Secret 43PLAY IT NAKED
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The most aggressive option strategy is to write puts and
calls naked without any type of hedge, such as owning the underlying
stock or futures, or without buying some other options to
hedge the risk. Such a strategy has unlimited or extreme risk and
normally is for gladiators only.
Of course, you have the greatest potential reward, but even
when you have a small position, the risk can be sizable. The
greatest danger to writers occurs during a crash. For example,
during the crash of 1987, one investor who was naked just 3
index puts saw a loss of $120,000 overnight.
Another investor started with $15,000 two years before that
crash and made, writing naked index options, $750,000; this was
still before the crash. However, on the day of the crash, he lost
the $750,000 and 2 million more that he did not have.
These war stories demonstrate that you must always be on
the defensive. When at times I write naked puts and calls for
speculation, I wait until I find an ideal situation. Having this
ideal situation is necessary because, though naked writing can be
a true advantage with a lot of reward, it is so dangerous that minimizing
the risk as much as possible becomes very important.
How to find the ideal situation will be forthcoming.
The most aggressive option strategy is to write puts and
calls naked without any type of hedge, such as owning the underlying
stock or futures, or without buying some other options to
hedge the risk. Such a strategy has unlimited or extreme risk and
normally is for gladiators only.
Of course, you have the greatest potential reward, but even
when you have a small position, the risk can be sizable. The
greatest danger to writers occurs during a crash. For example,
during the crash of 1987, one investor who was naked just 3
index puts saw a loss of $120,000 overnight.
Another investor started with $15,000 two years before that
crash and made, writing naked index options, $750,000; this was
still before the crash. However, on the day of the crash, he lost
the $750,000 and 2 million more that he did not have.
These war stories demonstrate that you must always be on
the defensive. When at times I write naked puts and calls for
speculation, I wait until I find an ideal situation. Having this
ideal situation is necessary because, though naked writing can be
a true advantage with a lot of reward, it is so dangerous that minimizing
the risk as much as possible becomes very important.
How to find the ideal situation will be forthcoming.