stop loss order? I know what my maximum risk is, it has a value.
Forgive me if i am being ignorant but i believe no such thing exists for selling options. So i can easily identify my risk, you can't when selling options. This is my whole arguement.
wayneL
VIVA LA LIBERTAD, CARAJO!
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When you buy a stock, the risk is also nearly unlimited at least until it worth 0. In fact, the naked put has less risk on a face value basis than stock, because yoe receive a premum.
The operative word being face value. As Maz explained, it is the leverage that kills, not the strategy.
e.g.
Trader A buys 100 stock at $100. He has $10,000 in the deal.
Trader B sells a $100 put contract (=100 shares) for $3.00. Even though his margin is only circa $2,300 (including premium received, he still has $10,000 in the deal because that is the face value of the contract.
Let's say stock goes to zero.
Trader A loses $10,000
Trader B loses $9,700
It's obvious the put seller loses LESS. Therefore the naked put carries less total risk. (but less potential reward)
Where the perception of risk comes from with naked puts is:
People will sell 5 $95 contracts @ $1.00 and take in $500 premium. But their face value risk is $47,000. (5 x $95 x 100 - premium received)..
They have decided to snatch pennies from the mouth of a shark. Dumb.
It's the leverage that kills, not the strategy
Yes It is due to leverage that your loss is accelerated, which is what i said.
But buying that many options is part of the strategy you have just excersied.
And given my account size, which i mentioned, a poor strategy.
Also take into account you may not receieve dividends so do you really come out in front at all?
But the reality is, if you have 10,000 dollars you are not going to use $100 to trade the option.
The whole idea is to use the leverage, which is why you cover. You now have more buying power. And limited risk.
I understand what you are saying and its true given the concepts, but you are not going to trade like that.
wayneL
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Incorrect. View my youtubes to understand why.
Bull puts, depending on how you leverage and position size, may have greater risk of ruin than naked puts.
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Luke,
r/r can still be gauged based on deltas generated or implied vol bpt. I admit that most don't stay uncovered all the way to expiry.
When trading options one should consider the leverage carried by curvature, not only leverage concerned with margin requirements.
Well...in the end everyone should just stay the f**k away from options LOL jk
:Yes of course their are other strategies which differ in this regard.
But from what i am presenting, not other strategies, there is no reason to do it.
Taking a margain loan to cover naked put selling IS A BAD STRATEGY. And that is all i am saying.
This is what i was told would be the strategy, this is what i am saying is the most idiotic strategy i have ever heard. There is no other set-up involved, no cover, no synthetic.
Conceptually what you stated wayneL is correct i agree, but this is not the reality of how the strategy is presented and executed.
Well...in the end everyone should just stay the f**k away from options LOL
jk
Not bad advice if one doesnt know what they are doing!
Somebody who simply sells/advises to sell naked puts with $100 margain on a $10 000 risk, with a 15k account should not be trading options. AND THIS IS MY POINT
P.S Mazzatelli chuck another girl up, im interested to see the next one
Yeah 15k is too small with 1,000/k ASX options. Good to diversify delta across a couple of stocks, preferably with low correlation.
The other risk i didnt mention is liquidity. Sometimes there's no market in ITM options making it very hard to cut losses. This is a point of difference with long stock where its easier to execute stop losses.
wayneL
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lukeaye,
Can I take some options lessons from you?:
Can I take some options lessons from you?
:lukeaye,
Can I take some options lessons from you?
LOL.
All im saying is that he did not present anything else in this strategy. No synthetics, no covers, nothing else. Im not a genius with options and im not going to claim to be, but from my understanding, given the CONTEXT and scenario its madness.
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I see where you're coming from lukeaye,
Early on in my option trading journey I was fortunate enough to have a cheap private lesson on the perils of naked puts courtesy of the ASX.
These days I spread only.
Early on in my option trading journey I was fortunate enough to have a cheap private lesson on the perils of naked puts courtesy of the ASX.
These days I spread only.
I see where you're coming from lukeaye,
Early on in my option trading journey I was fortunate enough to have a cheap private lesson on the perils of naked puts courtesy of the ASX.
These days I spread only.
Cheap private lesson! Ive had an expensive one hahaha, not my own but a friend selling naked puts on oil. Ill give you one guess when?
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