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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: profile_14 who wrote (140175)	9/17/2010 11:18:09 AM
From: Salt'n'Peppa	Read Replies (2) of 206338

profile, this is EXACTLY why one should manage risk when writing naked options. BCB writes covered options, generating monthly income from established positions and effectively lowering his "book value". Great idea! Black Swan events are rare but yes they do happen. They are also usually short term events (a matter of weeks) and are the perfect time to write naked puts. That is why one should not be greedy and chase the riskier big premium. Writing options far out of the money and with a 3-4 month time horizon will allow the writer to ride out any such event, or be able to cover with not too much pain. It is also why one should not put more than 5% of the portfolio in any one option and why one should spread risk over several market sectors. It is also why one should always leave >25% headroom in the margin account. Done sensibly, I believe that naked option writing carries lower monthly risk than the reward would suggest. BWTHDIK. S&P

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