Options Theory: Evolution of a Naked Put
November 18, 2022
Today’s video delivers a fresh spin on the naked put. WIthin, you’ll learn how delta, theta, and vega play together to drive your position’s performance.
Notes
Stock at $50, neutral to bullish
Sell Dec (30-day) $45-strike put option for $1.00 per share ($100 per contract)
$100 = Max Reward, capture IF stock > $45 at expiration.
Delta = 0.20
Theta = 0.04
Vega = -0.10
“ceteris paribus” = all else equal
Stock RISES to $51. Put value will fall from $1 to 80 cents. You will have an UNREALIZED GAIN of 20 cents
Stock FALLS to $49. Put value will increase from $1 to $1.20. You will have an UNREALIZED LOSS of 20 cents.
Each day, theta will give you 4 cents of profit. It will take 5 days passing to wipe out that 20 cent loss.
Stock falls to $49, put value rises to $1.20, you are down 20 cents. Stock doesn’t move. 5 days of time pass. $1.20, $1.16, $1.12, $1.08, $1.04, $1.00. 5 days later, stock falls to $48. Put value increases from $1 back up to $1.20. I need 5 more days to pass to get that unrealized loss back.
3 Drivers to the Naked Puts Behavior
1) Delta
2) Theta
3) Vega
If IV rises, the put will increase in value. That’s bad for you b/c you are short the put.
If IV falls, the put will decrease in value. That’s good for you b/c you are short the put.
Read more Options Theory [FREE Content]
Every Thursday our resident options addict, Tyler Craig, will be at the helm to help you demystify derivatives and better understand what truly makes them tick. Options for beginners? Come this way, please. Enlightenment awaits.
Financial freedom is a journey
Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.
Legal Disclaimer
Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.
All investing and trading in the securities market involves a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax and accounting advisers, to determine whether such trading or investment is appropriate for that user.
