Hey traders,
Today, I’m going to talk about one of my favorite strategies that I’ve used for years — the naked put.
Now, if you haven’t been following along, let me first explain it in simple terms.
A naked put is when you sell someone the right to sell you their stock at a certain price, on or before a certain date.
So, let’s say there’s a stock trading at $100, and you decide to sell a put option with a strike price of $80.
That means you’re agreeing to buy the stock at $80, but you get paid up front for taking on the obligation — let’s say you receive $3 for doing it.
That means that if you get assigned the stock, your cost basis for the stock is actually $77 — because you got paid $3 for selling the put.
The Key to This Strategy: Risk and Reward
Here’s the thing — you’re getting paid upfront for your willingness to buy the stock if it drops. But if the stock stays above $80 by the expiration date, you keep that $3 and walk away with some cash for doing nothing.
It’s that simple.
Now, I know some of you might be thinking: “Well, Jack, what if the stock drops below $80?”
Well, if it drops below your strike price of $80, then you could be required to buy the stock at that price.
But, when you sell puts on a stock that has been trending upward, it’s less likely to make that huge 20% drop in the short term — especially if you pick an expiration date no more than about 30 to 40 days out.
So, you’ve got time on your side. That’s why I love doing this strategy, especially with stocks that have been trending up, like a solid blue-chip stock that’s been showing some volatility.
How to Use It for Monthly Income
You’ve got two ways to approach this strategy:
- Monthly Income: If you want to target monthly income, you sell a put at a strike price below the current market price. You’re willing to take the stock if it gets assigned to you, but you’re mostly just looking to pocket the premium you get from selling the put.
- Buying the Stock at a Lower Price: If you want to own the stock but at a lower price than what it’s currently trading at, you’ll sell a put with a strike price close to the market price, but still lower than the current price.
The beauty of this strategy is that either way, you’re getting paid upfront for taking on the risk of possibly buying that stock at a lower price. It’s a win-win situation.
Why This Works So Well Right Now
Here’s why I think this strategy is a great fit for right now:
- Stocks are high and you may not want to pay up for them. With a naked put, you could get the stock at a lower price than what it’s currently trading at — and get paid to do so.
- You’re getting high yields. When you sell puts on stocks with good trends, you’re getting paid a nice premium for taking on a little bit of risk.
Cash Secured vs. Margin
You can execute this strategy in two ways:
- Cash Secured Put: This means you have the cash in your account to buy the stock if the option gets exercised.
- Margin Put: You can also do it on margin, where you only need to put down 20% of the underlying stock price. This is even less than the 50% required if you were to buy the stock.
If you’re inside the members’ area of my site, look for the calculator that helps you figure out your yield on these naked puts. Here’s a screenshot of what it looks like:
The Bottom Line
Naked puts are a powerful strategy, especially when stock prices are high and you want to get good stocks at a better price.
You’re getting paid upfront, and you’re playing the odds — either you’re making money from the premium or you’re getting a solid stock at a discounted price.
It’s high-yield, low-risk, and it works perfectly in this market.
That’s why I love it.
Trade well,
Jack Carter
P.S. I’m sharing 3 stocks that are flashing a BUY signal right now — FREE in this video!