Naked options are back in style thanks to smart new ways of trading naked options in combination with weekly options
Did you know that selling naked options can be a tremendous network building strategy?
Yes it’s true when you do it right. Unfortunately the history books have a lot of people who have not traded naked options well. But just because someone does something dumb we don’t have to do the same thing. Plus we can learn from them, Learn what caused their stupidity, Understand it so we don’t have to fall trap to it ourselves
Here’s how to do naked options right:
- Don’t use leverage! Why? Why would you even think of using margin with a selling option strategy? It doesn’t even make sense. If you’re looking to capture the big move then by options!
- Therefore we are using cash secured naked options.
- So now that we’ve removed the insanity implosion issue we can look to maximize options premium putting decay rates in our favor
- Most of the”formal” literature out there you see on options talks as if you’re just going to just gassing by options out of the blue or because you have a special feeling… I don’t know why those guys even print that. He gives the false impression that you can just trade by feel, Maybe get lucky and make some money. Who trades like that?(Well actually most people do and that’s why most people lose). It’s irresponsible to trade options without exact entry points, Stop loss points and profit taking exit mechanisms. And with naked options were not fooling around. We need an exact plan to make this happen.
- We are not going to lazily sell out of the money options because we are guessing or hoping that the stock will never reach that far out of the money. A lot of traders do this. That is a weak strategy.
- We’re going to show you how to use stop losses via Price point trigger so you can prevent your stock from going against you in the money
- We are going to trade price triggers to get us and with a good risk to reward ratio allowing us to make potentially A lot more money
We are going to take the same system we used for GS7 and modify it for cash secured naked options.
On that note do not use margin on naked options ever for leads to bad psychology. Conversely using hundred percent cash secured naked options can lead to good, net worth building psychology.
Here we focus on AAPL. We look to sell weekly options. We are looking to trade momentum triggers therefore we can trade slightly in the money naked options. Are naked options, when we sell them, need to have premium on them to help prevent getting exercised against us. Depending on how much time is left on the option we will look at how deep we can go on, AAPL, for example, which will usually be between one and three one point strikes ITM.
When we capture a move we can close the position or just let it expire worthless. We look to hold one position at a time on the same stock. And we make sure the funds are there, hence cash secured, in case we get called out, exercised. And of course we have specific stoplosses to close out our trade if the entry hits our specific stoploss point.
Here is GS8. It’s a fairly active weekly options selling system.
We look to sell as short term as possible of course for faster decay rates. But we only sell options that have plenty of premium in order to try preventing getting called out.
Points gained or loss in options points below. Options points are approximations and premium will vary over time as a stock price becomes greater, smaller and as the stock becomes more or less volatile. When premium is less we can sell less in the money. When premium is more we can sell further in the money. Also AAPL in the performance sample below has 1 point weekly options strikes so 2 or 3 strikes ITM is only 2 to 3 points ITM just so you understand.
This is a 5 month sample of performance.
|1-Dec||48.98||Rough Approximate Options Points|
|5 Months||Premiums will vary based on current volatility of stock|