Selling Naked Puts
Selling naked puts is a bullish strategy considered to have very high risk and limited reward.
How it works: A trader will sell a put that is slightly out of the money. If the stock goes up
or stays the same, you keep the premium. If the stock goes down, you will be put the stock and
have to purchase it, at the strike price, minus the premium received.
Example: You sell the $85 puts at $5, bringing in $500 per contract in premium. If the stock stays
the same or increases in value, you keep the $500. If the stock drops to $81 and the stock is put
to you, you will pay $85 for the stock. But with the $5 credit factored in, your net cost is $80
per share.
The payoff: You can buy the stock at a discount price, if it is put to you.
The drawback: Lots of danger exists in a volatile market.
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