Hi everyone,

I have this SPY short guts and the short put was exercised a few days early and I got 100 shares in my account. My short call is still not exercised.

To reconstruct back the short guts, I have to sell away the 100 shares and resell the May in-the-money put.

Here are my observations and your input is certainly welcome:

When my put was exercised and after selling off the assigned underlying, if i did not immediately sell another put, and the price advances, i will have loss depending by how much the stock has moved up before i sell the next put. right?


On the contrary, if i did not immediately sell another put, and the price drops, i will have profit depending by how much the stock has moved down before i sell the next put. right?

rgds
ky

Good food for thought. Open to everyone to comment. $0.10 for KY for the sharing.

Ky,

If one intend to stick with short guts and non-directional trading in general, then one do not have a directional view of the stock. Either up, down or flat we are ready for the market !

<> Yup, once you sell off the shares, you need to sell another put as cover for your short call above and to make the strategy non-directional again. If the stock advanced up, its doesn't mean a loss as you could sell again at higher strike price. Hope this is the answer you wanted, didnt understand what you really want here.


<> Yup this is correct. But you are trying to time the stock movement and direction. Its difficult to time the stock !

Eugene

hi eugene,
sorry if my question seemed unclear to you. but thank you very much for your reply.
i am actually quite new to short guts and i am truly a non-directional trader. my concern was that as my put was being exercised and i only discovered it 2 days later, i was worried that as the stock has already advanced, i might as a result suffered a loss cos of that.
fortunately, thanx to sun that he clarified with me that as long as i have not sold the stock put to me due to the exercise, things will be fine.
so that night i sold off my stock and immediately constructed back my short put.

ky

Thanks both of you for the interactive questions and answers. $0.10 for both of you! My reply:

Question: When my put was exercised and after selling off the assigned underlying, if i did not immediately sell another put, and the price advances, i will have loss depending by how much the stock has moved up before i sell the next put. right?

Reply: After the assignment of 100 shares, you sold off the 100 shares and immediately you have to resell the ITM put to prevent the underlying from going up. If the underlying goes up with only the short call 'hanging around', which is called totally 'unhedged' naked call, you will suffer a loss.

Question: On the contrary, if i did not immediately sell another put, and the price drops, i will have profit depending by how much the stock has moved down before i sell the next put. right?

Reply: Yes, if you adopt a bearish view, and if the underlying goes down, you short call premium is lower, and you make a profit. This is what Eugene Tan said 'directional view'. If you are a non-directional player, try not doing this.

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Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box.

Good day KY,

After one month of options writing, and probably there was not much roll-up or roll-down because the market was direction-less not swing too wild last month, you should be making near 2% per month. Congratulations if you have achieved that.

If you believe you are more suitable as a non-directional player, stay with it. Once you are non-directional player, you will lose those directional acumen because you do not use charts, software or any black box system to predict the movement. You are just writing ITM options for time value collection.

If you are doing the short guts on ETF, the return is about 2-3% per month without repair. Sooner or later many non-directional traders will find the profit generation is too low or too slow, then they move on to directional plays. Then again, they will lose the ability to gauge how much they could possibility earn per month.

If you are comfortable with ETF, stay with it for next few months before moving on to non-ETF underlying. I always remind myself not to complain about 2-3% per month, no one will give it to us this consistency without writing options. A big thank you to Professors Black and Professor Scholes.

Trading is not about quiting 9-5 job next month, not about making millions over night (especially for many small traders and man in the street), not about making over selves happy for one day with 500% return. It is about projecting a fixed, consistent, achievable return every month with ITM options writing. Then we will survive the stress of active trading and outlast many directional players.

Thanks and be patient. Use time to reward yourself.

hi sun,
that was really well said. :) and yes i got my close to 2% for that month. i am trying to learn as much as possible on this non directional strategy so that i really understand the mechanism of how it really works, and hence those questions asked.

i am not looking for home run type of gain, but somethings consistent and predictable enough which i find what the short guts could be very much capable of providing. and really glad to know that such strategy exists. :)

no worries sun, once into non-directional i have no more intention to go directional as i came from directional and it really makes little sense to go back to where i come from again.

and lastly, thank you so much for your humble and enlightening advice that u provide us throughout the forum.

rgds
ky

Well said, Sun and thank you for the reminder !!

Like all of you, I wasn't satisfied with 2%, 3% or 10% pm. More so, since before I took Sun's course, I was a XXXXX graduate who was soooo used to seeing 100% or 200% per trade. (I think Sun is talking about me when he posted the 500% gains above-haha!) I can tell you that I posted a few 100% or more per trades but there wasn't consistent income. I had to slog real hard doing research work to make those gains and the stress level was terrible. Few months down the road, my office work and health deteriorated. So now I go for consistent income per month and enjoy life. As the capital grows and grows, 2% of 10K becomes 2% of 20K and so on..

Dear Mr. Eugene Tan,

I was not talking about you, ha! I did not know you managed to make 500% per night. Please tell me how, so that I can boost my return occasionally.

I have amended your posting on the part on XXXXX options course you attended. We have to act 'neutral' here because no instructor is better than another instructor. None of us invented options, none of us created options strategies. We only choose and adopt certain options strategies which suit our personality and projected return.

Thanks for posting, and I am glad you are using non-directional strategies. Please share and teach others how to do that because it is unlikely we could reach every trader with our options education course.

Be consistent, that is the only time you could sell time for money, without playing office politics.

Sun

Dear Mr. KY,

I am afraid you will find 2% per month is too low, that was why I acted like an old preacher. Ha!

Your return of 2% is on the average side, because you write 5 dollars in the money for some ETF. The good thing is, you do not have to repair it frequently. Once you repair it, you will get 1% this month, but 2-3% next month if the underlying reverses or stay flat.

On the lighted side, you never utilise all your capital in writing options, probably 70-80% of it. Then your return is near 2.8% per month based on the capital utilised.

Never mind about the small return, if you can get 2.8% per month, that is a 'George-Soros-return' of 35% per year. You probably could start a find management company yourself in no time.

Brilliant and keep selling time.

Sun
Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box.

Dear Sun,
Again I seems to have been fast asleep while you and others have been blazing away in the forum. It's great making money (from time decay) while asleep :)))
I forgot this is a "neutral" forum, my apology sooo no advertisments and politics-ha! Yu are right by saying using the selling strategies to suit one's lifestyle and personality. That is the reason I use the selling methods as follows -

short strangles (the most) ie. otm calls and otm puts.(to me this require the least work and easiest to repair)

credit spreads (a lot too!)

short guts (used to do, now rarely! sometimes get confused with the other methods on same stocks so dont do it now)

In all the above, I have calls and puts together to make it non-directional. .

Eugene Tan

Yes Mr. Eugene Tan, this is a 'neutral' and 'unbiased' forum due to all those non-directional options strategies. Anyway, thanks for sharing the inconsistency of directional play. KY knows that well because he has been going directional for years.

Yes, sometimes I also like to sell far OTM calls and puts when some counters have gapped too much in a short time span. It is Dave's favourite too.

As long as options are written, there are mostly repairable, it is just a matter of time: 1 month or 12 months.

Any commentary or illustration generated in this forum is provided for educational purposes only. You must decide your own suitability to buy or sell options. This is neither a solicitation nor an offer to buy/sell stocks or options. Commission was not taken into calculation. Note: You have to know the risk of options writing before execution, especially naked call/put writing, bull/put spread, covered call writing, short straddle, short strangle, short guts, short/long iron butterfly, short/long wingspreads and short/long box.

hmm I saw somebody calling my name. Oh yes OTM call and put suit me well. Actually it is similiar to short guts itm call and put. But my mind don't turn so fast so when i need to repair short guts i need 1 more mins to think. And my position is really huge this days, even with my OTM call and put and my ratio spread in it make me confuse of my position. Most of the time I let it expire although I should have close it out to free up margin. But then I am a fairly lazy man.

Welcome back, $0.10 as your welcome gift!

Lazy man is a smart man because he frees up time to do something more important. Like reading books to your baby. Anyway, OTM margin requirement is not as high as those ITM, so it really does not really matter because you probably get paid on the premium you sold.

Have a nice time decay this weekend.