Quote: (01-14-2016 05:42 PM)TheFinalEpic Wrote:
Would rather be selling naked calls in this climate. Would you be purchasing ATM covered put options in this instance, or how far out of the money would you go?
Puts are not depreciating if the market is going down, on the contrary, they increase in value. What is stopping someone from purchasing a naked put option in assumption of the market going down and just cashing in as its value raises?
I'm with you on selling calls in this climate! With Volatility this hi it's too late to be putting on a put hedge. People usually buy way out of the money puts because they're cheap, so probably around the 5 Delta put. It's a low probability trade, 95% of the time the put will expire worthless.
Nothing is stopping someone from doing it but as I said it's a low probability trade, when you eventually get a down move , will it be enough to cover all the previous losses?