Doing Nakeds Is A Great Investment Tool

[Daniel Mollat]

I'm a new member of this forum. After reviewing almost all the posts on the folder on options I notice there is an absence of any discussion on the lucrative option trading strategy of writing naked options. Doesn't anybody here use this strategy as a highly profitable long term investment system?

For many years I was an option trader doing mostly long trades like most of you. But in recent years I discovered that writing nakeds is far more lucrative in the long run than being an option buyer. While there are no home runs in naked writing like you would have in buying options, the consistent, steady returns are far more rewarding for the long term investor. This strategy is suitable for someone with enough capital base and looking to grow wealth steadily and surely over time. It's not a get-rich-quick option strategy.

An an option writer I'm doing extremely well following a disciplined trading system that conquers the 'risk' factor of nakeds. If anyone here is doing the same thing I would like to hear from them and perhaps get a discussion going for the benefit of those who have never ventured into this.

[wallstreetsedge]

well yeah it is a good strategy but its not something i recommend for everyone... first some brokers will require that you need a high minimum to be approved, experience, and high requirements which i dont think most people on this board would qualify for

next is the risk tolerance...

naked calls have unlimited risk, technically a stock could get bought out and can shoot up 10000%

naked puts are great but again not for everyone. ive seen people sell naked puts on companies like aapl, sndk, goog, and bsc who took heavy beatings. and with everything going on in this mkt, i dont think we hit a bottom. add to that the fact that theres no longer an uptick rule on shorting stocks and it makes it a dangerous game for beginners.

bottom line is even if you wanted to do something involving options to improve your gains, the best way to do it would be through either the use of a covered call strategy or an option spread which is a bit more aggressive

[aiki14]

I write naked options on occasion, but I wouldn't recommend it for most people. I get solicited all the time by these outfits that do that and are looking for people to get in on the action. I look at that as a warning sign, in the "if it's so good, why do they need my money" category.
The bottom line is it works until it doesn't and then you get your ass kicked.
I would be interested in hearing how the OP mitigates the risk while profiting and if the strategy works out any better than an equity or equity and options strategy with equal or lower risk.

[wallstreetsedge]

yeah i highly doubt that these people actively manage an option position. it would be too time consuming for them to perform especially for some sort of subscription service

[dabrozio]

Yes, writing naked options is definitely not for the novice options trader as it could spell great loses for someone who doesn't know what he's doing. But for those who are quite knowledgeable in the intricate workings of options, naked writing is certainly a highly profitable trading strategy that offers consistently good returns for the long term investor.

[aiki14]

Call me a cynic, but two first posts on this topic? I wonder how long it'll be before the come on for investors in the strategy appears. The folks who make the most on these systems are the guys who pocket the commissions as I see it.

So in the event I am incorrect about the motivation of the posters, how about a brief description of the strategy you use to achieve "consistently good returns for the long term investor" using option writing.
If you're just gonna say write deep out of the money contracts, then I stand by my earlier post, it'll work til it doesn't and then it's a serious mess.

[wallstreetsedge]

yep even our friend don took a beating in recent months lol

[peter518]

Great post. I knew some guys who wrote options got wiped out. The risk is too big for most investors.

I would simply buy long-term call/put options of some leading stocks on weakness.

Cheers!

Peter

Originally Posted by [LEFT

wallstreetsedge[/left];114351]well yeah it is a good strategy but its not something i recommend for everyone... first some brokers will require that you need a high minimum to be approved, experience, and high requirements which i

dont

think most people on this board would qualify for

next is the risk tolerance...

naked calls have unlimited risk, technically a stock could get bought out and can shoot up 10000%

naked puts are great but again not for everyone.

ive

seen people sell naked puts on companies like

aapl

,

sndk

,

goog

, and

bsc

who took heavy beatings. and with everything going on in this

mkt

, i

dont

think we hit a bottom. add to that the fact that

theres

no longer an uptick rule on shorting stocks and it makes it a dangerous game for beginners.

bottom line is even if you wanted to do something involving options to improve your gains, the best way to do it would be through either the use of a covered call strategy or an option spread which is a bit more aggressive

[mattjames1]

I'm learning about options and don't think I would do nakeds. There just seems to be too much risk. My question to the poster is, what is a good stock to do nakeds on?

[aiki14]

Originally Posted by mattjames1

I'm learning about options and don't think I would do nakeds. There just seems to be too much risk. My question to the poster is, what is a good stock to do nakeds on?

The quick answer is one who's direction you can most accurately predict, or one that is very stable.
If you have a stock that has stayed the same price for a long time and you feel it is likely to remain so, you can write both puts and calls on it. The tighter the range the closer to the money you can write the contracts and the more money you can make.
The other thing you need to be aware of is the volume of contracts traded. If you want to write a few hundred calls on a stock that only trades 10 contracts you wont get them traded.

The typical system is to write far out of the money calls on NYSE stocks with low Beta's. The problem is that they are cheap so you have to sell a ton of them to make any money. So you sell 1000 calls on some stock for .15 or something and you make yourself $15k, but the next day they announce a buyer has made a big offer and suddenly you are obligated to sell 100,000 shares $10 above the strike. It's improbable but not impossible, and guys have been crushed in that scenario.

Hope that helps.