[jim2000]

Has anyone here ever written naked calls. If so how did that work out?

[TinGull]

Writing anything naked is really risky. If you're interested in writing and receiving premium, then sell call spreads. You're hedged that way and the margin required is much less.

[jim2000]

Originally Posted by TinGull »

Writing anything naked is really risky. If you're interested in writing and receiving premium, then sell call spreads. You're hedged that way and the margin required is much less.

I understand the risk that the stock could skyrocket up, you get assigned and have to buy the stock at e.g. 70 to sell it at 55, a loss of 1500 per contract. But who would be stupid enough to do that?

What do you think of this scenario?

When you sell a naked call you don't care which direction underlying goes. It goes down, that is great. It goes up, you buy the stock just below the strike price to cover. If price stays below strike at expiration, great. Then either sell stock or write covered call. At this point there are many strategies to employ.

Am I missing something?

Who would be foolish enough to not cover if the underlying was approaching the strike?

Any thoughts on this?

[TinGull]

I do see your point there...I guess a lot of people would prefer to sell options hedged with options so their not having to tie up all their margin in a few trades. Its a huge margin risk to calculate your returns on.

[jim2000]

Originally Posted by TinGull »

I do see your point there...I guess a lot of people would prefer to sell options hedged with options so their not having to tie up all their margin in a few trades. Its a huge margin risk to calculate your returns on.

Yeah, but it is almost a no lose trade. That is if you watch it carefully.

Also, on paper it's a huge margin risk, but in reality there is no risk, zero risk, because you will cover the call at, or just before the strike if needed, even just above strike is ok. If after buying the stock it starts to drop, just sell it at market
above the breakeven point.

You enter the trade receiving, not spending, cash.
It doesn't matter if the underlying goes up or down.
Even if it goes above the strike before you can act you have a cushion to
work with, the premium you received.
Sell a call near the expiration to avoid the need to watch it closely for 5 or
6 weeks.
You don't need to study charts to pick a good company, just look at the
options chains for different stocks until you find an option with
a high enough premium to make it worth the while. Probably at least $1
All you really need to do is be prepared to buy the stock, no problem
If it does go above the strike if the option is excercised that's ok because
chances are you will still be within your profit zone, if not and you take
a small loss, that will happen from time to time, but not often

Like I said before, a gap up before you buy the stock, or a gap down after buying the stock are the 2 risks to this trade.

Oh, this is all my opinion, not a recommendation.

[momentom]

I was an options market maker for many years and have seen writing naked calls done over time.

If the trader has some expertise then it works for a time and profits get re-invested and size increases until the day when an unexpected event happens and the trader goes bankrupt.

I've seen it happen over a dozen times in the last 20 years. A great example was on Comex Gold in the late 1980's. Look it up. They were smart rich guys.

[jim2000]

Originally Posted by momentom »

I was an options market maker for many years and have seen writing naked calls done over time.

If the trader has some expertise then it works for a time and profits get re-invested and size increases until the day when an unexpected event happens and the trader goes bankrupt.

I've seen it happen over a dozen times in the last 20 years. A great example was on Comex Gold in the late 1980's. Look it up. They were smart rich guys.

Thanks Momentom,

I appreciate your reply, and I will heed your words.

I'll look up Comex Gold and study that situation. I'm assuming these smart rich guys got cocky, greedy, and over leveraged.

Thanks again. I appreciate your perspective.

[aiki14]

Originally Posted by jim2000 »

Thanks Momentom,

I appreciate your reply, and I will heed your words.

I'll look up Comex Gold and study that situation. I'm assuming these smart rich guys got cocky, greedy, and over leveraged.

Thanks again. I appreciate your perspective.

You want to be in a liquid market as well. You need to be able to move the underlying or move the options quickly, or you can get caught. And overleveraging is very risky, but unlikely in stock options.