What a nice roller coaster ride the market is going through... Over 8% rally in 6 trading days. We are only 6.8% off the all-time high so it's hard to imagine that this rally will last much longer, which means selling naked put options is probably more risky than selling naked calls. The challenge is that typically when a stock goes up then the volatility drops, therefore the premiums that we collect are lower.
What's my today's pick?
Given the broad market movement over the past 6 days, plus the fact that the next earnings season is coming up, I picked #CCL ( #CarnivalCruise ), which had it's earnings this morning. Considering that it barely moved, I don't expect much movement in the coming days/weeks. The market guessed its performance very well.
The volatility is still a bit higher than usual so there are a few coins left on the table. Although, I don't expect this trade to be a fast one. It's more of a safe move as I have a feeling that another downwards move is on the way for the overall market. I selected April as the premium offered for May was not attractive enough.
The stats
Trade Type: Short Strangle
Strike: $17 / 22
Expiry: 14 Apr
Delta: 7
IV Rank: 52.9
Premium: $0.63
Cap Req: $208
Annualised Prof at Expiry: 481%
Naked = exposed.
When you sell a put option or when you sell a call option without defence.
If you don't want to be 'exposed' to potentially significant losses then you can limit your losses by buying another position.
Using CCL as an example: instead of selling a $17 put option on its own, you can also buy a $16 put option for a bit less than what you sold the $17 put option for. In this case your losses are limited to $1. This is called 'put vertical'. You can do the same for the call options too.
hi Peter , what is a “naked“ put or a “naked“ call ?
What a winner!
Closed at $0.36 for a beautiful 790% annualised profit.