Plus, the naked put has the advantages of tying up less capital and costing less in commissions. Whats not to like?
People tend to think that a naked put sounds like a risky strategy because of the naked part. The truth is, you have less risk selling a naked put on a stock than buying the equivalent number of shares long. Lets say you like DELL for a covered write. The stock recently closed at around 34 with the Mar 35 call at $.45. If you did that covered write, you would put up a net debit of $33.55, which would be your breakeven price. At expiration, your maximum profit of $1.45 would occur at any price above 35, whereupon you would be assigned. (Commissions are excluded.) Now, consider selling the March 35 put instead. You take in $1.45 premium and your breakeven and maximum profit parameters are identical to the covered write. But instead of putting up $3400 to buy the stock, or even $1700 on margin, your margin requirement for the put sale is only $780! (The usual rule is 20% of the stock price plus the in-the-money amount, or minus the out-of-the-money amount, and subject to a minimum of 10%
