Can the Spx Ever Crash Up?

[emt 10]

am doing an options strategy which chiefly relies on selling naked OTM calls- no stocks, only s&p 500 index

 

selling puts seems risky coz there have been several instances in history where the index gapped down significantly at the open(1987 crash, 2010 flash crash.......one can find a list of such events at wikipedia).

 

am assuming that selling calls is less risky coz historically, afaik, there have been no disastrous gap ups even during those days when the spx gained record no. of points(one can find this list by searching wikipedia for :list of the largest daily changes in the S&P 500)

 

so am i safe selling calls?its a bull market now....but i actively manage positions so any intraday movements can be easily handled. theres nothing i can do about opening gap ups however(theoretically the spx can go up to infinity but am looking for historical occurences)

[MightyMouse 12]

Spy is in a monstrously, major bull market. It probably has a few more years of upside to it. A short put is the better bet, even if you are put the etf, if you want to be a premium writer; otherwise, a strategically purchased call will make you more money in a bull market. You need to have really good reasons for going against such a strong move if you choose to write calls.

 

The call premiums are high to lure traders into doing exactly what you are thinking and deter exactly what I am saying.

 

Best of luck

Edited September 15, 2014 by MightyMouse

[emt 10]

Spy is in a monstrously, major bull market......

The call premiums are high to lure traders into doing exactly what you are thinking and deter exactly what I am saying.

 

Best of luck

 

thnks a lot mightymouse....

i totally understand that we are in a multi year bull run, probably stronger than any other in history and that call writers consistently lose money in this environment, eating up into their account balance bit by bit

what am doing is selling into strength.and if it was a bull market, i would sell puts(and sure am in healthy profits since the start of bull run). its just the way i do it.

what am trying to know is whether my profitability will be affected by gap up events, and historical examples in this regard would be highly welcome.

[MightyMouse 12]

thnks a lot mightymouse....

i totally understand that we are in a multi year bull run, probably stronger than any other in history and that call writers consistently lose money in this environment, eating up into their account balance bit by bit

what am doing is selling into strength.and if it was a bull market, i would sell puts(and sure am in healthy profits since the start of bull run). its just the way i do it.

what am trying to know is whether my profitability will be affected by gap up events, and historical examples in this regard would be highly welcome.

 

Selling into strength is a good strategy but it is not a good strategy when strength is followed by more strength. Spy rarely gaps, but it does trend.

[BlueHorseshoe 10]

historically, afaik, there have been no disastrous gap ups

 

Hello,

 

You're basically concerned about the possibility of an extreme event and unexpected event with little or no historical precedent (an outlier, a black swan, whatever you want to call it).

 

Such events are precisely those that aren't expected (and their suprise usually contributes to their extremity). The fact that the S&P has never "crashed up" (or more generally that historical volatility tends far more to the downside) doesn't mean that it can't, or won't.

 

The question you should be asking is "How much can I afford to have it crash up by? How do I manage this risk?"

 

BlueHorseshoe