Naked puts are another extremely high risk strategy. Just like naked calls, these are not recommended unless you have a lot of money to risk on the market – and you’re experienced at writing naked puts. The reason for this is that if the market does not go the way you would like it to, then you will end up losing a lot of money.
Similar to the naked call, naked puts are put options that you write even though you do not own any of the stock in question. For this reason, you can make some money without putting anything down at first. However, the advantages of this are limited – and if the put does not go your way, you will definitely wish that you’d put down the money to buy the stock ahead of time.
Between naked calls and naked puts, however, the naked puts are a slightly less risky strategy. The reason for this is that these are opposite strategies depending on what you think that the stock and the rest of the market will do during the period of the option. Put options are considered a “long” position, because you are betting that the stock market will go up, and this is more likely in the long term than a drop in the stock market is.
A naked call is considered a short position because you are expecting the stock and stock market to go down. If the stock market prices go down, then you will not have the call option exercised, and you can keep the money you got from selling calls without needing to buy or sell stock at a loss.
If you’re thinking about writing naked puts, you might want to look into other types of call or put options instead. That being said, even though naked puts are a considerable risk when written and sold, you do not need to worry too much if you are just considering buying puts. In fact, if you can afford the put option, it doesn’t matter if it is naked or not. If the stock rises above the strike price, then you will not have to sell for he lower price – and if it never reaches the strike price, then you can sell the stock for more than its current value.