SteadyOptions is an options trading forum where you can find solutions from top options traders. Join Us!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Selling naked put options


Selling naked put options is (mistakenly) considered to be a 'very risky‘ proposition. Stockbrokers who spread that message are doing their customers a major disservice, because they are steering them away from a prudent strategy. The only dangerous part of options trading is the risk-insensitive trader who buys and sells options with little or no understanding of just what can go wrong.

The options, by themselves, are not dangerous tools.

 

I mention that because one of the long-lasting misconceptions about options is that they are dangerous to use. It is possible to use options to speculate (gamble), but options were created as hedging, or risk-reducing, investment tools.

 

An alarming number of financial professionals, including stockbrokers, financial planners and journalists are in position to educate the public about the many advantages to be gained from adopting naked put writing (and other option strategies), but fail to do so. Many public investors never bother to make the effort to learn about options once they hear negative statements from professional advisors.

 

Except for extremely bearish prognosticators, no one ever suggests that owning stock is anything but the most prudent of investment strategies. Yet, writing naked puts is a significantly more conservative strategy and definitely less risky than simply buying and owning stocks. As such it deserves to be considered as an attractive investment alternative by millions of investors.

 

Who should consider writing naked (uncovered) puts?

 

1. Investors

  • Who are bullish on the market
  • Who are bullish on specific stocks
  • Who want to buy a specific stock at a lower price
  • Who adopt a buy and hold strategy
  • Who want additional income from their holdings

2. Traders

  • Who want a higher percentage of winning trades
  • Willing to consider holding a position for a month or two
  • Who want to begin a spread position with a bullish leg

 

Strategy Objective

Why would you want to write naked puts? What is there to be gained?

Writing naked puts is a bullish strategy. When selling naked put options, you are attempting to achieve one of two investment goals

  • Profit. You are bullish on the stock and expect the put option to lose value, and perhaps expire worthless as time passes. If the latter happens, the option premium (cash from selling the put option) becomes the profit.
  • Buy stock at a discount. If the put option is in the money when expiration arrives, you will be assigned an exercise notice and be obligated to buy the stock you want to own at a discount to today’s price. This is an intelligent method for an investor to gradually add positions to a long-term portfolio. NOTE: When you are eventually assigned that exercise notice, the stock may be below your target purchase price. However, if you had entered an order to buy stock at that target price, you would be in worse shape than the put seller (who cushioned any loss by the amount of the premium).

Another alternative is combining put selling with call selling, a strategy known as the Wheel strategy

 

This post was presented by Mark Wolfinger and is an extract from his latest book Writing Naked Puts (The Best Option Strategies). You can buy the book at Amazon or sign up for our free trial and get it for free.

 

Mark Wolfinger has been in the options business since 1977, when he began his career as a floor trader at the Chicago Board Options Exchange (CBOE). Mark has published four books about options. His Options For Rookies book is a classic primer and a must read for every options trader. Mark holds a BS from Brooklyn College and a PhD in chemistry from Northwestern University.

What Is SteadyOptions?

12 Years CAGR of 122.7%

Full Trading Plan

Complete Portfolio Approach

Real-time trade sharing: entry, exit, and adjustments

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Subscribe to SteadyOptions now and experience the full power of options trading!
Subscribe

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • SPX Options vs. SPY Options: Which Should I Trade?

    Trading options on the S&P 500 is a popular way to make money on the index. There are several ways traders use this index, but two of the most popular are to trade options on SPX or SPY. One key difference between the two is that SPX options are based on the index, while SPY options are based on an exchange-traded fund (ETF) that tracks the index.

    By Mark Wolfinger,

    • 0 comments
    • 755 views
  • Yes, We Are Playing Not to Lose!

    There are many trading quotes from different traders/investors, but this one is one of my favorites: “In trading/investing it's not about how much you make, but how much you don't lose" - Bernard Baruch. At SteadyOptions, this has been one of our major goals in the last 12 years.

    By Kim,

    • 0 comments
    • 1,193 views
  • The Impact of Implied Volatility (IV) on Popular Options Trades

    You’ll often read that a given option trade is either vega positive (meaning that IV rising will help it and IV falling will hurt it) or vega negative (meaning IV falling will help and IV rising will hurt).   However, in fact many popular options spreads can be either vega positive or vega negative depending where where the stock price is relative to the spread strikes.  

    By Yowster,

    • 0 comments
    • 1,260 views
  • Please Follow Me Inside The Insiders

    The greatest joy in investing in options is when you are right on direction. It’s really hard to beat any return that is based on a correct options bet on the direction of a stock, which is why we spend much of our time poring over charts, historical analysis, Elliot waves, RSI and what not.

    By TrustyJules,

    • 0 comments
    • 716 views
  • Trading Earnings With Ratio Spread

    A 1x2 ratio spread with call options is created by selling one lower-strike call and buying two higher-strike calls. This strategy can be established for either a net credit or for a net debit, depending on the time to expiration, the percentage distance between the strike prices and the level of volatility.

    By TrustyJules,

    • 0 comments
    • 1,725 views
  • SteadyOptions 2023 - Year In Review

    2023 marks our 12th year as a public trading service. We closed 192 winners out of 282 trades (68.1% winning ratio). Our model portfolio produced 112.2% compounded gain on the whole account based on 10% allocation per trade. We had only one losing month and one essentially breakeven in 2023. 

    By Kim,

    • 0 comments
    • 6,206 views
  • Call And Put Backspreads Options Strategies

    A backspread is very bullish or very bearish strategy used to trade direction; ie a trader is betting that a stock will move quickly in one direction. Call Backspreads are used for trading up moves; put backspreads for down moves.

    By Chris Young,

    • 0 comments
    • 9,766 views
  • Long Put Option Strategy

    A long put option strategy is the purchase of a put option in the expectation of the underlying stock falling. It is Delta negative, Vega positive and Theta negative strategy. A long put is a single-leg, risk-defined, bearish options strategy. Buying a put option is a levered alternative to selling shares of stock short.

    By Chris Young,

    • 0 comments
    • 11,402 views
  • Long Call Option Strategy

    A long call option strategy is the purchase of a call option in the expectation of the underlying stock rising. It is Delta positive, Vega positive and Theta negative strategy. A long call is a single-leg, risk-defined, bullish options strategy. Buying a call option is a levered alternative to buying shares of stock.

    By Chris Young,

    • 0 comments
    • 11,822 views
  • What Is Delta Hedging?

    Delta hedging is an investing strategy that combines the purchase or sale of an option as well as an offsetting transaction in the underlying asset to reduce the risk of a directional move in the price of the option. When a position is delta-neutral, it will not rise or fall in value when the value of the underlying asset stays within certain bounds. 

    By Kim,

    • 0 comments
    • 9,894 views

  Report Article

We want to hear from you!


I joined steady options yesterday in a quest to find an intelligent answer to this exact question!  I started following the Arora report recently, and one of the tips was to write naked puts rather than simply waiting for the price to decline.  I could not find a qualified explanation anywhere else.  Thank you!  this was perfect.  Even better, I'm super intrigued by the world of options now that I've scratched the surface.

Share this comment


Link to comment
Share on other sites


Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account. It's easy and free!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now

Options Trading Blogs