Trading Selling naked options

Discussion in 'Share Investing Strategies, Theories & Education' started by Hodor, 23rd Nov, 2018.

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  1. Hodor

    Hodor Well-Known Member

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    Bit of an interesting read for those considering naked options. OptionSellers threw $150m+ of investors money away (100%+ losses) in just a couple of days.

    Bloomberg - Are you a robot?

    James Cordier described the events (surge in natural gas prices) that led to all this as a "rogue wave" that couldn't be predicted. They reached such heady heights as hadn't been seen in almost five years with a single day gain not seen in close to a decade.

    The whole thing is a bit much for my tiny brain to understand, IMO risk management probably should involve a strategy that won't potentially blow up your entire fund every decade.
     
    Hodor, 23rd Nov, 2018
    #1
  2. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Capped gains, unlimited losses if unhedged - not a great strategy.
     
    Jess Peletier, 23rd Nov, 2018
    #2
  3. Kent Cliffe

    Kent Cliffe Well-Known Member

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    Kent Cliffe, 23rd Nov, 2018
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  4. wategos

    wategos Well-Known Member

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    Would never sell naked calls, too risky, unlimited. I sell cash covered puts if my stock covered calls got exercised. Always covered. Has generally worked over the long term, sometimes a long time between trades though if a trend is in place. Maybe these robots put too much emphasis on probability rather than absolute risk.
     
    wategos, 23rd Nov, 2018
    #4
  5. Kent Cliffe

    Kent Cliffe Well-Known Member

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    Call me a skeptic, but small consistent gains is easier to raise FUM than long tail asymmetric pay-off.
     
    Kent Cliffe, 23rd Nov, 2018
    #5
  6. Hodor

    Hodor Well-Known Member

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    Hodor, 24th Nov, 2018
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  7. Kent Cliffe

    Kent Cliffe Well-Known Member

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    You're right, I probably should have made myself clearer. I wouldn't suggest these are black swan events, just the general concept of small consistent pay-offs vs unlikely high loss bets. The book does a good job of explaining this concept.
     
    Kent Cliffe, 24th Nov, 2018
    #7
  8. Aaron Sice

    Aaron Sice Well-Known Member

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    Options are the dumbest US-only investing strategy I have ever seen - because they aren't allowed to use CFDs on their own market.

    Set a CFD with a tight stop and graded profit takes in a fluid market (US/Euro/Japan) - avoids the gapping and limits strong after-hours movements.
     
    Aaron Sice, 7th Dec, 2018
    #8
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