PUT_MASTER is correct. "Most of the time" Naked out of the money PUTs are safer than spreads. In spread if you are wrong, your money is wiped out but in naked PUT you get assigned and have another chance to recover your possible loss.
============================================== In all your past examples are you assuming that the naked put seller is beller funded ? ( and more savy) thats what it sounds liketo me. cheers john
Put_master is right. Spreads allow you to overleverage, they require more risk for the same return %, they have less theta, and if it drops below your long strike you're looking at a total loss of invested capital. A short put at X is the same as long stock at X. A short spread at XY is the same as long stock at X with stoploss Y. Exercise risk is the same accross the two strats.
I have "specific criteria" I review for all stocks I'm considering for investment. Both technical and fundamental. I try to get a general "big picture" idea of what's going on, by reviewing about 50 items. No company is perfect. So once I get the general idea, I then have to place more or less importance on various items, in order to decide whether to risk my cash or not. Every stock has some negatives. I just have to decide if there are too many negatives to take a chance on. I'm often correct. But not always. Whether it's the overall market that throws me a curve, a missed earning surprise, some negative sector related news, or some stock specific news,... if the stock drops on me, I don't want to be in a position of having to panic sell, because the stock dropped and I know nothing about the company, or it's potential for recovery. Potential for "recovery" is what my 50 item analysis is all about. Any stock can suffer a signifiicant drop at any time, and for any reason. But not all stocks have the potential for "recovery" after such a drop. If you don't know whether your company has the potential to recover, then it may be best to limit your loss via a hedge type investment and/or strategy. For me, I found I was paying for protection I was not using, as I didn't mind owning the stocks put to me. But then again, I invest at specific prices. (Not stories, trends, rumors, ect...) Hence the reason I switched from bull put spreads to naked puts. But that is certainly not without it's own risks. So I'm not recommending one strategy over another. I'm simply saying be AWARE of the potential down side of which ever strategy you use. Final note..... Not everyone has the time to learn how to analyze a stock. I taught myself, so it's far from perfect And even if you do know how, not everyone has the time to actually do it for every stock under consideration for investment. It's a time consuming and a tedious process. And the end result is hardly a guarantee of anything. All we can do is select a strategy we are comfortable with, manage our risk, and hope for the best.
However, a major advantage and/or benefit of a put spread over a naked put is,... if you are going to close a losing trade before the drop becomes excessive, and if there was a "spike in IV", the loss will be less severe with the spread. The larger the spike in IV is,... the happier you will be that you are closing a spread and not a naked put. But keep in mind, the wider the gap of your spread, the less your spread will help to "neutralize", the negative affect of that spike in IV. However, you may be under less pressure to close a naked put vs a spread. Whether that is good or bad, you will only know in hindsite.
Greeks isn't as important as you aren't monetizing them. Also, if you need two+ spreads to make same return as 1 naked put...odds are your vega exposure is approx the same accros the strats.
How are you not monitizing theta on both? And if your selling over proved vol your monitixing overpriced Vega... or you could even say your selling over priced gamma risk..
You're not continously monetizing anything. In the end you make the time value and obviously that depends on time and vol at point of sale, but that's it.