Naked Put Oil/GLD?

I'm just wondering how bad people in general view naked puts? I've been thinking about it, and it seems like it could be a good strategy if you have an order to buy back the put if it gets below a certain amount (stoploss). Especially on oil/gold or other commodities that are pretty upward trending (I know past performance, future returns blah blah). Any thoughts you guys?

 

As an individual investor, it can be frustrating to do the spread, because often the leg you're buying to cap downside is illiquid and you'll have to cross a decent spread.

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 

Selling OTM naked calls (i.e. not selling a call spread) is a death sentence in something like oil. I don't care that the volatility is high, this thing could spike another $20 bucks over the next few months. Risk is definitely to the upside for now.

Selling naked puts is fine as far as oil, volatility is high for both calls and puts but the pressure is to the upside. It's still a risky trade, but something I think you can do if you understand the risk. You can always turn it into a spread, but at these levels I don't think it's worth financing the trade to be honest...

 
Best Response

You can not use stops with options.

alexpasch:
Selling naked puts is fine as far as oil, volatility is high for both calls and puts but the pressure is to the upside. It's still a risky trade, but something I think you can do if you understand the risk

Selling naked options is a pure income generating strategy, one that I agree with as long you proceed with severe caution. With that said, putting your neck on the line by using calls may not be the wisest thing to do right now in a clear up-trending market Sama. You sell puts on the way up and calls on the way down, just make sure you RESEARCH a wise strike price and contract month. This isn't Vegas.

Good Luck Trading!

PS - The only time I would sell a naked call in a situation(current gld/oil market) like this is to subdue some of the pressure on my puts during a pull back. Ex - Sell 10 puts in oil then sell 4 or 5 calls on a pull back. I never sell the same amount as my current objective due to my risk/reward ratio.

Please don't make me talk to you like an asshole...
 
Bravo:
Selling naked options is a pure income generating strategy, one that I agree with as long you proceed with severe caution. With that said, putting your neck on the line by using calls may not be the wisest thing to do right now in a clear up-trending market Sama. You sell puts on the way up and calls on the way down, just make sure you RESEARCH a wise strike price and contract month. This isn't Vegas.
I would also chime in that implied vol is pretty close to post-crash lows in most areas. So you're selling optionality on the cheap here. And if it's on far-out equity calls, you've got skew working against you, too. So you're selling optionality really cheap here. And if there is a dollar crisis (5% chance over the next two years), you're going to get totally run over on almost all non-fixed-income underlyers.
 

It might be an interesting substitute for a bond portfolio- instead of buying bonds, sell deep out of the money european puts and have the exercise price covered with FDIC insured CDs maturing at expiry or other investments.

Just have to be really careful with this strategy and don't get too correlated to one underlyer (even an index). In 2008, you would have lost a lot more than a bond strategy but probably less than equities and maybe even preferreds.

 

Butterfly Oil, Naked Puts Oil.

There is trades I think those at home watching infomercials should stay away from. Your basically talking about things that most global macro or option oil guys at major firms have on right now. Also they are able to protect or push these things.

Trades like these guys who have access to GLOBEX/NYMEX floor can push in one direction or another on a single day and you would be margin called big time.

Same with all those people looking at BNO and USO...and trying to trade global oil basis's using ETFs at home.

 
marcellus_wallace:
Butterfly Oil, Naked Puts Oil.

There is trades I think those at home watching infomercials should stay away from. Your basically talking about things that most global macro or option oil guys at major firms have on right now. Also they are able to protect or push these things.

Trades like these guys who have access to GLOBEX/NYMEX floor can push in one direction or another on a single day and you would be margin called big time.

Same with all those people looking at BNO and USO...and trying to trade global oil basis's using ETFs at home.

This brings up a good question. If you're selling naked puts do you have to have the money in the account in the worst case scenario? Say I want to sell 100 puts at 23, do I need 2300 cash on hand?

It seems like I shouldn' t have to, because I could put a stop loss of buying 20 dollar puts if the price falls below 21 for example. Then my downside is significantly reduced.

 

@ Monkeysama

Selling options on futures is a margined trade, the premium you received for selling the option reduces your initial margin requirement. Ex....

CL margin is $6,075 but you sell a May $96 put and collect $2,110 your initial margin requirement would be $3,965. Whoever your broker clears through RAN system will calculate your maintenance requirement. Ex.. initial margin is $3,965 maintenance margin is $2,000 you have $1,965 price swing before you get a Margin Call. You can not use a stop when trading options on futures due to theoretic values, stops are for future contracts.

Please don't make me talk to you like an asshole...
 

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