Guide to Option Writing

The option markets provide the rare opportunity for the individual
investor to be the bank, casino or legal bookie. In other
words, you have the opportunity to take the bet rather than make
the bet. Taking the bet refers to option writing—the direct opposite
of option buying. The option writer is the one who takes and
guarantees to pay off on the bet made by the option buyer.

The beauty with an option writer over a casino or bookie is
that you have the ability to close the casino door. In other words,
you have the ability to close out your position and obligation at
any time by buying back the option.

Option writing can be played by all types of option investors
from the conservative to the high risk-takers and in all cases can
provide an excellent source of income. In fact, to be a professional
option trader, you must do some option writing because it
provides a consistent source of income.

My next posts will explain how can we make money on regular basis with different startegies!!!

All the best trade.

YOU CAN ALWAYS QUIT, SO WHY TO QUIT NOW?

Stategy :1

NAKED SELLING: SELL THE VOLATILITY

The most aggressive option strategy is to write puts and
calls naked without any type of hedge, such as owning the underlying
stock or index, or without buying some other options to
hedge the risk. Such a strategy has unlimited or extreme risk and
normally is for gladiators only.

Hi Jay,

Thanks for taking good initiation on this topic. :clap:

Can you please explain elobarately as even the newbees like us should understand.

I got the first part i,e to short, put option looking at the volatility. Sorry I didn't get "Calls naked" meaning.

SIR,

THANX FOR STARTING THIS THREAD. PLS CONTINUE THIS. TRADERS LIKE ME ACUTELY NEED TO UNDERSTAND OPTION WRITING. IF POSSIBLE PLS BE SIMPLE WHILE EXPLAINING. THANKS & ALL THE BEST!:thumb:

Hi Jay,

Haven't heard from you since a long time. Kindly keep posting. Looking forward for you.

must have been a gladiator (i.e., sold naked) and now being naked in a literal sense is not able to answer the query.

IF i take a covered call or write a naked put... i end up with similar risk profile...

Instead of going long on NF, One can prefer shorting ATM put as it gives protection of the premium received on the down side instead of naked NF long which has no protection... of course profit is limited to the premium received...

Another thing i like about writing naked option is that it gives me exit. say i short 4800 put on friday assuming that we have found a bottom and market decides to surprise me and break 4800... all i have to do is short NF near 4800 and i still get to save myself a heartache...

besides... writing options doesnt really give unlimited losses... as popularly perceived... market wont fall to 4500 and lower tomorrow nor will it shoot to 5300... ofcourse...when trading options having a clear picture of what possible what-if-scenario are and the necessary counter measure is very important...

I have been trying my hands on Naked Option Selling for a few months. Ofcouse ,theoretically, option selling has unlimited and extreme risk. However as stated by linkon7 , if one has risk management plan in place, the risk can be controlled.

Gladiators are experienced and wear protective gears too! However this analogy doesn't suit well with option selling.

Options selling is often compared with insurance business. If an agreed event takes place within fixed period, the insured get paid , otherwise the insurer keeps the premium.

Strategy :1

NAKED SELLING: SELL THE VOLATILITY

Frds,

Sorry for not posting since so long.

Why I called "SELL THE VOLATILITY"?

Higher the volatality costlier the option i.e more the premium.

Try to target one strike and analyse the movement of it when market is higly volitile. You will observe when say market is moving downside within short time the PUT premium is getting built up. though as a basics, everyone know option price decays with time but such market pour more premium to those PUT and option price rises abnormally. it not over, try to grab this apportunity and find the correct PUT (of course TA, market trend and news should be kept in mind), sell it. whithin very short time, as soon as the market stops for a while, the built up premium drops to it corrected/ actual value where it should be.

Always observe & calculate the option price with following calaulation in mind to grab such opportunities,

Option Price= (Spot price- stike price) + time value ..... For(ITM call)
e.g. 150=(5100-5000)+50

For ATM and OTM the option price is the time value only.

All the best trade.

YOU CAN ALWAYS QUIT, SO WHY TO QUIT NOW?

Strategy :2

NAKED SELLING: SELL THE PROBABILITY

What is Probability? Its chance to win or earn for us.

there are various occurrence when there is high chance to win / earn such as....

1. when market is expiring within one or two days... just go to various strike prices and find the premium offered by buyers.... sell it.. and let either get those option worthless and enjoy the full premium for OTM or sqareoff the ATM or ITM just before expiry time and full your pocket with premium. pls keep in mind the market movement. it should not reach to your level.

2. Check the Deep OTM option (such as +/- 300, 400) where its very unlikly for the market to reach in next few days and find the premium in your pocket after expiry. always keep some level before you lose as a stop loss.

All the best trade.

YOU CAN ALWAYS QUIT, SO WHY TO QUIT NOW?