I keep coming across naked puts in trading talks but I don’t really understand them.
When is it a good idea to use this strategy? It sounds risky, so I want to get the basics straight before I think about it.
Do any traders use naked puts often?
Sold naked puts on Apple in 2022 - thought it was easy money. Stock tanked and I got stuck buying at $165 when it was trading at $140.
Naked puts are great when markets go up, but they’ll wreck you fast when things turn. Only do it with stocks you’d actually want to hold long-term.
Naked puts are when you sell put options without owning the underlying stock. You collect the premium upfront but might end up buying shares at the strike price if assigned. I prefer this strategy when I’m bullish and okay with potentially owning the stock at a lower price. It’s essentially like getting paid to place a limit order.
The downside is that if the stock drops significantly, you’re obligated to buy at a higher price than the market value. It’s best to use this strategy with solid companies and only with funds you can afford to lose.
Naked puts mean getting paid to wait for stocks you want to buy. It involves telling the market you will buy at a certain price in exchange for a premium.
The main risk is needing to have cash available if assigned. Many make mistakes by selling puts without enough funds.
This strategy should only apply to companies you genuinely want to own at prices you are comfortable with.
Selling Tesla puts worked well for me last year, but I lost $800 when assigned.
Naked puts involve selling options without owning the stock. You earn the premium if prices stay above the strike. The risk is high if the stock drops significantly.