re: Can you sell calls to establish a short position?

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That's what I was asking, is it like selling puts as in I wake up Saturday morning with a short position? That's what I wanted

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Selling a put "obligates" you to buy shares IF "put" is exercised.

I've done put selling for a long time. I use it to enter a position. Sometimes the put expires worthless, but I get the premium. sometimes I have to buy shares, but I get them at less than the strike which I would have bought at the strike price anyway.

I have not bought calls, but if you are bullish that can work.

Selling naked calls is too risky for me. You have no limit on how high the price might go.

Go for it!

He'd want a split strike synthetic probably. More room for error, although he doesn't seem to care much about this, or fully understand the risk he is undertaking for not much reward.

If he wants short S&P, the only way he gets a close approximation of that is short the index, not the ETF.

If he wants short S&P with a loss certain, there are numerous better ways to do this then the path he seems to be determined to take.

As it is, broken down into the simplest way I can break it down, the trade he suggest has very small upside, less than $1K, and unlimited downside.

A synthetic at least would give him more upside, but a option synthetic is ATM options, and he could potentially get knocked out of this trade in a heart beat.

Today's .48% swing pushed the strikes he would have sold for very little premium up 76.47%. And we ain't even at lunch yet. So if he tried to get out of what he had talked about entering, his realized loss on less than 1% SPY gain is almost 80% already.

But hey, what do I know?

Some profit taking at the end of treading I missed. Helping cut the losses on this trade. If the trade is even still alive and not exercised.

So I was wrong about two things, 1) I had thought a 2% day or week would crush this dangerous trade, and it only took a .5% day, and 2) I completely missed institutional balancing and profit taking, eg selling, before close. I had the buy to close part, but overlooked that this works both ways.

Calendar bull call credit spread. I think that is what this would be called.

I mentioned this earlier, not a calendar spread, but just a credit spread. That would certainly give him a maximum loss certain, and wouldn't drive his yield down that much. He could sell monthly or weekly calls against the other call in your calendar spread.

But frankly for the 5 contracts of the mini, which SPY essentially is, he should have just bought 5 puts for $500ish, and been done with it.

We're going to start today, day two of the proposed trade, down almost 50%, with SPY premarket up another .5%.

We're assuming the trade is still alive, based on yesterday's open and close, but that's a stretch as yesterday during trading the premium got as high as $1.30, against premium sold for about .89, which is extremely generous as the option actually was under .30 on Friday. But we're trying to give every benefit of doubt that the trade is still ongoing, and hasn't been blown up. Yet.

So the easiest thing to do is look at open and close, but that's not even close to what one would need to do on a naked call. This would presuppose the option doesn't get exercised during the day, which when you have a spread between premium collect and current premium such as we had intraday yesterday, this could have very well been exercised already.

My credit spread for the same short position by the way would be down only marginally, and the maximum loss is still capped at $2,500. But we're not close to there yet. On the proposed trade, we have an entirely different set of circumstances, and so far on day two, it's not looking very good.

You're not going to get assigned shares in a short. You're going to have to buy shares, and then sell them to whomever exercies against you. You will left left holding nothing but your loss.

So in other words, right now as I type, you'd need to buys shares at 214.57, and have them sold at 213.5 if the call you sold was exercised. If not exercised, you could cover the option (buy to close) at over a 50% loss. Or wait.

Edit - And your naked trade is down 79% at open. What you collect .23-.79 for, now needs to be bought back for $1.73. Or if exercised, you'd need to buy 500 shares of SPY @ 214.86, and sell 500 shares at 213.50. You are left holding nothing. No short position.

Calls are named what they are becuase you can either call shares away (if you buy a call), or have shares called away from you (if you sell a call). And if you sell a call, shares are called away from you whether you own shares or not.

You're not going to hold anything. What I'm trying to graphically point out to you is that short SPY might, or might not be a bad trade, but the specific way you are describing going short is absolutely insane.

Otherwise, per your last sentence typed in your post above, you're going to have to explain to me how if this is exercised against you, and you sell the shares, how you will be able to hold anything until through September. Because there is nothing left to hold.

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.

The trade would be upside down right now $1.78 per share, and the option is up today over 100%, so the sold calls would have lost over 100% of yesterday values, which were already down about 50% yesterday.