Originally Posted by gauss
Selling Naked Options on Futures?
Doesn't that have the potential for unlimited/unbounded losses , when the day finally comes around?
Sure you broker will try to liquidate all your positions before you run negative, but legally you are still on the hook if that doesn't happen.
Watch out for the future Flash Crashes.
Hopefully you only have a small fraction of your Net Worth in this particular brokerage account.
(former dabbler in Futures & Options)
p.s. have you ever read about Martingale Casino betting systems?
I learned about those the hard way!
Yes Gauss you are right, the flash crash is always a possibility. In this regard all systems are at risk of massive losses, selling naked doesn't inherently have greater risk (assuming you are not over-leveraged).
When selling naked I give up high returns for consistency, therefore I only use a fraction of my margin to get to my goal of around 10-15% annual return. This has allowed me to survive the downturn in 2008 and the flash crash of 2010. I did take a loss during the flash crash on my ES position, but the other positions were fine and once the market 'normalized' I was back in an ES position and ended the year positive. I suppose I gave back a chunk of the profit for the year, but my point is that if you are looking for a steady, dependable 'lower' rate of return than traders usually expect, then selling naked isn't as bad as it is usually portrayed.
Yes, I have heard of the martingale betting system, but I don't use it. The market can only be heading in one direction at a point in time, it is my job to get out of the way with the least damage possible. So, doubling down is not something I do.