Writing Naked Puts & Calls - Risks

[ammo 10]

if your selling options as a naked position there is a lot of premium in them when volatility is high,and if you sold both calls and puts for a spread that will shrink with time ,and if you are always on top of the market so you can constantly adjust your position,they can be extremely profitable,if he's losing on a regular basis then he's probably trading more size than his knowledge of the markets can steer,like a bus versus a bicycle, you could advise him to sell calls against his puts when hes wrong or vice versa,and to trade smaller when he's cold ,sometimes you just don't see clearly and it's best not to trade when you are having those types of days

[bakrob99 11]

You could suggest to your friend to use a CONDOR as a safety net. Basically - if he is writing a CALL option, he can buy a (inexpensive) CALL option out of the money which will provide insurance on his trade to limit the risk to the difference between the 2 option strike prices. Also - he should put 10% of the premium he collects into a fund to pay for the inevitable loss which will occur on events like Sept 11 etc.

[darthtrader 10]

i disagree with one thing

 

as i said, i use naked puts in an INVESTMENT account, not a trading account

 

dalby thats a fantastic idea i have never thought about before. I will have to explore that in the future as far as accumulating stock.

 

I was actually messing around yesterday with the TOS paper trader selling naked calls on aapl. Thats the only time i could see actually selling naked calls with real money. The june 130s were at 1.90 last thursday, today they are at .05. They were still at a buck yesterday when aapl broke support. Has anyone ever looked for situations like that with liquid options? I assume dumb money retail gamblers were just gambling on options, it would seem in situations like that you could crowd the exit and sell naked calls.