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Visually Analyze Option Strategies
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Naked Put




A naked put (also called an uncovered put) is a put option where the option writer does not have a short position in the underlying stock or other instrument.


If the market price of the underlying falls below the strike price of the option, the holder can exercise the put option and force the writer to buy the underlying at the strike price for cash, profiting from the difference between the market price and the option's strike price. But if the market price remains at or above the strike price for the duration of the option, the option will expire worthless and the writer will profit from the premium charged to the buyer for the privilege of receiving the option.


Naked options are risky, but have the potential of being very rewarding. If the stock price stays the same or slightly increases then the put option seller profits and the option expires worthless. This type of strategy would allow an investor the opportunity to buy stocks at a discount. However, if the stock moves down, then the option premium increases, and it becomes more costly to close the put position.


Market Opinion





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When To Use


Use this strategy for income, allowing you to earn income as the stock rises.




XXXX is trading at $27.35 on May 10, 2011.

Sell the June 2011 $25.00 strike put for $1.05.




If the stock does rise as expected, then you gain income from that move.


Risk vs. Reward


The risk is put strike price minus the premium. The reward is the premium you receive for the option.


Net Upside


The premium you receive for the put.


Net Downside


Loss potential is limited because the stock can not drop below zero.


Break Even Point


Put strike minus put premium.


Effect Of Volatility


Effect Of Time Decay


Positive. Especially if you sell the put a month before expiration.


Alternatives Before Expiration


To stem a loss, if the stock drops below stop loss, close out the position by buying back the puts.


Alternatives After Expiration


At expiration, the sold option is worthless and you keep the premium.








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