Day Trading & Forex Forum

jontyxxxx

I trade far OTM options without any protection. As far as I can see, the only stop loss I can take is to buy similar options at a lower/higher price depending on whether I am selling puts or calls. Is this flawed thinking, or is there any easier way of getting protection?

Thanks

Jonty

Martinghoul

You're selling far OTM options, you mean? If you're doing that and looking for protection, you really know not what you do.

Just don't do it, that's the best way of getting protection...

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jontyxxxx

Thats one way of getting protection! What I am more interested in is achieving certainty surrounding the maximum loss rather than effectively running a potentially unlimited risk. I know how to do this with options, albeit with significant trading costs (and often do this with puts I sell), but is there a cleverer way, or does everyone simply hedge with options or accept the risk?

Martinghoul

In my view, the only people who should be selling far OTM options are ones that can accept the downside without blinking an eye. There's no clever way to do it (apart from buying further OTM options, which is going to cost). At any rate, I wrote something on this subject in another thread here...

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"Insofar as I may be heard by anything, which may or may not care what I say, I ask, if it matters, that you be forgiven for anything you may have done or failed to do which requires forgiveness."

gooseman

as martin says you can buy further OTM's or you can hedge delta.

again his advice is correct-just don't.

anley

Why not just dump the options if they say double in price?

jontyxxxx

Thanks for that guys - very useful and confirmed my thoughts on the subject. I'm a bit surprised at your strong views against selling far OTM options and seeking some protection though, surely this is sensible risk management when you could otherwise face an unlimited loss. Why do you think this is not a good strategy?

arabianights

It is more that if you need to ask this question then you shouldn't be doing it...

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