Writing call options

[GladiatorX]

Hello, was wondering if anyone on this forum wrote call options as a primary methodology for their trading or maybe to increase returns on held stocks.

I've been building a model to hedge the risk When it becomes a certain % loss, but otherwise just keeping the premium...

This seems under-discussed on the forum, but heavily discussed by proffesional. So thought we should talk about such things

 

[TAjammy]

Stock Options - How to Write Call Options For Income

 

[rathcoole_exile]

great article.
introduces a concept you can't even use until you have 25k in your account and, i think it's, 5 years experience ?


lambs !! slaughter >>>>>>>>

 

[TAjammy]

well he was asking .........

 

[Splitlink]

Hello, was wondering if anyone on this forum wrote call options as a primary methodology for their trading or maybe to increase returns on held stocks.

I've been building a model to hedge the risk When it becomes a certain % loss, but otherwise just keeping the premium...

This seems under-discussed on the forum, but heavily discussed by proffesional. So thought we should talk about such things

There was a much read thread a couple of years ago, started by Socrates. He wrote naked put options. Unfortunately, as we all know, the markets started to go south about then. He kept on plugging away, though, through thick and thin, boasting of making money at it. That thread was his swan song as he was unable to prove it. I hope, for his
sake, that he was paper trading.

Maybe you could find it in the archive, I'm not sure.

 

[N Rothschild]

technically you are more likely to make money writing an option than buying one considering most options expire out of the money. How ever being short options can go very wrong which i experienced once...not pleasant

 

[TAjammy]

how do you actually write them...like...i understand what naked call etc i but what is the mechanical process?

 

[Splitlink]

technically you are more likely to make money writing an option than buying one considering most options expire out of the money. How ever being short options can go very wrong which i experienced once...not pleasant

The point is that in a rally, the price of options is pushed way above their true worth.
That is why,when buying them, it is so difficult to make a profit, unless you know what you are doing. When selling them, therefore, the reverse is true. Easy money most of the time, but when the market goes against, watch out!

Socrates did not hedge his. The point of his trades was that they were uncovered. Of course, to hold them, the trader is required to pay margin, which is increased as the price goes against him.. He may not be able to do this and the whole thing turns into a nightmare.

 

[GladiatorX]

how do you actually write them...like...i understand what naked call etc i but what is the mechanical process?

Its actually much simpler than it would seem... You just 'sell call options'. Like, click the 'sell call options' button or 'buy call options' button haha

 

[GladiatorX]

The point is that in a rally, the price of options is pushed way above their true worth.
That is why,when buying them, it is so difficult to make a profit, unless you know what you are doing. When selling them, therefore, the reverse is true. Easy money most of the time, but when the market goes against, watch out!

Socrates did not hedge his. The point of his trades was that they were uncovered. Of course, to hold them, the trader is required to pay margin, which is increased as the price goes against him.. He may not be able to do this and the whole thing turns into a nightmare.

Splitlink, you say 'watch out' but ultimately its not as risky as most people would make out because in such times and liquidity you CAN ALWAYS hedge your position, although you'd still have loss and an additional premium to pay! You can calculate all that before initiating the trade.

I thin

 

[N Rothschild]

rofl

 

[Splitlink]

Splitlink, you say 'watch out' but ultimately its not as risky as most people would make out because in such times and liquidity you CAN ALWAYS hedge your position, although you'd still have loss and an additional premium to pay! You can calculate all that before initiating the trade.

I thin

They require skilled attention. They have to be bought and sold before time wastage sets in and written just before time wastage sets in.

What tempts newxcomers into the trade is the propaganda that a buyer always knows how much he is going to lose in the trade and he can't lose more. However, the fact is that most lose , even if the share price goes up sharply because of wastage, most times the option price at very best stays still or only makes a few pence.

Writing them is more certain but margin has to be paid and hedging requires double commission to be paid to the broker. Profit is, also, limited.

 

[bangkokgee]

hi

go google iron condor,if you need to trade options,you just might not lose ur undies

 

[gooseman]

you CAN ALWAYS hedge your position,

I thin

ah the assumption of continuous markets.

 

[Splitlink]

I can't think of anything against hedging writes. The argument against Socrates plan was that he did not do that. Nevertheless, it is more than twelve years since I traded options and I have forgotten the pitfalls. That there are some, have no doubt.

 

[Technically Fundamental]

I've been building a model to hedge the risk When it becomes a certain % loss, but otherwise just keeping the premium...

Are you saying you want to build a call writing strategy based on hedging losses to a % but capping profits to the premium?

 

[arabianights]

a naive strategy is just to write the option, and if the underlying goes over the strike, buy the underlying, selling it when the underlying drops below the strike. In this strategy, ignoring transaction costs (heh) and discontinuities (hehehe) a profit of the price of the option will always be made.

I suspect this is gladiator's cunning plan...

 

[charliechongdai]

There is a way but...

Hello, was wondering if anyone on this forum wrote call options as a primary methodology for their trading or maybe to increase returns on held stocks.

I've been building a model to hedge the risk When it becomes a certain % loss, but otherwise just keeping the premium...

This seems under-discussed on the forum, but heavily discussed by proffesional. So thought we should talk about such things

"Theoretically" you can buy or sell the underlying when price breaks your option strike, and then your position will become covered call or put as long as your underlying doesn't revert back to be a loss, which no one can guarantee that. So essentially it's not a good idea for far OTM options.

 

[Martinghoul]

What gooseman was saying - and I think it was mostly ignored - is important. Whatever else you do, three things:
1) It should be mandatory to expose option sellers to a real mark-to-mkt pnl on a short gamma portfolio under various scenarios.
2) What gamma sellers sell is more than the option. You have to realize that being short gamma also means being short the liquidity option. I.e. you could end up in a situation where you're unable to delta-hedge your position.
3) Finally, being short options is, fundamentally, "wrong-way" risk. In a calamity scenario, vol explodes and guess what that does to your pnl?

Finally, let me remind everyone of one truism. Nobody has ever blown up running long options. On the other hand, history of finance is littered with stories of people who loved those pennies but found themselves staring at the underside of a bulldozer rather quickly. LTCM and AIG are two very big, famous examples, but I can give you oodles more. The reason for this is that the "unknown unknowns" for which there are no models, kill people who are short gamma and whose pockets are not deep enough.

Everything I said above changes if you have deep pockets...