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Strategies & Market Trends : Calls and Puts for Income

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To: Jerome who wrote (760)	6/16/2007 1:02:17 PM
From: options101	Read Replies (2) of 5891

Yeah naked calls are dangerous, I use them and occasionally get hurt by them but never lost big to stop using it as part of options selling. An example being hurt is AAPL for jun; I already have 4k long shares so for jun expirations, I had written 50 jun aapl 120 covered (well 10 naked) calls and 50 aapl 110 naked puts (stock was around 112 when I did this after may's exp). Then as the stock moved up to above 120 I wrote 50 AAPL 125 naked calls (and 50 AAPL 115 naked puts). When stock was 127 I also wrote 50 AAPL 130 naked calls and when it moved down to 118 few days ago I wrote 50 aapl 115 naked puts and then 50 aapl 120 puts since it 3 days before close it was clear 120 was becoming the max paine strike. As the outer strikes were losing value I was closing them (so not to get too overexposed on too many contracts) and by thur 4pm I was left with the 50 appl 120 straddles. So this was an example of a case where I had to react a lot due to its movement one way but certainly it was based on my belief that we're reaching an upper short term limit on aapl's straight up movement. If it would have gone to 140 I would have lost big but I would have adjusted further; there is a point where I could be wrong and just take the loss. I write many positions, without far OTM strikes for calls and puts and for most I don't have to react and take further steps and just let them expire, well typically when they lose intrinsic value I close them to reopen new ones on other stocks. I found out that doing one side only options like covered calls only or naked puts etc wasn't optimum for me since you could always be wrong. Again this not to say short strangles (and near expiration having to do straddles on in-the money cases) isn't dangerous. I'm just saying, when the market is hot like now, being more careful on the naked call side by going further on OTM strike prices. For jul I already wrote the 50 aapl 130 covered calls (again 40 covered, 10 naked) just before closing on fri. If it moves down a bit I'll write the 110s puts (or 115) on monday and again react later on based on the movement; but whenever one position fills my next step is write the opposite side to balance it a bit. What helps is a large brokerage acct, having a large cash position to get ready to accept naked put fills, using lots margin but know when to not overdo it. I typically allow to get 2-5% premiums of the acct value each month. Like everyone else I typically buy-to-close the losing positions and reopen next month (or two) at higher (or lower depending on call/put) strike price.

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