Naked Puts Strategy

A naked put, also known as an uncovered put, is an options trading strategy in which an investor sells put options on an asset without actually owning the underlying asset. This strategy is considered "naked" because the investor is taking on the obligation to buy the underlying asset at the agreed-upon strike price if the put option is exercised, without actually having the asset in their possession. Overall, naked put strategies can be a risky but potentially profitable way for investors to take advantage of their bullish views on a stock. Because this strategy involves taking on the obligation to buy the underlying asset, it is important for investors to carefully assess the potential risks and rewards before entering into a naked put trade.

View Detailed Example

Suppose you are bullish on a particular stock and believe that its price will increase over the next few months. To take advantage of this belief, you could sell a put option on the stock with a strike price of $50 and an expiration date of three months from now. If the stock's price increases, the put option will expire worthless, and you will keep the premium received from the sale of the option as profit. However, if the stock's price decreases significantly, the put option may be exercised, and you will be required to buy the stock at the agreed-upon strike price of $50, potentially resulting in a loss.

Max Profit: Maximum profit is limited to the premium received.

Max Loss: Maximum loss is the difference between the price at entry and current price less the premium received.

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