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Naked Puts |
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Also known as an uncovered put, a naked put is a short put option position in which the writer (seller) does not have the corresponding short position in the underlier, or has not deposited an amount equal to the exercise value of the put in a cash account. This a strategy that ranges from bullish to neutral, and is best reserved for aggressive investors who have bullish prospects for a stock. This trade is best utilized when volatility is high in the market, but the investor expects it to contract. This trade should never be attempted by novices in the market unless they fully understand the risks involved and can afford to take a considerable loss if they guess wrong.
When a put option is assigned, the seller/ option writer is required to buy shares at a fixed price, regardless of where the underlying market might be. For example: the stock could actually be trading at $20, but if the strike price of the option is $45, the option seller has to buy the stock from the put holder for $45 per share.
The individual investor would almost certainly view selling naked puts as having limited reward and substantial risk, since the maximum profit achievable is limited to the premium received from the sale of the options.
However, a fund manager might see the situation from an entirely different point of view. By selling slightly out of the money puts, the funds manager is able to buy the stock at a discount relative to where it currently trades if the stock declines in price. Simultaneously, the position will have earned additional income from the premium associated with the options. If the stock moves ahead, naked put writers won’t have missed out entirely because they get to keep the premium collected from the options that expire worthless.
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| Symbol |
Rate |
| GBP:CHF |
1.747703 |
| GBP:JPY |
155.484239 |
| GBP:USD |
1.638403 |
| NZD:USD |
0.627050 |
| EUR:CAD |
1.545998 |
| EUR:CHF |
1.516857 |
| EUR:GBP |
0.867915 |
| EUR:JPY |
134.947096 |
| EUR:USD |
1.421994 |
| AUD:JPY |
76.394373 |
| AUD:USD |
0.805000 |
| USD:CAD |
1.087204 |
| USD:CHF |
1.066711 |
| USD:JPY |
94.899879 |
| USD:SEK |
7.613010 |
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Disclimer: This website is for informational purposes only and is not intended to provide
specific commercial, financial, investment, accounting, tax, or legal advice.
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© ForexCenter.com, 2005, All Rights Reserved
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History