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Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe
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To: Thomas Tam who wrote (40)8/14/2001 12:21:19 AM
From: Dan Duchardt  Read Replies (1) of 1064
 
Thomas,

I'm inclined to think of the margin requirements for naked puts as an advantage over some other strategies, assuming of course you don't get assigned or do something to protect your downside. Or are you talking exclusively about cash backed puts? If one picks apart the definition of a covered put, it often includes cash along with short stock as a way of "covering". It's semantics, but with that interpretation a cash backed put is never really naked.

For a truly naked put, you typically need only 10 to 20% of the price of the underlying above the premium you collect to carry the position, depending on how far OTM it is. For an aggressive trader, or one who figures the odds are that only a portion of the short puts will be assigned at any one time, that requirement is pretty low. That of course means high risk if you push it to the allowed limits.

Dan
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