Writing Naked Puts (The Best Option Strategies)

Writing naked put options appeals to you, the trader, because it provides a higher probability of earning a profit from the trade compared with buying stock. It also offers the possibility of making money from a bullish position, even when the stock price declines (by a small amount). It is heartwarming to earn that profit when your predictive powers failed. That situation is unknown to the bullish trader whose arsenal of strategies only allows for making money when the market rises.

Author’s Note:

This is a hands-on guide to making money with options. Part I contains background information that provides a better understanding of why writing put options is an attractive strategy for anyone with a bullish market bias. NOTE: Selling naked puts involves downside risk —the same risk associated with owning stock. However, put sellers lose less money when markets decline.

One pitfall is that profits are limited and the very, very bullish trader should probably find a different strategy. Remember that bull markets come and go, but put writing is worth learning because it is an intelligent choice when markets are neutral to mildly bullish.

This strategy is especially attractive to you, the investor who accumulates stock over time, because it allows the purchase of stock at attractive prices. And if it turns out that you fail to get your stock at that favorable price, then you receive a cash consolation prize (the option premium). Think of it from the standpoint of a typical investor who enters a below-market bid for the stock and never buys the stock. The put writer won’t buy the stock either, but he earns a profit when the put option is repurchased or expires worthless.

Part I begins with a discussion of who can benefit and why they may want to adopt this strategy. Part I covers writing naked put options from both a theoretical and practical point of view. Part II covers trading ideas: how to think about a trade, how to prepare for a trade, how to enter and exit the trade, how to repair a trade (manage risk) –if and when it becomes necessary, and how to prepare for expiration (the day the options expire).

Contents:

• Who Should Write Naked (Uncovered) Puts?
• Strategy Objective
• Strategy Description
• Profit Potential. What do you have to Gain?
• Risk Considerations:
• Margin
• Trading Expenses
• Using Calculators
• Let’s Make Some Money
• Summary: Thought Process When Entering a Trade
• What Can Go Wrong?
• What to do when Expiration Day Arrives

Writing Naked Puts - Volume 1 (The Best Option Strategies) By Mark Wolfinger pdf