Thanks. I've read this thread multiple times, including those passages. Yes, selling naked options in NG is not something I take lightly. But given the substantial move we've made since the 2011 low and since the most recent low 8 weeks ago, I find it hard to think this market is going to exceed $7 in the next 60 days.
I also realize that the market doesn't have to hit my strike to put massive amounts of heat on a position and that the market doesn't care about what I think or where I think it is unlikely to go. I *do* believe that the unthinkable can happen at any time and stand ready to make adjustments when needed.
I also diversify across several markets and positions. So, saying "sell the hell out of them" was a bit too aggressive of rhetoric.
I do think that with the recent market movement and volatility that there are good values in NG and have already sold some 6.9 calls and will be looking at selling some 7.4-7.6 calls tomorrow.
I've got one bear call spread at 1880/1890 that I'm going to sell at a loss and pay for it by adding to my short puts. This is the last position I currently have on the call side of the equity indexes.
Last edited by mu2pilot; December 31st, 2013 at 12:27 PM.
The only reason I like a ratio spread vs. naked, it beats hanging on with a naked position. Last month I had crude make me hang on for dear life as it was teetering right around mt 200% stop (never hit) I had a similar trade with NatGas last month, I chose to hang on (was sitting almost 4 points out of the money had plenty of margin and decided not to take the loss )as opposed to liquidating...
I've been doing some testing on them. I'm making roughly the same amount of money on a 1:5 ratio spread vs. selling 10 naked. While I have roughly the same b/e point. I've had 2 where I bought the calls back at 0.01, with the remaining call I bought rallied and I've made a few 100 dollars more. That's skewing my results.
I'll let you know my results when i can make some good comparisons on the subject.
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In my observation, ratio spread and naked short options are strategies for different type of markets. Naked short is usually employed when selling against trend (existing or anticipated due to seasonal behavior) or selling outside trading range type of behavior. While ratio spread is more appropriate for either very high volatility (when it can be sold for credit and still give lot of safety cushion) or for a slow trend situation when you expect some more movement but not too much (and it would be done for debit in this case).
I personally reserve ratio spread for very high volatility situation and I posted an actual trade last week showing example of that for Natural Gas.
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