Everything You Need To Know About Selling Naked Puts

Let’s start with “What Are Puts?” A put option is a contract that gives the purchaser the right to sell an underlying asset at a certain price on, or before, a certain expiration date.

If you buy a put option, it means that you are betting that the value of the underlying asset will go below the strike price before the expiration. If this happens, you’ll be able to purchase the asset at the market rate and then sell the asset immediately at the higher strike price to the entity that sold the option.

If you sell a put option, it means that you are betting that the value of the underlying asset will go up, or at least remain above the strike price of the option. If this happens, the option expires worthless and you get to keep the premium that you collected.

When you buy a put option, your risk is limited to the premium that you pay the seller of the contract. If the price of the asset increases to infinity, your loss is only the premium that you paid upfront. If the price of the asset decreases to 0, your profit is the strike price of the contract minus the premium that you paid.

There’s a similar dynamic when you sell put options. If the price of the asset increases to infinity, your profit is only the premium that you collect upon selling the contract. If the price of the asset decreases to 0, your loss is the strike price minus the premium that you collected.

As you can see, selling puts can be extremely risky. This is why a seller of puts is typically using them as a part of some larger strategy.

If you sell credit spreads or iron condors, you will be selling puts. However, they will always be hedged in case the market moves dramatically against your position.

A Naked Put is when you sell a put option without also holding a short position in the underlying asset or a downside hedge, similar to a long put at a further out-of-the-money strike price. If you are selling a Naked Put, you must have a very strong opinion about the price of the underlying asset and are willing to accept the risks associated.

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For a full guide on how to sell naked puts, you should visit this  more

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