Anyway, probably smart to cover. Probably not smart to sell GS puts to cover it.
JoeyDVivre Wrote: ------------------------------------------------------- > Anyway, probably smart to cover. Probably not > smart to sell GS puts to cover it. Probably not. I just can’t believe GS is getting hammered like this.
Haha, I’m pulling for you IronMan, hang in there. You might want to listen to Joey though and stop selling those GS puts before you start getting margin calls from both sides.
LOL I won’t sell any more. This is it. We’ll see what happens. I’m young so I’ll live and learn if it costs me.
Livin by the seat of his pants… that he will have to sell at the end of these trades.
MattLikesAnalysis Wrote: ------------------------------------------------------- > Livin by the seat of his pants… that he will > have to sell at the end of these trades. Lets not exaggerate. It’s only 4 puts.
Ive been reading posts here for a few months (started with my Level III studying over the summer), but this was one of the most interesting threads Ive read in a while so I thought it was worth actually signing up to this thing and to start posting. This is a fantastic learning curve - I made exactly the same mistake starting out - selling naked options can seem like free money, and indeed is most of the time (some 95% of options are never exercised), so I used to play around with selling calls to buy puts, buying 1*2 option structures etc (which isn’t as bad risk wise) But I came to discover that being short tail events is a sure fire way to have a few up years followed by a year in which you blow up and lose everything. And a trade that has a maximum loss that is multiples of maximum profit will also never work as a strategy over any sustained period of time, regardless of whether its only 4 puts or 400. Also worth pointing out that implied volatility of options always lags realised vol in upmoves like this, so you are probably not getting true vol anyway. Theres many ways to short volatility with way way better risk reward profiles than this, just thought I’d offer my 2c as I’m surprised by anyones willingness to short puts into this market of all markets, but having made similar mistakes myself it struck a chord with me.
Nice points, especially for your first post 
This article has a very interesting perspective on selling options. Blowing Up http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm
Speaking of Ironman, GS is down 6% today. That could not be good for his puts that he sold to pay off his GOOG position. I guess the lesson is not to sell overpriced puts. There is somebody out there who knows more than you do. Buy them instead.
I’d have thought that a good lesson is leverage is a biatch.
CFAchief Wrote: ------------------------------------------------------- > Speaking of Ironman, GS is down 6% today. That > could not be good for his puts that he sold to pay > off his GOOG position. > > I guess the lesson is not to sell overpriced puts. > There is somebody out there who knows more than > you do. Buy them instead. You should always sell overpriced puts. The rub is figuring out when they’re overpriced.
Are option prices reliable at all now that the VIX is so high? Seems like they change from one week to the next -
NakedPuts Wrote: ------------------------------------------------------- > CFAchief Wrote: > -------------------------------------------------- > ----- > > Speaking of Ironman, GS is down 6% today. That > > could not be good for his puts that he sold to > pay > > off his GOOG position. > > > > I guess the lesson is not to sell overpriced > puts. > > There is somebody out there who knows more than > > you do. Buy them instead. > > You should always sell overpriced puts. The rub > is figuring out when they’re overpriced. You are certainly right. It is just tongue-in-cheek comment that frequently when some model tells you an option is overpriced, it may be underpriced instead. Insider information plays some role - somebody new about GS/Citi deal before everyone else.
Almost all puts are overpriced. Check out a plot of VIX vs realized vol over the last forever years. The problem is that you can get stomped selling them as they become more overpriced.
What price were the GS puts sold at? The stock is down 8% just today. EDIT: What was your strike price?
I like selling puts on stuff I wouldn’t mind owning anyway. I sold RSX puts the other day they were out of the money by 20% yet the price of the puts were 10% of the value of the underlying. This is for an index and a put that expires in less than a month!?!? It would have to go down another 30% by November 21 for me to lose money. (I laugh, but it dropped another 7% today so I guess the market knows better than me).
JoeyDVivre Wrote: ------------------------------------------------------- > Almost all puts are overpriced. Check out a plot > of VIX vs realized vol over the last forever > years. The problem is that you can get stomped > selling them as they become more overpriced. Joey, pardon my ignorance, but doesn’t that violate put-call parity, wouldn’t that be arbitrageable?
No - realized vol and implied vol don’t have to be connected at all…
JoeyDVivre Wrote: ------------------------------------------------------- > No - realized vol and implied vol don’t have to be > connected at all… I follow that…but if the realized vol. is less than indicated by the put IV wouldn’t that misprice the equivalent call also? I was under the impression P-C parity implied equal IV between puts and calls. Thanks.