unlimited = potential to go to infinity how can the price of a put go to infinity if the furthest a stock can fall to is 0 even if a stock goes to zero and you have to deliver shares at strike price - you may end up risking 100000 for 100 in premium but risk is still limited - it can't go to infinity shorting a stock definitely has unlimited/infinite risk
You're right, it's not unlimited risk. The risk = the Strike - Premium taken in so in your case, about 43.70 depending on commisions. That said, how did you get naked options approval and why do you think selling a 30 cent Put on a $44 underlying is a good idea? Do you realize you are accepting almost 0.5% premium for $44 dollars of risk?? How about the fact that the ETF only has to move down slightly more than 1% for it to be put to you? Sounds nuts to me, but you'll probably see that soon enough.
Since you're nitpicking... stocks can't actually go to infinity. Shorting a stock or a call gives you unlimited risk, but that risk will always be finite. The mathy term for it is "finite but unbounded". Unless you're writing naked puts on a $5 stock or something, you may as well think of the risk as unbounded, because (1) the stock almost certainly won't hit the "bound", (2) even that much loss is way more than you bargained for when you opened the position, and (3) if the stock goes that low you are liable for the entire drop - your loss doesn't stop growing at any price before then. Compare to a vertical put spread, where the company could get nuked from orbit and you'd still lose only $5 minus your credit. You're better off understanding the concept of risk management than nitpicking about semantics.
not to mention writing otm naked put will get you nuked by margin calls if the stock has a quick gap unless you can fully cover the underlying, even though the stock could revert right back up and end up being a winner at expiration. Look at when leh dropped to 20...how many accounts writing otm naked put got blown out....
put selling is the crack/cocaine of trading it has ended more careers than any other strategy but i feel every trader needs to be familiar with every strategy as thats the only way to learn how the market works.......i'm not going to trade every strategy but i want to be familiar with how they all work
when your naked short or long anything, infinity shows up the minute your acct is debit or so low that you have to add funds or close it out
You're not learning much by selling 30 cent puts and calling it free money. Why dont year learn how options work by understanding their pricing and variables and how that changes.
haha true, infinity is more of a state of mind/panic. I don't really understand why this is even debated. Selling verticals will drastically reduce your margin req and risk, and you wont be forced out of a position at the worst time via margin call
Chewy, my only problem with this trade is that you have chosen to sell the puts when the VIX is at a "relatively" low level... low 20's. Selling puts on a stock or index that you WANT to own is fine. However sell them when the VIX or IV is at a relative high level NOT low. With the vix at such a low I'm looking to buy a put or put spread with an eye to legging in to a B-fly or just taking profits when the vix moves back up. Of course my guess on the vix could be wrong and it moves down to the teens and your position could be just fine.