The ShadowTrader Peter Reznicek ratio spread discussion

I do trade ratios. I'll trade ratios for earnings. For non-earnings I'll trade ratios on under $20. 

See I don't find naked plays stressful anymore so I can't say if they are less stressful.

If I'm looking at a lower priced underlying where I think it will move in a certain direction but don't want to be hurt if it moves in the opposite direction I'll look at a ratio, then a broken wing butterfly (a broken wing butterfly can be thought of a ratio spread with an extra long for risk definition).

Its a different play than a naked spread which I want to move away from my short strike. With a ratio, I want the underlying to slowly move to my short strike.

First, stay small. Ain't nothing wrong with a one lot trade

Second, realize that time is on your side because nakeds are easy to roll. So you're down this month, roll to next month and continue the fight. 

Third, be aggressive in defending your position. If your break even is hit, you have to do something. If its a put, then you need to sell a call and vice versa. You're now in defensive mode to help you with number 2 above. Of course you're walking a line between too aggressive defense and too passive.  Too aggressive and a rebound will go against you the other way. Too passive and you're not collecting enough credit to help #2.

Fourth, get wrung through a NFLX or a TSLA (or a WLT, CLF, BBRY, LULU, TOL, YHOO, whatever   ) a time or two and come out with a profit.

I have a TOL position that started on 4/19/2013 as a naked May 33 call for .45 credit. On 5/7 I sold a May 33 call for .50 and went inverted.  On 5/13, I rolled to Jun with Jun 36 put & 33 call - still inverted as I didn't understand flipping the strikes was the same thing - for an additional 1.70. My total credit at that point was $2.60.  Then on 5/23, TOL goes flying up so I had to roll up the put to Jun 39, collecting another $1.07. So at expiration I had collected $3.65 (taking out rolling commissions). On 6/12 I rolled to Jul, bit the bullet and made it a Jul 33 straddle at a cost of 4.10 w/ commissions. So now I have a .45 debit which means another expiration roll for me - remember each roll except the last was for over a $1.  TOL is currently sitting at $33.41 and my straddle is worth 2.40.  All told I'm down $2.85 on this trade. Plan is next roll to widen the strikes again.

But lets look at one of my TSLA trades - first time I ever traded TSLA:
On 5/15, I sold the Jun 60/100 strangle for $3.30. On 5/17 I rolled the 60 up to 70 collecting another $1.  On 5/28 TSLA hits 110 and I closed my 70 paying .50 for total credit of 3.80. Now I made a mistake here in that I didn't sell another put and I paid for it on the next day. On 5/29 TSLA hits 114.9 in the morning and I sell a 110 put giving me a 110 straddle collecting 10.60 bringing my total credit to 14.37. TSLA (that b*tch), promptly reversed like minutes after I sell that put and closes at 105. On 6/3, TSLA has dropped down under 95 so I roll my call down - yep inverted again! - for another $4.25 credit. So I've collected $18.60. Expiration comes and I roll, flipping my strikes, and this time since I've collected so much credit I can widen out the strikes - I roll out to Jul 87.5/115, paying $14.20 leaving me with a net 4.35 and back to a wide strangle. On 6/25, I close the strangle paying 3.8 and making a whopping .495 (or $49.50) after commissions on the trade. I should have held it for another day but hey I was OUT with a PROFIT. Sweetest $50 ever.

My mistake was back on 5/28 I should have sold the 100 put when I bought back the 70 put. That would have let me weather the 114 stock price since my credit on the roll would have pushed my break-even above 114 easily. As it was my break even was 113.80 so I had to get aggressive.

I went through the same thing in NFLX, but guess what I'm up $1600 in NFLX this year and I'm up over $750 in TSLA this year.  Duration, baby, duration and high volatility.

I got a fifth way, but I'd never wish it on anyone - completely ignore tip #1 and be short 3 ES, 2 TF, and 3 ZB in March. Then 2 ES, 1 TF and 4 ZB in April & May. Then 2 ES, 1 TF and 2 ZB in June. Wake up every morning to see the Open P/L shrink from 0$ to somewhere in the neighborhood of -$32,000 then back to -4000 (then close them out and miss this huge down move *grumble*grumble*). That'll numb you to naked options.

Have I mentioned that tip #1 is really frigging important??

Hey Theta Junkie,
What do you do if you are selling a naked call and the underlying goes down in price and now your naked call is worth pennies, if you roll down your naked call you are locking in a loss between the price you got into the stock originally and the fall in the stock price but you are collecting premium on the call. So if the call you rolled down now goes in the money and you get called away you still have a loss between the stock price and the price you got into the stock at originally. Would you turn around and sell a put to collect more premium?
I hope this is not to confusing.
Thanks so much,
Shelly

So Let me tell you about my NKE trade was long 62.5/65 for 99c... Nke "missed" So i closed out 65c for a nickel and watched the 62.5 go to 12c.. Then rallied back to 45c..So I put a Stop in at 35c for what reason I dont know. Then I went back to work, and yes I got stopped out and watched the 62.5 rally all the way to 1.60 by the afternoon...I ended up losing 58c... Trying to get my emotions in check but its tough...Trying to change my ways.. I put on a SPY 161/160 Put Vertical..for 41c.. Will be ready to be aggressive on Monday if we are up...