Naked Put

[bucket183]

I understand how Naked Put work but I am unsure how it work with respect to the ACH.
When I sell a Naked Put do I have to register my liquidity with the ACH?? So in essence I need to have the entire money to buy the shares in a bank account somewhere??
The entire money I have to have as cash, as Lev Eq (my margin loan holder) doesn't support naked puts, is there anyway around this ie once I have been exercised aren't I just buying shares so why won't my bank support Naked puts (if the shares continue down won't I just get a margin call).

Can someone step me through Sell a Naked Put on the finance side.

 

[Knobby22]

You take your clothes off, get the putter and hit the little white ball towards the hole.

 

[jackson8]

I understand how Naked Put work but I am unsure how it work with respect to the ACH.
When I sell a Naked Put do I have to register my liquidity with the ACH?? So in essence I need to have the entire money to buy the shares in a bank account somewhere??
The entire money I have to have as cash, as Lev Eq (my margin loan holder) doesn't support naked puts, is there anyway around this ie once I have been exercised aren't I just buying shares so why won't my bank support Naked puts (if the shares continue down won't I just get a margin call).

Can someone step me through Sell a Naked Put on the finance side.

Hi bucket

For starters you broker may not allow you to sell naked puts as you may be required to apply for a higher level of options trading verification, most brokers will not allow this unless you have a past and proven record of trading such as covered calls.

If you sell 1 contract of eg. Wpl 1 contract with a strike of $50.00 = 1000 at $50.00 =$50000.00 if you are assigned. This is how much cash you will need to have access to cover your obligation if you are assigned the stock

Your broker will require a margin payment to part cover this obligation which is the ach required calculation and possibly twice that amount if you have account with commsec. As and if the share price drops your margin requirement will increase and is calculated on a daily basis.

If the share price drops you can either buy back your sold put (possibly for a loss) roll it out to another month further out (playing with fire) or if you are not quick enough to react and the sp drops below your sold strike price you may at any time be assigned and need to cough up 50k plus costs to purchase the stock or sell your stock straight back into the market for a loss.

Hope this may help

 

[cutz]

The entire money I have to have as cash, as Lev Eq (my margin loan holder) doesn't support naked puts, is there anyway around this

A way around it is to buy the stock and write some calls, AKA buy write.

 

[bucket183]

I understand that the risk of buy/write and naked puts are the same but why doesn't the bank see that (or at least mine) Is it all banks that don't support Naked Puts?

What I want to do is sell naked puts until I get exercised then I'll buy the shares and sell cover calls on them. Correct me if I'm wrong but I'll have to foot the bill for the entire share price, whilst naked. How come I can't use some of the margin in the loan? If this is the case then why would anyone sell naked calls, wouldn't they be better leveraging the money in a buy/write (assuming a sideways market)?

 

[wayneL]

I understand that the risk of buy/write and naked puts are the same but why doesn't the bank see that (or at least mine) Is it all banks that don't support Naked Puts?

What I want to do is sell naked puts until I get exercised then I'll buy the shares and sell cover calls on them. Correct me if I'm wrong but I'll have to foot the bill for the entire share price, whilst naked. How come I can't use some of the margin in the loan? If this is the case then why would anyone sell naked calls, wouldn't they be better leveraging the money in a buy/write (assuming a sideways market)?

It's because they are muppets and don't understand options.

If you want to do options, forget the ETrash, Comsuc, et al. Get a specialist options broker that understands.

(and make sure you know your stuff and fear no man)

 

[cutz]

Is it all banks that don't support Naked Puts

Our banks don't really cater for options traders, comsec do allow naked put's but their margining is extreme, twice the OCH requirement, i only use them occasionally though just to enable iress for info.

EDIT>>LOL, beat me to it WayneL,

It's funny yeah, bucket183's bank considers CC's low risk but naked puts are banned.

 

[cummos]

Our banks don't really cater for options traders, comsec do allow naked put's but their margining is extreme, twice the OCH requirement, i only use them occasionally though just to enable iress for info.

EDIT>>LOL, beat me to it WayneL,

It's funny yeah, bucket183's bank considers CC's low risk but naked puts are banned.

Yeah, too bad they are thinking only about their own risk, not yours. With covered calls they already have your money, naked puts they don't.

I had the discussion with a "Commsec options expert" that I considered naked puts lower risk than buying the stock straight away.... He thought I was winding him up.....

 

[wayneL]

Yeah, too bad they are thinking only about their own risk, not yours. With covered calls they already have your money, naked puts they don't.

I don't know why they don't just cash cover the puts. Too easy

I had the discussion with a "Commsec options expert" that I considered naked puts lower risk than buying the stock straight away.... He thought I was winding him up.....

'Nuff said

LOL

 

[justgjt]

I would rather be forced into a long position from a naked put at my strike price than a short position from a naked call gone wrong at the prevailing market price.

 

[Tysonboss1]

I would rather be forced into a long position from a naked put at my strike price than a short position from a naked call gone wrong at the prevailing market price.

I tend to aggree, Provided the strike price is one that would met your investment criteria and you have room in your portfolio to take the stock

 

[justgjt]

I would only write the put on top stock that I would not be worried about holding if I was assigned, then write calls over the stock. You would only be writitng the options for the cashflow component

 

[wayneL]

I would only write the put on top stock that I would not be worried about holding if I was assigned, then write calls over the stock. You would only be writitng the options for the cashflow component

Cashflow?

Not always. And cashflow ignoring equity is silly.