SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

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).

 

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?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • Questions to Ask Yourself Before You Start Investing

    Everyone has heard the success stories of people making tons of money from investments, retiring early, and living a life of luxury. But, before you start tying up all your cash in investments, it is crucial to understand more about what is involved.

    By Kim,

    • 0 comments
    • 62 views
  • How To Use Tech To Improve Your Stock Trading

    Technology is undoubtedly helpful in many aspects, and stock trading is no exception. Over the years, the stock trading market has experienced improvements as a result of leveraging technology. For instance, stock traders can have faster access to more comprehensive data to help them make a more informed decision.

    By Kim,

    • 0 comments
    • 253 views
  • Exploiting Earnings Associated Rising Volatility

    It was brought to my attention that Seeking Alpha now restricts the number of articles people can read for free, so I will reprint few of the key articles I wrote for SA. This one was my fist article, written in 2011, and it gives an introduction of the earnings straddle strategy that we have been using for the last 10 years with great success.

    By Kim,

    • 0 comments
    • 484 views
  • Why And How To Trade Objectively And Keep Your Emotions In Check

    Trading on the stock market is a serious profession. Individuals can make a very lucrative return whether trading professionally or personally. To successfully trade on the stock market it requires years of dedication, practice and thorough market understanding.

    By Kim,

    • 0 comments
    • 811 views
  • 3 Things You Need To Know About Investing As An Immigrant

    One of the most effective ways to prepare for the future is investing. This is because investing provides a way to have access to resources that are not readily available. While there are many ways to make a nest egg for you and your family, investing provides a way of earning passive income. 

    By Kim,

    • 0 comments
    • 1,094 views
  • The Benefits of Rebalancing

    A portfolio with multiple funds will drift away from the original allocation over time if it is not rebalanced. In this article I’ll show how rebalancing can be implemented and how it can be beneficial. It's called buy, hold, and rebalance.

    By Jesse,

    • 0 comments
    • 1,992 views
  • How To Manage Fear And Greed In Trading

    Why doesn’t everyone get involved in trading? And why doesn’t everyone “hit it big” on the stock market at least once? If you eliminate the main factors that drive the human mind (emotions) and only consider knowledge, logic, experience, and reason, everyone should be able to earn money from trading.

     

    By Kim,

    • 0 comments
    • 2,305 views
  • Probability vs. Certainty Trap

    We all would like all our trades to be winners, but we know this is not possible. We know some of the trades will be losers. Many traders think that if a trade has lost money, it was a bad trade. They try to identify what errors they made that lead to losses. Why? "Because I lost money! So surely I have made a mistake somewhere?”

    By Kim,

    • 2 comments
    • 7,032 views
  • How To Choose The Right Platform For Your Stock Trading

    The interest in stock trading has increased due to its higher returns and profit potentials. Like the many traders available, there are numerous approaches and platforms to set your trading environment. Online trading platforms provide adequate resources and tools for their clients' trading success.

    By Kim,

    • 0 comments
    • 4,223 views
  • How To Approach Passive Investing

    Passive investing refers to an investment technique that seeks to increase returns by limiting purchasing and selling. One of the most popular passive investment strategies is index investing, this means that a group of investors buy a representative benchmark, and keep hold of this over a long period.

    By Kim,

    • 0 comments
    • 3,944 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 Expertido