Javascript DHTML Drop Down Menu Powered by Drop Down Menu
FullyInformed.com - Options and Stock Strategies For Income

SignUp For Updates 

  You are here:


Bookmark and Share
 

 

I hope you find the information, concepts, ideas and strategies on my site of value. If you would like to assist me with the maintenance costs, and time spent keeping my site updated, I have set up a Paypal account for those who would like to donate. Thank you in advance. Remember, nothing on my site is financial advice or recommendations. Investing is risky and losses can be large. Trade at your own risk. Read The Disclaimer

 


 

 

Join The
Options
Forum
 
I set up a Yahoo forum for those interested in discussing selling stock options for income including covered calls, selling naked puts, spreads and other option and stock strategies. JOIN HERE
 

 

 

March 12 2010  / Strategy Article - Naked Puts
Example Trade
A Simple Naked Put

Introduction

Here's a good place to start when learning naked puts. In this example I demonstrate selling a single naked put on a stock.
 
Looking through my
stocks I pick Intel Corporation. I then look at the stock for the past three months. If I look at the 10 day Simple Moving Average I can see that it is above the 20 and 30 day Exponential Moving Averages. The stock is in an uptrend. Normally I would wait for a few days to see if there is a pullback. However as this is an example, I will proceed.


 

3) Checking the put options for April (2010) I see that the bids are, for the $21 strike - $1.00, $20 strike for .55, $19 strike for 29 and the $18 strike for .15.

4) Checking the support technical levels I see the following:

This tells me that in the last 80 days there has not been much selling below 19.00. Looking at the chart above, I can see that this is indeed the case. Selling the $19.00 strike for .29 cents brings in 1.5%. As I would be comfortable owning Intel at 19.00 I sell the $19.00 put for .29 cents. If I could manage this same return for a 12 months period, my annual return would be 18%.

 

5) I can see now that by selling at 19.00 for .29 if I am assigned at 19.00, my cost is actually $18.71. This is called my break even as anywhere below 18.71 I am losing money on this investment. I can also see that .29 cents is not a lot of protection in the event that that stock takes a tumble.

 

6) Since I want to own this stock I would be happy being assigned at $19.00. There are many more aspects to this simple trade. If the stock does not reach 19.00 or lower by April, I will not be assigned and I can sell another put for May. If the stock fell to 19.00 or lower, I could consider buying back the put and selling another put further out in time for more premium. If the stock fell below my break even of $18.71 I could buy back the call and get out of the investment all together, but that would most likely cost me more than .29 cents. Another strategy could be to accept the assignment at $19.00 and then sell covered calls until I am exercised out of the stock. I could also consider buying back the put and rolling it to the next month or further out in time at the same strike or at a lower strike.

 

There are indeed many strategies I can employ to extend this simple put strategy. I plan to explore various strategies on my site, so please come back soon.

 

Summary

 

That then is a simple put example. The rest of the examples are more complex. 

 


 


 

 

Disclaimer: There are considerable risks involved in all investment strategies. Trade at your own risk.
Stocks, options and investing are risky and can result in considerable losses. None of the strategies, stocks or information discussed or presented are financial advice, trading advice or recommendations. Fullyinformed.com is a private website. Everything presented and discussed are the author's ideas and opinions only.
By using this site, you agree to be bound by its terms of use. The full terms of use can be read here. If you do not agree to the terms of use, do not use this site. The author of fullyinformed.com assumes no liability for topics and ideas discussed, errors and omissions, ads and their content and external links. Any corporate insignia used are registered trademarks of their respective company or corporation and are being used for identification purposes only. All material copyrighted by FullyInformed.com. Reproduction in whole or in part prohibited. Copyright © 2008

 |  site map  |  privacy policy  |  contact me  |  subscribe  |  exchange links  |  the author of fullyinformed  |