Naked Put Options

Please explain selling naked put options to me? and why do some

brokerages say this type of trading is illegal?

 

Illegal is not the correct word. There's nothing illegal about selling naked puts, in fact it's very legal to do so. I would be very surprised if any broker would actually use the word illegal.

Selling naked puts does carry a high level of risk.

Here are some Google search results that will explain the basics of a short put.

 

Is it an IRA acct? It's probably not allowed in an IRA.

 

it is with ib.

 

It's less risky for the firm for you to do covered-call writing instead of naked-put selling.

 

Well my broker did not use the term illegal but I knew what he was
getting at. They do let me write covered puts.

This months issue OCT of Stocks and Commodities Magazine does say the practice is illegal.

Thanks to all who responded to my question.

 

Just to clairfy my acct is not a IRA.

 

NAKED put writing means you write a put and do not have the cash to buy the stock if the put is exercised.

I write puts in my IB IRA all the time. You have to have sufficient cash to cover the exercise and they lock the cash up as long as your position is open.

So if a broker lets someone write a put, and that guy doesn't have the cash when it is exercised, is the broker responsible? Or criminally liable?

 

It's only illegal if the naked put is sold too close to expiration, or it's not old enough!

yeah i'm kidding...

 

Would it be legal if you wore a burka to cover your nekkidness?