Now that we have given you the steps to Sell Naked Puts, let's go through an example. The put options you are going to use for this example are options on the stock: California Amplifier, Inc. (CAMP).

This example comes from the CallsAndPuts.com "Sell Naked Puts" data. Let's go through the procedures step-by-step. To summarize this put option play:

The naked put selling strategy has similar risks and characteristics to writing covered calls except that the underlying stock is not owned. The put seller will realize profit if the stock price is neutral or increases during the option period by retaining the put option premium (the put option expires worthless). Because we want to realize the entire put option premium as profit, the CallsAndPuts.com "Sell Naked Puts" data only includes out-of-the-money (lower) put option strike prices.

This strategy can also be used to buy stocks at a discount if the stock price drops below the put strike price and you allow the stock to be "put" to you (you keep the put premium to offset the cost of purchasing the stock). If the stock price moves down significantly, the sold put option premium will increase and it will cost more to close the put position.

1) You select CAMP from the "June Naked Puts" listing:



2) You select CAMP based on the criteria you've established for a good Sell Naked Put candidate (This differs for each option investor based on risk versus reward criteria).

3) Let's assume you read the latest news on CAMP and it appears quarterly earnings will beat analyst's expectations.

4) You access the Stock, Option, BB&RSI links and based on your risk versus reward criteria determine that CAMP is your naked put option investment choice.

5) Let's also assume that you have an account with ETrade, have met the brokerage requirements to sell naked puts, and want to place your order for the sell naked puts option position.

6) Once you log into your account on www.etrade.com, access the Trading > Enter Option Order link. 

7) Place your put option order for 6 contracts by selecting the following fields (UMPRX = Jun $22.50):

8) This sale of out-of-the-money CAMP put options is for 6 contracts (600 shares) at market price. If you want to sell your naked put position at a specific option price, select the "Limit" radial button and enter the price.  

9) Selling naked put options requires the investor to watch the option price through the expiration period.  If the stock price moves down, then the put option position should be closed to avoid heavy losses. This can be done with the following menu selections.

10) Again, let's explain this strategy:  The naked put selling strategy has similar risks and characteristics to writing covered calls except that the underlying stock is not owned. The put seller will realize profit if the stock price is neutral or increases during the option period by retaining the put option premium. Because we want to realize the entire put option premium as profit, the CallsAndPuts.com "Sell Naked Puts" data only includes out-of-the-money (lower) put option strike prices.

CoveredCalls.com

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