Selling naked put options

[Mark Wolfinger]

Selling naked put options is often (mistakenly) considered to be a 'very risky‘ proposition. Professional stockbrokers who spread that message are doing their customers a major disservice, because they are steering those customers away from a prudent, profitable investment method.

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.

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[steven_e]

selling naked puts for investors, allows an entry either at a lower price point than current price, or a profit from keeping the premium, if the option expires out the money.

 

this way, an investor does not chase the stock price, but gets in at a point he/she has determined is favorable.

 

margin required depends on your brokerage and the specific stock, with some momentum stocks costing more margin than a less volatile stock, at the discretion of your broker.

 

margin can be reduced by buying a lower strike put, which turns the trade into a credit spread (bull put spread). This reduces the trade's yield, but percentage yield can be offset by more contracts, if one has a dollar goal for the trade