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

johnk49

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

Robertral said:


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?

This will be my last posting to you.

YOU HAVE NOT GOT A CLUE!!!!
 

Robertral

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

johnk49 said:


This will be my last posting to you.

YOU HAVE NOT GOT A CLUE!!!!

I have no clue? You obviously haven't dude.....do you even know what delta heding is?
Do you even know how to price an option?
Come on prove yourself now?!?!?!?!?
Why shy away in the corner when you have heard some terms that you are not familiar with.
 

TheBramble

Legendary member
8,395 1,170
volatileN said:
[...]
I then go short the high, long the low and await convergence whilst hedging my delta in the cash market.

So you're effectively pair trading.

But are the pairs options for different underlying instruments or more often for the same, but with different strike/expiry?
 

Marc100

Member
67 0
Ouch!!!

Robertral: No disrepect but I think you would benefit greatly by re-reading your books on Covered Calls and the synthetic version of a CC, which is selling a Put.
The explanations and examples offered by johnk49 are clear and concise.

The risk profiles for both strategies are identical.

References to delta hedging and Vanillas , in this instance, are pointless and irrevelent.

I expect you know exactly what your trying to say but, unfortunately, as Bill Murray might say, your words have become lost in translation . With options more than anything else people will use different terminology but mean the same thing.

Regarding being naked. Well being naked means you are not hedged by either stock or an option.

Rgds.
 

TheBramble

Legendary member
8,395 1,170
Robertral & johnk49 - So, do you buy more often than sell or sell more often than buy?

...and if either of you even get close to 6 levels of nested quotes I will seriously consider taking a contract out on you both! :rolleyes:
 

johnk49

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

Robertral said:


I have no clue? You obviously haven't dude.....do you even know what delta heding is?
Do you even know how to price an option?
Come on prove yourself now?!?!?!?!?
Why shy away in the corner when you have heard some terms that you are not familiar with.

I really thought that this thread would be constructive and interesting for sophisticated options traders instead, for the last couple of hours I(like a fool)I have been trying to educate this idiot Robertral about options,if this is the standard then I must say I will go back to ET!Please tell me that I am wrong and that we will get some constructive thoughts and opinions on this options thread.
 

Robertral

Well-known member
446 4
Marc100 said:
Ouch!!!

Robertral: No disrepect but I think you would benefit greatly by re-reading your books on Covered Calls and the synthetic version of a CC, which is selling a Put.
The explanations and examples offered by johnk49 are clear and concise.

The risk profiles for both strategies are identical.

References to delta hedging and Vanillas , in this instance, are pointless and irrevelent.

I expect you know exactly what your trying to say but, unfortunately, as Bill Murray might say, your words have become lost in translation . With options more than anything else people will use different terminology but mean the same thing.

Regarding being naked. Well being naked means you are not hedged by either stock or an option.

Rgds.

yes I have got lost in translation.
All I'm saying is that I would never sell a naked vanilla.
Also I think the word "vanilla" is very relevent when talking about options.



Johnk49 - Look we have got off on the wrong foot, I have "got lost in translation"...All I said was that naked options are not hedged with the underlying, and then I got into the fact that I wouln't ever sell a naked option.

TheBramble - Those type of comments are needed. You have no idea about me, this is my first day on here and I've got off to a bad start. See comment above!!!!


The fact that "most" of you seem to be simply speculating on direction using options somewhat scares me here!!!!!
 

johnk49

Member
62 0
Marc100 said:
Ouch!!!

Robertral: No disrepect but I think you would benefit greatly by re-reading your books on Covered Calls and the synthetic version of a CC, which is selling a Put.
The explanations and examples offered by johnk49 are clear and concise.

The risk profiles for both strategies are identical.

References to delta hedging and Vanillas , in this instance, are pointless and irrevelent.

I expect you know exactly what your trying to say but, unfortunately, as Bill Murray might say, your words have become lost in translation . With options more than anything else people will use different terminology but mean the same thing.

Regarding being naked. Well being naked means you are not hedged by either stock or an option.

Rgds.


Marc,thank you,thank you,thankyou.For the minute I thought I was going insane!

Ok,let's get some serious talk done about pinching all that money out there by people who are buying options!As a small contribution let me just say to all the newbies out there,if you want a good book for free about options trading go to www.cashflowheaven.com you can get the book"Coulda Woulda Shoulda"(300 pages)by Charles M Cottle.This should start you off!Next,my favourite strategies are Condor Spreads,anyone else doing them?These are sleep well at night strategies!You know exactly what your losses are and what your gains are.The great thing about options are the fact that you can manage your positions,if the position is going against in a condor spread,for instance,you can evolve into a butterfly!!

Please keep the thread going and submit your thoughts and ideas.
 

RogerM

Established member
752 6
Guys - I think that this is the first time in the history of T2W that we have had a heated discussion on an options subject. Allelulia - This is progress! But can we please keep it civil.

I'm not certain that delta hedging is relevant to a covered call position. Delta hedging is more often used in a situation where there are multiple short positions to keep delta at or close to zero. I am open to persuasion here, but it'll need to be clearly put (pun blatently intended).

I've drawn a pay-off diagram of that compares a covered call and a short put.

Position (A) is a stock at 50 and a call with a strike of 50 sold for 1. If the price stays at 50, then the call expires worthless, the premium taken is retained and there is a profit of 1.

Position (B) is a short put with a strike price of 50, sold for a premium of 1. If the price of the stock at expiry is 50, then the put expires worthless, and the premium of 1 is all profit.

Superimposing (A) onto (B) shows that they are both the same.

With the covered call, if price tanks to 20, then there is a loss of 30 on the shares, but the call option expires worthless so the premium of 1 can be offset against teh loss and the net position is a loss of 29.

With the short put, if price tanks to 20, then the seller of the put will have the shares "put" upon him at 50 and he will only be able to sell them in the market at 20, leading to an immediate loss of 30, although he will still have the premium of 1 to offset against this, leaving a net loss of 29 (as shown in Red - the same as the covered call(Blue).

Now the psychological position between the 2 positions may be different in that the covered call holder doesn't need to take any action other than to cry gently into his beer - he has, after all, already paid 50 for the shares and is nursing his loss. The short put writer, however, will have to stump up the 50 upon expiry in the full knowledge that the shares he is acquiring for 50 are only worth 20 in the market. Of course if he doesn't have 50, then he has more than a psychological problem, and given the temptation to be over-geared, this may have led to regarding naked puts as more risky. But provided that you always have the funds (in this case - 50) set aside to buy the shares if price falls below 50, then the 2 positions are the same.

Has that helped or merely poured petrol on the flames?

BTW - the Charles Cottle free e-book is first class, and I shall add it to the reading list in the Options Trading Guide. Thanks for reminding me of this one Johnk49.
 

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Robertral

Well-known member
446 4
They are quite nice but I'm always concerned with negative gamma?!?!?!
Do you guys activley manage your greeks?
If so which ones do you pay most attention to?
 

Robertral

Well-known member
446 4
RogerM - All I was saying is that when I write an option I delta hedge it. Not sure I should have added it into this discussion, but as the topic of writing calls came up I thought I'd mention it.
 

johnk49

Member
62 0
RogerM said:
Guys - I think that this is the first time in the history of T2W that we have had a heated discussion on an options subject. Allelulia - This is progress! But can we please keep it civil.

I'm not certain that delta hedging is relevant to a covered call position. Delta hedging is more often used in a situation where there are multiple short positions to keep delta at or close to zero. I am open to persuasion here, but it'll need to be clearly put (pun blatently intended).

I've drawn a pay-off diagram of that compares a covered call and a short put.

Position (A) is a stock at 50 and a call with a strike of 50 sold for 1. If the price stays at 50, then the call expires worthless, the premium taken is retained and there is a profit of 1.

Position (B) is a short put with a strike price of 50, sold for a premium of 1. If the price of the stock at expiry is 50, then the put expires worthless, and the premium of 1 is all profit.

Superimposing (A) onto (B) shows that they are both the same.

With the covered call, if price tanks to 20, then there is a loss of 30 on the shares, but the call option expires worthless so the premium of 1 can be offset against teh loss and the net position is a loss of 29.

With the short put, if price tanks to 20, then the seller of the put will have the shares "put" upon him at 50 and he will only be able to sell them in the market at 20, leading to an immediate loss of 30, although he will still have the premium of 1 to offset against this, leaving a net loss of 29 (as shown in Red - the same as the covered call(Blue).

Now the psychological position between the 2 positions may be different in that the covered call holder doesn't need to take any action other than to cry gently into his beer - he has, after all, already paid 50 for the shares and is nursing his loss. The short put writer, however, will have to stump up the 50 upon expiry in the full knowledge that the shares he is acquiring for 50 are only worth 20 in the market. Of course if he doesn't have 50, then he has more than a psychological problem, and given the temptation to be over-geared, this may have led to regarding naked puts as more risky. But provided that you always have the funds (in this case - 50) set aside to buy the shares if price falls below 50, then the 2 positions are the same.

Has that helped or merely poured petrol on the flames?

BTW - the Charles Cottle free e-book is first class, and I shall add it to the reading list in the Options Trading Guide. Thanks for reminding me of this one Johnk49.

Yes RogerM,that is perfectly correct!

The point is,when you sell a naked call your potential loss is unlimited!Why?Because theoretically a stock could go to any price! On the other hand selling a naked put the stock can only go to zero,which is the risk when you buy any stock!In fact,the risk could be less!For instance,you buy a thousand shares of stock at $20 if the company goes bankrupt you lose $20,000 if,on the other hand you sell a naked put for $2000 and the company goes bankrupt you lose $18,000!!

Please don't think that I am recommending everyone to start selling naked puts,all I am saying is keep a sense of proportion,selling naked puts can be a great way to get top class stocks at a discount!

For instance you really fancy IBM but you don't want to pay the current price of $100 per share,so you wait until the price drops to say $95 then you sell a put at the 95 strike for perhaps $2,if the stock rises you get to keep the $2!If the stock falls you get the stock at discount.Some people will argue that the stock could go to zero,well if IBM goes to zero we are all in trouble no matter what we have bought or sold!!!!


Keep the thoughts coming and I am sure we can make lots of money selling premium!!
 

cassiopeia

Active member
133 2
In terms of profit potential

A written put is equivalent to combining bought stock and written call.

Moreover

A bought call is equavalent to combining bought stock and bought put
A written call is equivalent to combining sold stock and a written put
A bought put is equivalent to combing sold stock and a bought call

re 'Traded options' - a private investors guide, by Peter Temple

I think the confusion arises due to the practical v theoretical differences. Before expiry in some so called 'equivalent cases' one could be forced into a transaction in one case and not in another. ie in the case of having a written put one could be forced to buy stock, whilst in the case of a written call one could be forced to sell the stock. This may affect profits for the individual position relative to what would have happened at expiry. Of course this only applies to American style options.

So prior to expiry the two positions cannot be said to be totally equivalent in all respects. Whether this really matters in terms of profits over the long run is more debatable.
 
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RogerM

Established member
752 6
Robertral - personally, when doing a covered call I tend not to hedge. I just treat it as a way of extracting more income from a share I already hold, which is consolidating, but which I don't want to sell, or to fund the purchase of a put under the price to protect it - for instance whilst away on holiday. If I want to initiate a hedged position, I feel you might as well miss out the long stock part and just put on a vertical call spread (sell 1 x 100 call , buy 1 x 95 call ).
 
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