Example of a Naked put Selling

In this case we will use our imaginary stock XYZ. Given that we are aware of this stock, we know about the product etc. Perhaps you have never owned stock before but you have decided that it is time to do so. We will imagine that this specific stock is very well known of and strong it its sector, and you are certain that it is going to be a good long term position to maintain in a portfolio. Let’s also imagine that you are willing to spend $20 on every share as this is the perfect level for you specifically. How is it that you can get paid money now and permit you to possibly purchase shares of XYZ at $20? The way this is done is by selling naked put options. Almost everybody would place an order to buy the shares of XYZ in the usual way though. In this case they would get ahold of their brokers and ask them to purchase the shares straight up as soon as XYZ went down to $20 per share. Another thing that is done is that people place a limit buy order on the internet which in this case would be at $20 per share on an online stock account. However, there is, like we said, a different way of doing this. Given that you are aware of how potentially obtain the same trade with naked put options and obtain cash straight up for the work you have put into this. To do this you will need to look at option prices on a put option chart. You will notice that there will be a column where some of the put option strike prices will be located and these have an expiration date. You will be able to notice how there are a number of strike prices that range from high prices to lower prices. What you need to do is take a look at the column that says bid for the corresponding strike price. You will be able to see that the numbers that can be found in the bid column will become more reduced the lower in strike prices you decide to go. These are the numbers that will let you know how much cash you can obtain for selling each of the options. This is what is known as option’s premium. Therefore the more you sell the more you obtain.

Beginner Money Investing Income Producing Strategy Example of a Naked put Selling