A Calculated Naked Call on YINN – My Latest Strategy
It’s been a few days since my last post, and today, I seized an opportunity I felt confident about. I executed a naked call option on YINN, selling 24 contracts at the $70 strike price with an expiration date of November 15, 2024. The total premium I collected from this trade was $3,000 USD.
Originally, my target was to sell at the $65 strike price, which would have brought in around $3,840 USD. However, due to unfavorable spreads at that level, I shifted to $70 strike price for better execution. This decision gave me a smooth fill at $1.25 per contract, ensuring I locked in the premium.
Why I Chose This Strategy
Currently, YINN trades around $39-$40. After evaluating the market sentiment and the potential impact of upcoming stimulus news from China, I don't see a realistic scenario where YINN climbs beyond $70 within a month.
Currently, YINN trades around $39-$40. After evaluating the market sentiment and the potential impact of upcoming stimulus news from China, I don't see a realistic scenario where YINN climbs beyond $70 within a month.
Even with positive catalysts, the stock is unlikely to surpass its previous high of $60—the level I monitored during my last call trade. Based on my analysis, the probability of the stock reaching $70 in the next 30 days is slim to none. The probability of profit (POP) for this trade stands at 94%, as seen in the attached screenshot.
To put things into perspective: for YINN to move from $40 to $70, it would require a 75% increase in just one month. Given current market conditions, this kind of surge is extremely unlikely, even if favorable news surfaces.
Why a Naked Call Felt Safe Here
Although this is a naked call strategy without a vertical spread to hedge, I believe the risk is minimal. The $65 and $70 strike prices are far from the current trading range, making them secure levels to short. The naked structure allows me to maximize my premium collection without additional complexity.
Although this is a naked call strategy without a vertical spread to hedge, I believe the risk is minimal. The $65 and $70 strike prices are far from the current trading range, making them secure levels to short. The naked structure allows me to maximize my premium collection without additional complexity.
If YINN stays below $70 by November 15, I keep the entire $3,000 premium. If it goes above that, I may need to manage the position accordingly, but as things stand, I’m comfortable with this setup.
Conclusion
This trade reflects my evolving approach to managing options. The goal is to capitalize on market sentiment shifts while maintaining reasonable risks. I’ll reassess my strategy as we approach the expiration date, sharing updates on how I adapt based on market movements.
This trade reflects my evolving approach to managing options. The goal is to capitalize on market sentiment shifts while maintaining reasonable risks. I’ll reassess my strategy as we approach the expiration date, sharing updates on how I adapt based on market movements.
Let’s see how this one plays out by November 15. If the trade works out as planned, it will be a great example of how careful analysis and patience can pay off.
If you found this post helpful, please give it a like and follow me for more insights into my trading journey. I look forward to sharing more strategies and trades with you all!
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Long-term value investor, focused on identifying undervalued stocks through thorough market analysis and fundamentals.
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AaronW : Isn't it obvious that it can't reach 70? Why buy a call at 70, learning in progress.
Alex Wong Cian Yih OP AaronW : Hey Aaron, just to clarify, I didn’t buy a call at 70. I sold a naked call option. This strategy leverages the concept of time decay and a realistic assessment of market trends.
It’s highly unlikely for YINN to spike 75% in just a month to breach that $70 strike price. For YINN to move that much, it would require the CSI300 or Hang Seng Index to experience an over 20% surge in the same period—something that’s extremely rare unless we see an unprecedented rally in China’s markets, driven by major stimulus.
So, yeah, I’ve calculated the odds carefully. The probability of profit (POP) on this trade is around 94%, meaning it’s quite safe. Even with any bullish market movements, I don’t see YINN reaching $70 in a month.
Alex Wong Cian Yih OP MrM : Appreciate the concern, MrM! Yes, it’s a high-risk leveraged ETF, but this is all about strategic probabilities and time decay. Since YINN is a leveraged ETF, it inherently loses value over time through decay, especially if the underlying assets consolidate.
With each passing day until the November 15 expiration, two layers of decay work in my favor:
1. Option time decay (theta): The option’s value declines as we approach expiration.
2. YINN’s internal decay: Being a leveraged product, YINN naturally loses value over time, even with small market fluctuations or consolidation.
Additionally, the current implied volatility (IV) is around 149%, which is quite high. As time progresses without any significant market-moving news, the IV will likely drop, further reducing the option’s value and enhancing the profitability of the trade.
Given the 94% probability of profit and the low chance of YINN climbing 75% or more within a month, this strategy is well-calculated. For context, such a surge would require major Chinese indices like the CSI300 or Hang Seng Index to rise 20%+ within a month—an extremely unlikely scenario.
So, while there is inherent risk, the combination of IV decay, theta decay, and YINN’s natural decay makes this a calculated and confident trade for me.
路小溪 : After selling short, do you have to buy it back yourself?
Alex Wong Cian Yih OP 路小溪 : In my case, I won’t need to buy it back. I’ll just hold the position until expiration. If everything goes as expected, the option will expire worthless, and I’ll keep the premium without taking any further action.
103501857 : Hi, if it is unlikely to hit the strike price, would anyone be interested to buy call that you sell? I'm a newbie to options, just curious
Alex Wong Cian Yih OP 103501857 : Actually, there will always be someone buying because the market usually has a bid-ask spread, especially with market makers providing that liquidity. If you don’t mind a wider spread, you can always complete your trade based on those prices.
As for why someone would buy a far-out-of-the-money call, it could be part of their strategy, like a multi-leg option play or even a hedge. Everyone has their own approach. For example, I don’t short stocks, but I don’t believe the stock price will reach that high either, so I sell the call. If someone buys it, I sell it—it’s as simple as that.
103501857 Alex Wong Cian Yih OP : 做空一般上要借货来放空的，naked short 这个是没有货的放空，美国资本市场的魅力 。
103501857 Alex Wong Cian Yih OP : I see, thank you for your explanation. All the best for your trade
. Your stragegy sounds.
Alex Wong Cian Yih OP : I just checked the option chain, and I noticed that for the expiration dates between November 8th, November 15th, and November 22nd, the strike price at $50 for YINN ETF is a very good level to sell naked calls. With the current price sitting at around $31.20, for YINN to hit $50, both the CSI 300 and the Hang Seng Index would need to rise by over 20%, and YINN itself would need to rally about 60%. Based on my calculations, this is highly unlikely, and the probability of profit is over 94%. So if you can sell calls at this strike price, it's likely to be a profitable trade.