Naked Put - Clarification · Invest & Retire Community

Naked Put - Clarification

For the experts out there, I want to clarify this statement which says "you may be required to buy the stock at a lower price in order to fulfill the terms of the option contract". Should it be you may be required to buy the stock at the agreed price (which higher than market price) in order to fulfill the terms of the option contract.

Naked put

A naked put is a type of options trade where you sell a put option on a stock that you do not own. You would use a naked put when you expect the price of the stock to go up in the future and you want to generate income from the option premium.

One benefit of a naked put is that it allows you to potentially generate income from the option premium without having to own the stock. For example, let's say you expect the price of a stock to go up and you sell a naked put option on the stock for a premium of $2 per share. If the price of the stock goes up, the option will expire worthless and you will keep the premium as profit.

However, it's important to note that naked puts can be risky because if the price of the stock goes down significantly, you may be required to buy the stock at a lower price in order to fulfill the terms of the option contract. This can result in significant losses.

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