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re: Can you sell calls to establish a short position?
Posted on 7/10/16 at 3:28 pm to Iowa Golfer
Posted on 7/10/16 at 3:28 pm to Iowa Golfer
It's not about the $320 it's about making $320 and trying to set my short where I want it, at all time highs. If I get it I get it, if I don't I make $320 and move on that's the whole point of selling premium, you get your price or you profit and move on
Posted on 7/10/16 at 4:25 pm to dabigfella
You're getting some professional-level advice here, and you're asking about something that I never touch, just as a matter of principle, so I can't offer any real advice.
I will point out one thing, though, that maybe people will think about:
... and that is, that all time hasn't passed yet. You mean 'highs so far', not 'all time highs'. Unless you have that polished crystal ball.
I will point out one thing, though, that maybe people will think about:
quote:
trying to set my short where I want it, at all time highs.
... and that is, that all time hasn't passed yet. You mean 'highs so far', not 'all time highs'. Unless you have that polished crystal ball.
Posted on 7/10/16 at 4:45 pm to dabigfella
quote:
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
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.
Posted on 7/10/16 at 7:28 pm to makersmark1
Again totally understand your concerns on unlimited losses but that's not my concern. The spy is the the entire us market and it's so disconnected from the data at this point that the upside is possibly less than 5% and the downside is 25% or more tops. That sounds like the kind of trade I want to be putting on. The economy has to run literally perfectly at this point to burn me even 10% on the trade from here and I highly doubt that happens.. I too sell puts to get in where I want and was asking if selling naked calls is the same as in I get to dictate the level I enter my position at but with calls on the short side of things
Posted on 7/11/16 at 9:11 am to dabigfella
To create a synthetic short, you have to sell a call, buy a put, and invest the notional value in t bills.
You can skip that last part if you want, it's a rounding error at these interest rates.
You can skip that last part if you want, it's a rounding error at these interest rates.
Posted on 7/11/16 at 10:33 am to TheHiddenFlask
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?
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?
Posted on 7/11/16 at 2:46 pm to Iowa Golfer
Strikes as defined in the proposed trade are now are up close to 80%, with implied volatility of about 12% between now and close. Up 80% means the proposed trade's best case scenario is not buying to close, and hoping someone wouldn't exercise. Which, given these are SPY calls, someone potentially could have exercised to rebalance before close. Now if exercised, your theoretical loss should be 80%, same as a buy to close, but in practice it's not. It's going to cost even more without getting into a lot of minutia. This trade with no risk management has two strategies of last resort left for today. Hope and/or prayer.
12% is low volatility, becuase I'm predicting some amount of buying to close before close of market. Because a significant percentage of institutional call writers won't leave a sold call open overnight.
Awfully close to someone big exercising before the end of the day, maybe already even there.
This trade, without any risk management, is already mostly crushed before end of one day.
12% is low volatility, becuase I'm predicting some amount of buying to close before close of market. Because a significant percentage of institutional call writers won't leave a sold call open overnight.
Awfully close to someone big exercising before the end of the day, maybe already even there.
This trade, without any risk management, is already mostly crushed before end of one day.
Posted on 7/11/16 at 2:57 pm to Iowa Golfer
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.
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.
Posted on 7/11/16 at 3:08 pm to Iowa Golfer
Another 15 minutes until the last option exchange closes, but down $7K on 100 contracts.
In the case of an exercise for the 5 contract trade, would have taken at least (market close of underlying) right under $107,000 before expenses to cover, before selling back at a small loss.
So let's assume the trade lived, and keep monitoring the trade, reduced to 5 contracts, but naked without an risk management or protective hidden orders to prevent disaster.
It might still work out, but anyone who did this trade, who wasn't constantly watching premarket to extended trading might have been rewarded with an unpleasant surprise in it's short trade life, the first day.
How to get rich trading options, and how to take the most unorthodox short SPY I've ever seen, or go broke trying. Folks, do not try this trade. Run Forest, Run!
In the case of an exercise for the 5 contract trade, would have taken at least (market close of underlying) right under $107,000 before expenses to cover, before selling back at a small loss.
So let's assume the trade lived, and keep monitoring the trade, reduced to 5 contracts, but naked without an risk management or protective hidden orders to prevent disaster.
It might still work out, but anyone who did this trade, who wasn't constantly watching premarket to extended trading might have been rewarded with an unpleasant surprise in it's short trade life, the first day.
How to get rich trading options, and how to take the most unorthodox short SPY I've ever seen, or go broke trying. Folks, do not try this trade. Run Forest, Run!
Posted on 7/11/16 at 3:27 pm to dabigfella
What about selling the call at or just out of the money and buying a call for a later expiration that is farther out of the money?
Limits risk (makes it not a naked call) and the loss of value of the later expiration call is at a slower rate. Net gain if market is flat is profit from sold call less time value loss in purchased call. Loss on the upside and downside are both limited.
Is that a decent strategy for a sideways market?
Limits risk (makes it not a naked call) and the loss of value of the later expiration call is at a slower rate. Net gain if market is flat is profit from sold call less time value loss in purchased call. Loss on the upside and downside are both limited.
Is that a decent strategy for a sideways market?
Posted on 7/11/16 at 3:37 pm to kjacksonp
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.
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.
Posted on 7/12/16 at 8:03 am to CajunTiger92
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.
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.
Posted on 7/12/16 at 8:24 am to Iowa Golfer
dude the trade is not down 50%, you're ridiculous at this point. I was traveling yesterday so I didn't get to sell them but if you sold SPY 214 calls for whatever .25 your trade is down yes if you choose to close it. Im talking about taking the 500 shares short and holding them, are you listening at all? I dont care about all your mumbo jumbo about buying $500 of puts or whatever. I dont want to buy puts bc those can go to $0. If I get short the SPY at 214 and hold it. Even if by some chance the SPY rips to 220 thats a 3% loss. At this point the upside on the SPY is under 5% and the downside is way way bigger.
Can you pay attention at all to what I said multiple times in this thread, I want to establish a market short position, this isnt a trade. I was asking if selling calls would let me establish said position $1 higher or if I shouldve waited for that 214 which was new ATH levels. All I asked was if selling calls at 214 while we were at 213 would allow me to get short much like selling puts at lower levels lets you get long
Nobody is down 50% if you get assigned a short and hold it through the september FOMC along with the continuing deterioration of economic data over the next 24 months.
Can you pay attention at all to what I said multiple times in this thread, I want to establish a market short position, this isnt a trade. I was asking if selling calls would let me establish said position $1 higher or if I shouldve waited for that 214 which was new ATH levels. All I asked was if selling calls at 214 while we were at 213 would allow me to get short much like selling puts at lower levels lets you get long
Nobody is down 50% if you get assigned a short and hold it through the september FOMC along with the continuing deterioration of economic data over the next 24 months.
Posted on 7/12/16 at 8:37 am to dabigfella
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.
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.
This post was edited on 7/12/16 at 8:43 am
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
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.
Posted on 7/12/16 at 1:15 pm to tokenBoiler
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.
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