Naked Puts?
Mention that you trade “naked puts,” and most people will consider you a reckless risk-taker. After all, depending on the strike price, there is potentially large downside risk in exchange for a limited, and usually small, upside return. You are also required to have the highest level of options approval for your account in order to trade naked puts. For these reasons, the naked (or uncovered) put strategy is considered very risky and most investors rarely use it. But let’s take a closer look at naked puts; you will see they can actually be used as a conservative strategy. Naked Puts The idea behind speculative naked puts is fairly simple. Because put options lose value as the underlying stock moves up, you simply sell puts on stocks you think will rise. If you are correct, you keep the option premium and owe nothing. However, because you are the seller (also called the “writer”) of the option, you have the potential obligation to buy the stock for the strike price. When you write nake
