http://www.OptionTradingAdvantage.com - How To Trade Naked Put Options. Learn what a naked put option is and how you can use them to buy stocks at a discount. Naked Puts Options Explained by Jack and Jill Jill: Hey Jack have you heard of naked puts? Jack: Naked? I'm not naked. I'm wearing a tie. Jill: No silly. Naked puts are a way to buy stocks at a discount. Jack: Really? Stocks on Sale? Tell me more. Jill: All you do is choose a stock you want to buy and sell an out of the money put. Jack: Doesn't it take money to sell a put? Jill: Actually you get paid a credit to sell the put. Jill: Then at expiration, if the stock is trading above the strike price...the option expires (goes away) and you keep the entire credit you were paid. Jack: Whoa. That's like magic or something. Jack: What happens if the stock is below the strike price at expiration? Jill: You get to buy the stock at the strike price and keep the credit you got. Jack: I don't get it. How about an example? Jill: Fine. But pay attention. You want to buy 100 shares of XYZ which is trading at $200. Instead of buying the stock, you sell a 170 strike Put option within 30 days to expiration. For this you get a credit of .50 per share or $50 total. On expiration day, if XYZ is trading at $170 or higher, your option expires worthless and you keep the $50. If it is trading below $170 you have to buy the stock at $170. But since you were going to buy the stock at $200 anyway, you saved $30 per share and got paid $50 for waiting. Jack: That's awesome. Wait. What's the catch? Jill: The risk is if the stock drops a lot below your strike. Jack: Yeah, like to zero. Jill: That's why you only do this on companies you want to own. Jack: That's pretty cool, Jill. Say, how'd you get so smart? Jill: My secret? It's... OptionsTradingAdvantage.com Options Trading For Everyone Options trading is risky. Educate yourself before you do anything and never risk money you cannot afford to lose. http://www.OptionsTradingAdvantage.com
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