What are naked puts?
When a person sells a put option without being short on the underlying stock, he is said to have sold a naked put. Most people buy stocks first and then sell them but you can also borrow stock and sell it and then buy it back as it drops for a profit (this is called shorting a stock). When we say you sold a stock short, we are referring to the fact that you borrowed the stock and sold it in hopes that it would continue down and you could then buy it for a profit to close your position. The term “underlying stock” refers to the stock you are trading the options on. So if you bought a $50 put for August on ABC, Inc. for $1, the underlying stock is ABC, Inc. Let us say you are bullish on ABC. The stock is currently trading at $50. You sell some $40 puts for 50. This means that you will be 100% profitable on the trade as long as the stock continues to stay above $40 by expiration. The position is considered naked because you are selling someone the right to make you buy ABC at $40 even if
