Naked Puts

[Ruth Burns]

Naked Puts are supposed to be one of the riskiest strategies out
there. But if done right selling naked puts can be even safer, and
more profitable than buying stocks.
When you sell a naked put you take on the obligation to buy a stock at
a certain price on or before a given date. For this you bank a premium
up front.
Selling puts can be a good strategy as long as you don't go overboard.
So if you sell naked puts on $50,000 worth of stocks, make sure you
could buy $50,000 worth of stocks because you might have to follow
through.
If you do it in moderation selling naked puts has the following
advantages.
1. Stocks Don't Need to Go Up
When you sell naked puts on stocks you do not necessarily need them to
go up for you to be profitable. You only need the stock not to go down
below your strike price.
This allows you to make money when you are having trouble finding
stocks that are about to move up. Instead of having to worry about it
you could always sell puts.
2. You Can Get Paid to buy a stock
If the stock does fall down below your strike price, you will have to
buy it. But considering that you got the premium up front it means you
got paid to get into a strong stock, which is much better than buying
and holding the old fashion way.
And as long as the company has a good long term growth you can just
wait for it to go back up, and sell covered calls on it to make even
more premium.
3. Premium Adds Up
Collecting premium eventually adds up and can be very profitable in
the long term. Many times you can make more by selling puts then you
can by holding the stock.

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