Hi,
>>It is functionally equivilant to selling covered calls.
>Indeed, except that in selling naked puts there are less commissions to pay. (that is a positive, for writing the put), but remember, you are liable for dividends, and there is no limit to your possible loss.
You are very correct Jaun, writing covered calls are nothing like writing naked puts. The risk and reward analysis is very different.
Just a minor correction though:
By writing a naked put, one doesn't expose oneself to unlimited risk (like in say writing naked calls). The risk is limited to the strike price - put premium (if the stock goes to Zero), which is usually significant.
One way to bring this significant risk down to more manageable levels is to use put spreads. Again, spreads can be very dangerous if not handled in the right way, so I don't recommend it for everyone.
But spreads both put spreads and call spreads can allow much better risk management with potentially more rewards, specially when coupled with some T.A.
-Raj |
