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Naked (Uncovered) Options
 Uncovered Options: Uncovered options present a certain amount of high risk. You are uncovered on a position when you do not own the stock. In a covered call you own the stock and sell the call. If you are called out you simple forfeit the stock. In an uncovered call you do not own the stock. The market sometimes calls this “going naked”. You are selling someone the right to buy something you do not own. Most people cannot do this type of trade. If the call sold was the 20 strike and the stock ran up to 50 then you would have to buy the stock at 50 and sell it for 20 OUCH!!!! This can be a killer, but if you are careful and the stock really runs up, rather then buy the put you could sell the call. While the stock falls back on a retracement you buy it back for cheaper now that’s more like it. This is a level 5 options type trade. I sometimes sell Naked Puts. This is level 4 options trade. Most cannot do this type of trade, but boy do I like them. If a stock is on a run like pre split or bouncing off support then you can buy a Call or sell a Put. If you buy a call then the stock has to run up or you will loose every time! If the stock sits then the call looses value, if it goes down it looses value, if it only climes very slowly you still tread water or loose value. On a put you sold it first if the stock goes up the Put goes down, you then buy it back for less. If the stock stays the same the put looses time value, and you buy it back for less. If the stock looses value slowly then you stay the same and you can buy it back at break even or role out to the next month. Rolling out means on the 3rd Friday or expiration you buy it back if the stock may get Put to you, and sell the next month same strike. This lets you keep the money in flow, and capture the time premium if the stock then rolls up you buy it back for less wow! I just showed you how you could get a 3 in 3 chance of winning on naked puts! Now if they put you the stock early you can still LOOSE so do this only on stock you really like and at that price!!! This one takes lots of practice so do it on paper until you get it down. Remember buy what you like and like what you buy! |
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