BUY or SELL Options - Vote

Do you mostly BUY or mostly SELL options?

  • I SELL more often than BUY

    Votes: 23 63.9%
  • I BUY more often than SELL

    Votes: 13 36.1%

  • Total voters
    36

bonsai

Veteren member
4,106 10
johnk

you should look to write calls when at the top of a range.

you should look to sell puts at the bottom of the range.

it is not the intention of either that you should be exercised.
 

johnk49

Member
62 0
Re: Re: Re: Re: Naked Options

Robertral said:


TBS is correct. Naked call/put means that you sell the option without being hedged with the underlying. Delta hedging ring any bells?

Covered call loss aproximatly zero with correct hedging
Naked put loss is K-S

It's obvious you people aren't very familiar with options.

THE RISK REWARD IS EXACTLY THE SAME!!!

Read the examples in my last post and then give me an example of why it is different!!
 

volatileN

Member
93 0
RogerM - In answer to you question, I extrapolate the vols using Newton-Raphson and interpolate between the points using 2 methods. I am still undecided on which I prefer. The first is a cubic spline the other a straight line interpolation (take the vols down to the variance, interpolate across and raise back to the standard deviation / implied vol). As neither are 100% it doesn't really matter but I think the smoothing feature helps a bit and it is what a lot of the guys in the OTC market use so it makes it a bit closer to the prices you would theoretically get.

The alerts system and other automation features are being written at the moment. I want to turn it into a complete black box.

I did not personally program much of the sql database, nor do I do much of my own programming as I have a highly experienced programmer in my employment. In fact we are toying with releasing some of our programs for sale to the public in Q4 this year. If you keep in touch / remind me nearer the time I will put you down for beta testing if you would be interested. That way we get free feedback and you get free software. Let me know if you are interested


osho67 – In answer to yours. It is really not technical at the functional level. At its most basic consider the following theoretical example:

Spot is at 1000, divs and rates are =

The June ATM vol is 28%
The Sept ATM vol is 35%

Your model tells you that there is an 80% chance of a convergence between the two as the historic mean over x period is a spread of 2%. You buy straddles on the Junes and sell them on the septs in such ratios that you are vega neutral. You then flatten out any residual delta in the spot market. When the spread converges you have made a profit of the % convergence multiplied by a vega figure calculated as a function of the individual straddle vegas. (This is not 100% predictable as it depends to an extent on which rises and which falls. There are obviously limits either side).

If you are long the nearer expiry then you are paying theta so need to monitor the negative impact of this (obviously this cuts both ways though).

In my experience the longer dated spreads are better as there is less of a theta consideration, obviously this also means that gamma is less of an issue so you pay less commission in doing your delta.

My stop loss is a function of time and price. If I wait more than x days (the value of x depends on how far out each expiry is) then I would close if heta was working against me, not otherwise. If I lose more than 50% of my target profit then I stop out.

It is really just like pairs trading equities but with far less risk and a greater probability of profit.

Hope this helps…

VN
 

Robertral

Well-known member
446 4
Re: Re: Re: Naked Options

johnk49 said:



No you are wrong!!

This is what I mean when I say people get confused.

Look,buy stock at 50 sell a CC at 50 for 1 stock drops to 40 you are 9 down.

Sell a naked put at 50 for 1 stock drops to 40 stock will be put to you at 50 minus the 1 you received you are 9 down.Exactly the same!

If,at expiration,stock is above 50,1 point will be gained in both instances!

It does not matter how low or how high the stock goes the results for both are the same.You could say the naked put has the advantage in that the margin requirement is a lot less than buying the stock!!


I wouldn't be 9 down with my covered call as my delta would be approximatley zero if S is down to 40, hence no underlying for me :D
 

johnk49

Member
62 0
Re: Re: Re: Re: Naked Options

Robertral said:



I wouldn't be 9 down with my covered call as my delta would be approximatley zero if S is down to 40, hence no underlying for me :D

What ARE you on about????
 

Robertral

Well-known member
446 4
Re: Re: Re: Re: Re: Naked Options

johnk49 said:


What ARE you on about????

Sorry where have I gone wrong?

Covered call strat:
S @ 40 => delta=0 => holidng no stock hence portfolio is +1 (premium) from sale of call

Naked Put:
S @ 40 => K-S - premium = down 9
 

johnk49

Member
62 0
Re: Re: Re: Re: Re: Re: Naked Options

Robertral said:


Sorry where have I gone wrong?

Covered call strat:
S @ 40 => delta=0 => holidng no stock hence portfolio is +1 (premium) from sale of call

Naked Put:
S @ 40 => K-S - premium = down 9

Robertral,please let me try to make it clearer.

You bought a thousand shares of ABC at $50 a share makes $50,000 and then you decide to sell a covered call at 50 strike for $1000,the next day the stock gaps down $10 you are now losing $10,000 minus the $1000 you received for the CC=$9000.

The deltas have nothing to do with this!Had you sold the 50 strike naked put you would be in exactly the same position.I hope this makes it clearer!
 

Robertral

Well-known member
446 4
Re: Re: Re: Re: Re: Re: Re: Naked Options

johnk49 said:


Robertral,please let me try to make it clearer.

You bought a thousand shares of ABC at $50 a share makes $50,000 and then you decide to sell a covered call at 50 strike for $1000,the next day the stock gaps down $10 you are now losing $10,000 minus the $1000 you received for the CC=$9000.

The deltas have nothing to do with this!Had you sold the 50 strike naked put you would be in exactly the same position.I hope this makes it clearer!

So you wouldn't adjust your underlying position for your CC if the stock went down $10?
You've given an example that as no practical implications....What is the purpose of this example?

Delta has nothing to do with it????????
 

johnk49

Member
62 0
Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

Robertral said:


So you wouldn't adjust your underlying position for your CC if the stock went down $10?
You've given an example that as no practical implications....What is the purpose of this example?

Delta has nothing to do with it????????


You could adjust your position in the underlying exactly the same as you could with a naked put.

Do you trade options?
What is it that you can't see?

I'm sorry if this sounds rude,but you don't have a clue what your talking about and you should not be messing about with options until you have a greater understanding of what you are doing.

If you would like to get hold of a great 305 page book(for free)just let me know it's called"Coulda Woulda Shoulda"by Charles M Cottle.Concerning covered calls vs naked puts here is an extract from the book.

THE NATURE OF A POSITION
There are three main reasons that traders lose money. First, they simply
have a wrong opinion of the market in a game where money is made and
lost based on opinions. Second, traders lose their discipline and the
patience to follow their own rules. They may have a pattern of riding
losing trades, coupled with taking profits too soon on winning trades. A
third reason can be explained by ignorance about the nature of their risk
and market nuances.
Consider this brief true story that demonstrates where risk has not
been correctly assessed:
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 hate to 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 for
all intents and purposes, a covered write4 IS a short put. 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.
 

Robertral

Well-known member
446 4
Re: Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

johnk49 said:



You could adjust your position in the underlying exactly the same as you could with a naked put.

Do you trade options?
What is it that you can't see?

I'm sorry if this sounds rude,but you don't have a clue what your talking about and you should not be messing about with options until you have a greater understanding of what you are doing.

If you would like to get hold of a great 305 page book(for free)just let me know it's called"Coulda Woulda Shoulda"by Charles M Cottle.Concerning covered calls vs naked puts here is an extract from the book.

THE NATURE OF A POSITION
There are three main reasons that traders lose money. First, they simply
have a wrong opinion of the market in a game where money is made and
lost based on opinions. Second, traders lose their discipline and the
patience to follow their own rules. They may have a pattern of riding
losing trades, coupled with taking profits too soon on winning trades. A
third reason can be explained by ignorance about the nature of their risk
and market nuances.
Consider this brief true story that demonstrates where risk has not
been correctly assessed:
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 hate to 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 for
all intents and purposes, a covered write4 IS a short put. 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.

YOU sell you a call right? and you hedge it by buying the underlying? correct?
I am correct so far?
----> deleetd that by accident but have put it back (still getting used to this)
I agree a short put is synthetically the same as short 1 call and long underlying. What I'm saying is that I'd never be in the situation where if I was short a put and the market moved down $10 I wouldn't loose the $9
If I write a vanllia I'm going delta hedge my positon and not simply keep the stock like in your example. How are you going to make moey doing that?
 
Last edited:

johnk49

Member
62 0
Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

Robertral said:


YOU sell you a call right? and you hedge it by buying the underlying? correct?
I am correct so far?


No Robert,if you own the stock you sell a call,if you don't own the stock you sell a put.

Come on you other guys on this thread help me me out here.I'm drinking beer here and Robert's driving me crazy!!Can you explain it better than me?
 

Robertral

Well-known member
446 4
Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

johnk49 said:



No Robert,if you own the stock you sell a call,if you don't own the stock you sell a put.

Come on you other guys on this thread help me me out here.I'm drinking beer here and Robert's driving me crazy!!Can you explain it better than me?

hang on..what are we argueing about here?

"if you own the stock you sell a call," that is exactly the same as what I said --> "you sell a call right? and you hedge it by buying the underlying? "
 

Robertral

Well-known member
446 4
Why would you want to sell a naked vanilla, even if it is a put? if your BET is wrong you will loose just on some stupid hunch. Ok you might be correct and make a lot but it's a zero sum game playing the markets like a casino!
I suspect your options strat is simply speculating on direction..am I correct?
 

johnk49

Member
62 0
Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

Robertral said:


hang on..what are we argueing about here?

"if you own the stock you sell a call," that is exactly the same as what I said --> "you sell a call right? and you hedge it by buying the underlying? "

I GIVE UP ROBERT!AS BASIL FAWLTY SAID,

"I COULD SPEND THE REST OF MY LIFE HAVING THIS CONVERSATION".
 

Robertral

Well-known member
446 4
Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Naked Options

johnk49 said:


I GIVE UP ROBERT!AS BASIL FAWLTY SAID,

"I COULD SPEND THE REST OF MY LIFE HAVING THIS CONVERSATION".

Look pal I write a call option and I will hedge away my risk by delta hedging it. I'm not going to simply follow your covered call example as I will loose money on the down side....do you know what delta hedging is?

So from what I understand when you write a call you don't delta hedge it?
 
 
AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock