Naked puts question

Discussion in 'Options' started by wiesman02, Aug 6, 2007.

  1. Quick question, as I've never written naked puts.

    If I sell to open a put option and collect the premium, can I close the put before it expires ?

    If I can, would the maximum you could lose be the amount the put was sold for ?

    I'm not talking about exercising as I am very familiar about exercising from a naked put.
  2. just21


    no, unlimited loss to zero
  3. wabrew


    From your question it is clear you do not understand options.

    People who do not understand options should not trade them, naked or covered.

  4. Selling a put naked leaves you with unlimited (till the stock hits 0) downside. Think of it as an obligation to buy the underlying stock at the strike price you sell the put at. If the stock goes to 0 and you sold a put with a strike of 20, you will be out that 20 (or $2,000 per put contract) less the premium you initially received. It has the same risk profile as a covered call, but requires less margin.
  5. HOBO


    To close your short put positions before expiry, simply buy the same number of puts back in the open market. This way, you profit/loss will be the difference in premiums when you sold and bought the contracts.

    It's better to do nothing with your money than something you don't understand.
  6. Not sure if you can exercise from a naked put, you can get exercised though.

    1) If you sell a put, you can definitely buy it back anytime. Whether at a profit or loss, that depends on how the underlying traded and how much time has passed.

    2) The maximum you can lose technically is unlimited, in other words, you can lose your butt. As an example If you sold put option OTM for $2.00 each on the ES, this could go to $20.00 each. Depending on how large your account is, you can either get margined out and you have to close it or just hold on to it hoping it would go <$2.00 and that it won't go much higher ($100 perhaps)

    As you can imagine, if you sold 4 ES at $2.00 hoping to collect $400 when time expires and the ES drops, you might end up having to buy it back at $15 or $20 each which is around $3000 to $4000 total for a loss. All my examples are hypothetical.

  7. The maximum risk of a short put position is "strike minus premium", a finite number, with contracts whose price can only go as low as zero. With short-term interest rate contracts that are priced as a yield subtracted from 100, the maximum risk is potentially infinite. Theoretically, if the Fed Funds rate went from 5% to 500%, the futures contract would go from (+)95.00 down to (-)400.00. Trading companies catch a lot of applicants off-guard with that type of question.