Naked Puts

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Suppose you researched a company yesterday and decided that the stock would be a bargain at $50 per share. But when you look it up it’s selling at $52 per share, which you don’t think is a good bargain. You could tell your broker to put in a buy order, good until cancel, so if the stock goes down to $50 you’ll buy it.

But there’s a better way. Tell your broker to sell 10 puts at the August 50. This means that you collect a an immediate premium, perhaps $2000 or so, in exchange for the promise to buy 1000 shares of the stock if it goes down to $50. So instead of waiting around, you’ve got an extra $2000 to play around with. If the stock goes down, you’re only paying $48 per share since you already got a $2 a share premium. But if it doesn’t, you just keep the $2000. And that’s what they call naked puts. Learn more at Doubleyouryield.com.

DISCLAIMER: This is an educational site. The trades suggested on this site are examples to help the readers understand the principals of option trading. They are not intended as "tips" for actual trading and are suggested so that the reader can enter and follow hypothetical trades in the portfolio manager.

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