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re: Can you sell calls to establish a short position?
Posted on 7/12/16 at 8:48 am to Iowa Golfer
Posted on 7/12/16 at 8:48 am to Iowa Golfer
Thats why I was asking you if I could sell them to establish a short position....I wasn't telling you to put the trade on, I was asking "Can I do this" The answer is clearly a no then
2
Posted on 7/12/16 at 9:04 am to dabigfella
You could make the trade. But not the way you want. You could sell 215.00 calls, maybe August or September, collect premium, also buying a matching number of call contracts for a higher strike monthly. Eats into your yield, but sets a maximum loss. Also wouldn't prevent someone from exercising.
If you want to establish a short SPY, buy puts. If you want to establish a short SPY and collect premium, it gets increasingly difficult. A synthetic as described earlier by Flask, but this also has unlimited downside.
Buying VIX calls would come close.
Or go ahead and look to SPX. At least in this scenario, you would only need to worry about exercise on one day. So sell SPX calls out as far as you can, make sure you risk manage the unlimited downside as best you can, and wait. Plenty of time to unwind this trade.
Buy an inverse index fund. Or place a bull call credit spread on their call options. Allows you to collect premium, hold a covered short without owning the equity and have a loss certain.
I'd need to think through some other strategies, but with options, selling naked calls isn't recommended. Maybe a collar or credit spread.
What I do is buy VIX calls.
If you want to establish a short SPY, buy puts. If you want to establish a short SPY and collect premium, it gets increasingly difficult. A synthetic as described earlier by Flask, but this also has unlimited downside.
Buying VIX calls would come close.
Or go ahead and look to SPX. At least in this scenario, you would only need to worry about exercise on one day. So sell SPX calls out as far as you can, make sure you risk manage the unlimited downside as best you can, and wait. Plenty of time to unwind this trade.
Buy an inverse index fund. Or place a bull call credit spread on their call options. Allows you to collect premium, hold a covered short without owning the equity and have a loss certain.
I'd need to think through some other strategies, but with options, selling naked calls isn't recommended. Maybe a collar or credit spread.
What I do is buy VIX calls.
Posted on 7/12/16 at 10:36 am to dabigfella
I think I contributed to the confusion, so I want to add one last thing. 'Short' and 'long' are overloaded words, whose precise meaning sometimes depends on context, and I misunderstood your original context.
Correct. When I originally replied and said 'Yes, subject to your margin requirements', I misunderstood what you were asking.
Selling the calls is effectively similar to being short, and that is what I thought you were asking about. Options contracts don't extend past their expiration, though. Whatever is going to happen with respect to your option trade will happen before expiration, and nothing will be left after.
So, 'yes', selling naked calls will put you in a position that could be described as 'short'. But 'no', it is not identical to creating a short sale of the underlying issue.
quote:
Thats why I was asking you if I could sell them to establish a short position....I wasn't telling you to put the trade on, I was asking "Can I do this" The answer is clearly a no then
Correct. When I originally replied and said 'Yes, subject to your margin requirements', I misunderstood what you were asking.
Selling the calls is effectively similar to being short, and that is what I thought you were asking about. Options contracts don't extend past their expiration, though. Whatever is going to happen with respect to your option trade will happen before expiration, and nothing will be left after.
So, 'yes', selling naked calls will put you in a position that could be described as 'short'. But 'no', it is not identical to creating a short sale of the underlying issue.
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