I'm not sure of the difference, so here's a hypothetical question.
I use ToS and trade off the AT ladder which gives you the option to buy or sell the option you pulled up.
If I see something telling me the the underlying is going to imminently dump but I have call options loaded, would I be able to scalp a SELL CALL order off the ladder and make the same amount of money I would if I swapped to put options and buy a put?
Is it more risky to sell calls and puts when you don't have an opposite order already working and in the trade?
Just not sure exactly how that mechanic works.
Posted by SWATSWATSWAT
5 Comments
Selling calls typically means you own the stock you’re selling calls on (unless you’re an idiot)
Naked call sellers need a shit ton of capital. one bull run and a wsb regard hitting the assign button early will tear your ass in two.
You should really just draw the profit/loss curve. That will show you the max profit, max loss, and outcomes at different strikes. The two curves are not the same.
Options are just insurance. Selling is inherently more risky than buying.
When you sell options, you receive money and take on more risk. Your profit is capped.
When you buy options, you pay money and offload risk. Your loss is capped.
Selling naked calls is the only true infinite loss options can have.
The real answer that you’re looking for is one of the basic premises of options: convexity. Buying puts means you’re long options, and benefit from convexity. Selling calls means you’re short options, and do not benefit from convexity.
In your question, you’re only considering one aspect of options: delta. In that sense, selling a 25 delta call and buying a 25 delta put both get you short 25 deltas in the underlying. The difference is that if the underlying drops meaningfully, that 25 delta put is now a 50 delta put and that 25 delta call is now a 5 delta call. So if you bought the put, you’ve been getting shorter deltas as the market goes your way. If you sold the call, you’ve been getting less short deltas as the market goes your way. The opposite is true if the market goes up. If you own the put, you’re getting less short as the market goes against you. If you are short the call, you’re getting shorter the market as it goes against you. This is the effect of gamma.
So no, in the instant that you put on the trade you may have the same delta position on. But as soon as the market moves the other aspects of your position come into play.