Episode 4: Naked Puts – Dispelling The Myths

August 10, 2023

On today’s show: (details for each item are down below the video)

Easing your fears around Naked Puts
Two reasons why being “put” the stock shouldn’t concern you
Advice From Norman on getting started

Easing Your Fears Around Naked Puts

People are fearful of Naked Puts because they’re scared of being assigned the stock. One follower even asked Jack “What if someone puts it to me out of spite?”

There are a lot of wild fears of Naked Puts, but if you’re doing it right, you’ve picked a good stock that you WANT to be assigned.

Jack’s case study: Jack got called out of a covered call on ADM (Archer Daniels Midland (ADM) and he wanted to get back in.

For months he sold naked puts, it took him till month #4 to finally be assigned. And by that point he had lowered his cost basis dramatically.

Another example: Let’s say you get assigned at $80, and got $3 from selling the premium. You can turn around and sell it right away for $80 and make money.

Or even better, you can start selling covered calls against it and make money, continuing to lower your cost basis while you wait for it to be called away from you.

Two Reasons Why Being “Put The Stock” Shouldn’t Concern You

Normally, if you do a cash secured put, it means you sell an $80 put and you need to have $8000 in your account to cover it in case it gets assigned to you.

But the better way to do this — this changed in the last few years and very few people know about this —
You can do the trade on margin and you only have to have 20%. This is shocking and it makes the trade so much more profitable. (Reason #1 – use margin)

Norman says that low amount that you have to put towards the trade is a reflection of how low a risk brokerages see this type of trade as. (Reason #2 – the big boys consider it low risk)

Advice From Norman On Getting Started

Start small and get familiar with the process. Start with paper trading. Only do 1 contract and see how it works. The more you do it, the more you build your confidence.

Then move on to trading with a cash account. Again, start with 1 contract. Build your confidence. See how rare it is to get “put” the stock.

Closing

Lots of great content in today’s show. But you have to put it to use. Take Norman’s advice and start small, or even with a paper trading account. You’ll thank yourself later for getting started.

BONUS: In today’s show, Jack mentioned a video he had previously recorded where he discussed which is better: Naked Puts or Covered Calls. You can find that video here. It’s under 14 minutes and we’re sure you’re going to love it.