What is a Naked Put?

A naked put is an option trading strategy where an investor sells a put option without holding a short position in the underlying asset if assigned to the option terms.

Here’s what that means:

A put option gives the buyer the right to sell a stock at a certain price before the option expires.

When you sell a put option, you’re taking the opposite side of a trade. You are obligated to buy the stock at the strike price if the buyer chooses to exercise the option.

You do not already own the underlying stock. You are hopeful that the price of the stock will stay above the strike price, so the put expires worthless and you keep the option premium.

-Zac