Option Investor
Educational Article

Naked Puts

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Options can be used in many ways; to speculate on trends, generate consistent income, acquire other issues, or manage capital risk. For those who know how to utilize them effectively, they offer a variety of unique opportunities to achieve wealth in the financial markets. Of course, no trading strategy is without peril and that is why it is so important to understand the fundamentals of position management. History has proven that anyone who wants to be successful with options must be proficient at limiting losses and maximizing gains. Otherwise, they are at the mercy of the market, which takes no prisoners and offers no quarter.

In last week's segment, we began a discussion about exit and adjustment strategies for uncovered options. Today we continue that dialogue with a review of a common method professional traders use to limit losses with "naked" puts.


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