re: By request: Buying and selling call and put options

quote:

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Every time my automatic conditional orders kicked in, and I bought to close the open call at a small loss.

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You have never had a market open through a stop?

It is not often I agree.

I don't know any brokers that are going to guarantee an execution near a limit when a market opens 10% below the limit. They'll make the sell but they won't guarantee the limit price.

A stock opening down 10% could easily make a call worthless if the strike price is too high or conversely make the call quadruple in value if it opens up 10%.

One point--I would have like to have written naked calls in 87 because they would have all been worthless the next day. I should have said naked puts--that would have been especially painful!!

You would not have wanted to have written naked calls the day before a large run up in the price of the underlying security.

And I should have said buy back the naked calls on the eventual violent uptick after a flash crash.

The market never actually disappears on naked options for the writer, because he is always buying back the put or call he sold. The price can, and does swing violently.

Almost always, the call or put can be bought back at a loss, long before anyone can get the option exercised. I've exercised options against other sellers. This takes time. I've bought my own options back at a loss. This takes no time at all.

It is true that the market could open through your condition on a trade. It's really not likely, unless you have naked calls or puts on broader indexes, and leave the position open overnight. Also, if the option is European style settlement, there is no chance of exercise until expiration.

I have naked calls and puts right now on DJX, SPY, QQQ, and VIX. These are dangerous to leave open overnight. They are considered naked for purposes of margin, and exchange rules, but I also have open calls I purchased on some of these to limit my potential losses. So although naked, they really aren't.

My final point is that there is no brokerage firm, due to potential tortfeasors, that will allow an option trader to place an idiotic naked trade on a call. If you have $400,000 sitting in an account, and attempt to sell 10,000 uncovered DJX calls in the money, the trade won't go through. If the broker doesn't catch it, the exchange will reject the order.

Two days ago I tried to sell to open call on CAK and PAL, both of which I own. I accidentally hit Buy to Open, instead of Sell to Open. The trade executed, and the exchange revered it because it was so far above market.

Out of all the regulatory bodies in the industry, the option's people actually do a good job. They guaranty execution. There are no pump and dumps, and trades are routinely rejected if they are clearly stupid.