Everyone has heard that writing bare or uncovered options is the highest risk. That is not necessarily true.
An uncovered call is very risky because the value of the stock can rise to infinity, at least in theory. But when it’s laid bare, it’s a different story. The way to quantify risk is to know that the price of a stock can only fall so much. And so the risk in the naked market is far less involved than the naked calls. You also need to maintain the margin your broker needs. This is normally a half price shot. For example, if the strike is 20, the exercise costs $2,000 so the margin is $1,000.
The very danger of the naked eye is that there is not even a difference between the current value and nothing. The formula is a bit more complicated. With equal naked danger;
The present value of the stock
Less: The premium you received when selling the put
Minor: Book value per share
While stock can be traded below tangible book value, it is rare and unlikely. So if you want to generate a lot of “commands”, I remind you;
1. You think the net cost (strike less premium) is an exceptionally good price for the stock.
2. You want to have 100 shares in the strike, that is, you are confident even when the market value< /a> is striking below itself, you think that he would come.
3. To avoid the exercise, you can monitor the progress and the forward and downward volume of the exercise. That is, to expire another month, and, if possible, to drop the strike at the same time.
4. Divided into attractive stock. If you practice, it would be much more bearable if you were to earn even 4% or 5% in dividends.
5. You are training to start a “recovery plan” after the exercise. Remember that the exercise means that you should pay more for a stock than its currency value, you should wait for the price. As an alternative, you may want to write covered calls to improve your foundation. Be aware that if a call is made to the lobby, you should exit in the second one. The impact of a short call on your net card loss should be put in a bare exercise.
6. At the pure cost level, the risks are lower for lower priced stocks. The worst-case risk is a large drop in stock price. So calling a $20 stock is less risky than calling a $40 stock for a bare write.
For anyone who has studied well and spent some time speculating in basic strategies, it is clear that the range of possible use options is very wide. So the risk levels are all the way from high risk to ultra-conservative. This is what makes the options so appealing. As you think of possible strategies, whether in trading, or in pure speculation, or as part of a broader portfolio management strategy, how-to I like to be naked. Even naked, so you don’t see what you’re thinking.
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