jacobogrady 0 Report post Posted November 11, 2018 Selling options example. Lets say I am selling FB with a current stock price of $145 and do an OTM naked put option at $120/0.03 last price. I sell 800 contracts which would be a total cost of $2,400 with an expiration date of 11/16/18. If FB stays above $120 by expiration in 5 days I would get to keep 100% of the premium as profit? I am confused by this since it seems like I am missing something. Thanks. Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 11, 2018 That is correct. But this assumes you can get 0.03 plus it ignores commissions. Share this post Link to post Share on other sites
jacobogrady 0 Report post Posted November 11, 2018 Yes I was ignoring commission and assuming I get 0.03X800 as long as FB stays above $120 I make $2,400 is that correct? Sorry I am still learning this all. Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 11, 2018 That is correct. But while it might seem like a free money, this is not the case. You also need to consider the margin required to sell 800 naked puts. Share this post Link to post Share on other sites
Kim 7,513 Report post Posted November 12, 2018 P.S. I highly doubt you will get 0.03 for 120 puts. And your margin for selling 800 puts would be almost one million dollar. So even if you could get 0.03 and keep all the premium, the return on margin would be 0.24%, before commissions. Hardly worth the risk. Share this post Link to post Share on other sites
Azov 20 Report post Posted November 12, 2018 Plus keep in mind that it’s not at all uncommon for FB to move $10 or $20 in a day - often to the downside. Naked puts at $120 (especially at the size you’re talking about) could quickly turn into a disaster. Share this post Link to post Share on other sites
