Using Naked puts to go long

debitspread said:
> Stock is trading at $100. I naked sell a Put at strike price $200 Dec 2017.
> Benefits:
> Time Decay is on my side.

You're selling a 200 call if you think in rev-con terms, which will be worth ~0 unless the stock is ultravolatile (such a levered ETF) -- hence no 'time decay.' Typically the 200 strike put on a 100 price stock will be something like 99 bid at 101.
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You can always bring it down a notch. It only caps your profit. Only time you lose money is if the stock goes down, which is the same as buying the underlying minus vol risk.

Isn't shorting this option a lot cheaper then just buying the underlying? All that extra money you save should be a cushion for when the option increase due to Vol risk.
 
llookkkk

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Oh ok sorry - that is margin. I was talking about Margin Fees. For example if you go long the underlying at $50,000 (borrowed), your broker would charge you 7.25% that annually.

I do not think they charge much for selling options though I could be wrong.
 
Well regardless,

I just want to know if you think this strategy is a good alternative to just going long or you think the Cons greatly outweigh the Pros?
 
well you are on the right track.... doing this math is exactly what you need to do, down to the penny when you go to put on a position... do the math,, then double check with your broker... then go over the math again.... then go over it again.... then put a small position on and try it... then monitor it.. check how its working against your original math.. rinse repeat..
 
What is the cost? The cost is tying up capital. The short answer is - if you are playing direction, consider selling a 75-90 delta put to tie up less buying power.
 
just look at what the call is worth, and what you're implicitly selling the call for when you trade this thing. if you're selling the call for less than 0, or 0, its probably a stupid trade. if the screens are happily taking what you're offering in a deep itm put, its probably a stupid trade. did i mention, its probably a stupid trade?
 
RGLD said:
Oh ok sorry - that is margin. I was talking about Margin Fees. For example if you go long the underlying at $50,000 (borrowed), your broker would charge you 7.25% that annually.

I do not think they charge much for selling options though I could be wrong.
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If you fund that poorly, it might make sense to sell the deep in put or buy the deep in call to get the exposure that you want.
 
Jgills said:
did i mention, its probably a stupid trade?
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You're Wrong! It is a stupid trade.

No offense, OP, but it shows a lack of understanding of the realities of option markets. Generally, not only is there less liquidity with ITM, but also as you go out in time.

Posters mention this because it is very important when trading - especially over the course of many trades. Without liquidity, you may as well give your money to charity.

You'd probably be better off buying the UL and selling the OTM call for an equivalent risk - whatever time frame or deep ITM put you are considering.

If you're gonna sell puts, look for liquidity in daily volume and open interest. It should easily be apparent where the liquidity is.
 
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