Track Any Stock Instantly
Just enter up to ten of your stocks in the Stock Tracker box, click the ADD
button beside any of Today's Hot Stocks, or click ADD beside any of the stocks
you've Recently Viewed.
Click ADD next to any stock below to add it to the Stock Tracker
Options Strategies
"Sell Naked Put" Stock Option Investment Strategy
by InvestorGuide Staff (Write for us!)
(Click on the links within the article to get definition of that word)
There are a number of strategies with respect to options; however, the best strategy for an investor is often determined
by his or her appraisal of the market. Different market conditions (such as a "bull" or "bear") will make some option
investment strategies more prudent than others. If an investor fails to understand which direction prices are
trending towards, then it is very probable that he or she will choose a strategy that is at complete odds with
the market. If prices are not expected to head south - that is they will not drop and may even rise before
the expiration date, then the investor may wish to use the "sell naked put" stock option investment strategy.
The danger of the "sell naked put" option strategy is that it carries a lotrisk (the extreme case would be if the
stock price goes down to $0 at or before expiration). In other words, if the price of the stock falls below the
strike price, the writer of the options is liable for the loss. Investors using the "sell naked put" stock option
investment strategy are obligated to sell 100 shares of a given stock at the strike price, if the holder of the option
decides to exercise it before or at the expiration date. A writer using the "sell naked put" strategy has his/her profits
limited
to the premiumamount (minus commissions). Thus, the break even point for the "sell naked put" stock option
strategy is the strike price, minus premium, less commissions.
Followers of the "sell naked put" strategy should sell options with lower strike prices when they are not
entirely certain about the direction of prices, but are still confident that prices will not drop.
If the investor is more certain that prices will not drop before the expiration date, then it is safer to sell
options with higher strike prices (and therefore the premiums, and potential profits, will be higher). However, as
the "sell naked put" option strategy has quite a lot of risk, it is not recommended for novice investors.
This is especially true since margin is typically a requirement for those utilizing this option investment strategy.
How to use this tool 
How to use this tool 
Print Article
