Options Strategy Guide
Naked Puts (Cash-Secured Puts)
Get paid to agree to buy a stock at a price you like.
Beginner
Neutral to Bullish
Limited profit, significant downside if stock crashes
The Simple Version
Plain English — no jargon
Imagine a friend wants to sell you their car for $10,000. You say: 'I'll pay you $200 today for the right to sell me that car at $8,000 next month.' They take the $200. If the car stays worth more than $8,000, they don't sell — you keep the $200. If the car drops below $8,000, you buy it at $8,000 (but you wanted it anyway at that price). That's selling a cash-secured put.
How It Works — Step by Step
- 1 You identify a stock you would be happy to own at a lower price
- 2 You sell a put option at your target price (the strike)
- 3 You collect premium immediately — this is yours to keep no matter what
- 4 If stock stays above strike at expiration — put expires worthless, you keep premium
- 5 If stock falls below strike — you buy 100 shares at the strike price (minus premium received)
Real Example
MSFT
Illustrative example — not a recommendation
Stock Price
$420.0
Strike Price
$400.0
Premium Collected
$4.5/share
Days to Expiration
30d
Max Profit
$450
Breakeven
$395.5
Annualized Return
13.5%
When to Use It — and When Not To
✓ Use when
- You want to buy a stock but at a lower price
- You are happy collecting premium if the stock stays flat
- Implied volatility is high — more premium available
- You have cash set aside equal to strike × 100
✗ Avoid when
- You do not actually want to own the stock if assigned
- The stock is in a strong downtrend
- You cannot afford to buy 100 shares at the strike price
- Earnings are imminent — large gap risk
Greeks & Mechanics (for the experienced trader)
Delta
Negative (short put). You profit if stock stays above strike.
Theta
Positive — time decay works in your favor.
Vega
Negative — rising IV hurts your short put position.
Gamma
Negative — accelerates losses if stock drops sharply.
Key Risks
- Assignment — you could be forced to buy shares at strike even if stock has collapsed
- Requires significant capital — strike × 100 must be held in reserve
- Not a hedge — you still lose money if the stock falls significantly
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