10 Minute Read

Tackle Today: The Naked Put

November 17, 2020

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Are you using this popular strategy?


One of the more popular strategies among option traders is the Naked Put. When you introduce options trading into your portfolio you can do so with many different strategies.  A trader who uses the Naked Put is generally doing so to build positive cash flow, take in credits and potentially take on delivery of the stock that you sold the naked put on.

Naked Put is an options strategy in which the investor sells OTM put options against a specific underlying security without holding a position in the said asset.

This strategy is also called Short Put or Uncovered Put.

Selling puts is a bullish cash flow strategy. You benefit as time passes, as implied volatility falls and as the stock goes up.

One of the key’s to Naked Put trading is understanding your obligation which directly involves your risk.  For every contract you sell, you have the obligation to buy 100 shares of the underlying security.  Do you want to own shares?  If not, you must build management rules to exit these puts before you take delivery.  If you do want to own shares, you are probably using Naked Puts as a part of the Boomerang strategy.

Have you been using Naked/Short Put’s in your trading account or retirement account? If so, great!  It is important to have specific rules on how you qualify, enter, manage, and position size these trades.  If not, take some time and study this tactic.  One good place to start would be with the playbook at Tackle Trading.


Chart of the Day

Naked Put Risk Graph

The risk graph for a Naked Put describes the nature of how you build profit or loss on the position.  If the stock goes down below your strike price and breakeven point you have risk and will develop a loss.  If the stock price rises, you will generate a profit over time as the option value decays.

Video of the Day

How to Roll a Naked Put Option Up and Out

In this tutorial, Coach D teaches how to roll a Naked Put Option Up and Out.  If you’re a cash-flow trader, this is a valuable skill to learn.

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