Newbie Questions About Selling Put Options

This Baird fellow is obviously wrong.

• Naked Calls = Unlimited Risk
• Covered Calls/Naked Puts = Limited Risk

 

I wouldn't say "identical" but close enough. I'd prefer writing naked puts if I had to choose.

 

Or maybe they should recognize how much more risky covered calls are than they originally thought : )

...and btw, anyone who does not understand how similar the two are should put their money elsewhere (no pun intended).

 

If you are a bullish on a stock and wouldn't mind owning it at a lower price, selling Puts is much better than buying the stock outright. If the stock goes up you make money on the Put. If the stock goes down, you bought the stock at a discount.

 

By selling options you can be like a bank or like a company who issues bonds or shares: like giving a loan to someone else and getting an immediate credit for it...
(Ok, it's not the same, just similar)
You promise the counterparty to buy in the future (at the expiration date) his stock-shares at the given strike price; this is an obligation you have to fullfil.
And for this you get an immediate credit from the counterparty.
Of course you have to fullfil your obligation of the contract --> study the details and risks of options selling.
Options selling should be used by very experienced traders only, and should be used only with big money as it usually also involves hedging to reduce the risk or even eliminate it...

 

So if you sell an options contract, you're on the hook till expiration?

You can't collect the credit, then sell it the next day?

 

You can buy it back to close the trade at anytime.

 

For argument's sake, if you are really bullish you should go long on calls:

Long Call - up side is unlimited down side is limited
Short Put - up side is limited down side is unlimited

Worst part, if you short, if your judgement is wrong, you are stuck with an unwanted stock at a high price. If your judgement is correct you miss owning the stock because the price moves away from your target acquisition price. If you really want it you will pay a big premium to own it.

If you long, if your judgement is wrong, you lose some premium. If the stock is really down and you are still bullish, you can buy it at a deeper discount still. If the stock is up, and you really want it you can buy at a discount because you collect a big gain on your call equal to the appreciation of the underlying.

 

Right, sorry... Buy to CLOSE. got it.

if that's the case, then how often do put buyers exercise their right to the stock?

If I sell a put, or call... what's the chance of getting assigned.

 

Normally buyers only exercise on Expiry day. Simply because the options have time premium and you will be better of $$ if you sold the option instead of exercising it.

Some people early exercise for whatever reason.

I've been buying options for over 4 years and never exercised b4.