How can I profit from selling puts in a stock I shorted?

[2rosy]

search for covered call selling

 

[S2007S]

Selling options (naked) is always highly risky.

It's a common practice to sell options (puts) in a perceived "up-market" believing prices will only go higher and the puts' strikes will never be reached... so the seller can keep all of the premium. That's all fine and good until the market/issue drops sharply enough that it traps all the sellers with large and sometimes VERY LARGE losses.

For the most part, selling naked options is like trying to pick up dimes in front of a steam roller.

If you've shorted a stock, then wrote a put against it... your profit potential is the difference between your sale price and the strike if the stock goes down. Not much profit potential. Loss potential, however, is unlimited... offset by the premium you collected for the put your wrote (which expires at zero) if the stock goes higher.

It's funny selling puts and then taking ownership of the stock and then using the wheel strategy is all options traders who sell puts on YouTube talk about ....they swear by it but on days like today when markets fall extremely hard and your put assignment is now 15 or 20% down selling calls at your assigned price becomes a game of only picking up only some dollars here and there as the premiums on the sell calls evaporate...

 

[S2007S]

Selling options (naked) is always highly risky.

I sell puts very often but they aren't naked however I have sold naked calls recently....did about 6 or 7 of them the last few weeks with VXX and SOXL and I think for now I won't take the risk. I did buy them back but not worth the risk....

 

[zdreg]

since you are hedged you have limited your profits when the stock collapses overnight.
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Naked/Unhedged short puts is for greedy traders who think they are smarter than market makers.

 

[S2007S]

since you are hedged you have limited your profits when the stock collapses overnight.
______________
Naked/Unhedged short puts is for greedy traders who think they are smarter than market makers.

The problem with US options is that a contract expiration is actually not a contract at all since the time limit on an option contract can happen well before the actual contract expires!

 

[FSU]

When you sell puts against short stock, you have a covered put. This is synthetically the same as simply being short a naked call of the same strike as the put you sold. (Short call = short stock + short put)

 

[zdreg]

The problem with US options is that a contract expiration is actually not a contract at all since the time limit on an option contract can happen well before the actual contract expires!

What problem and to whom?

 

[jnbadger]

When you sell puts against short stock, you have a covered put. This is synthetically the same as simply being short a naked call of the same strike as the put you sold. (Short call = short stock + short put)

Exactly. I was just about to post something similar.

OP, your limiting your profit just to collect a little premium.

It's always baffled me why little old ladies are allowed to sell covered calls in an IRA, but a pro with a series 57 isn't allowed to to sell a naked put. (Not that I'd ever want to). They have the exact same risk profile.

 

[poopy]

It's a covered write in a short. What's to know?

 

[S2007S]

What problem and to whom?

Problem is that even though it's a contract with a certified expiration date the option can be exercised or assigned at any time....