Secret 52USE NAKED PUT WRITING TO BUY STOCK
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Naked put writing can be as conservative as covered call
writing, for naked put writing is a way to buy stocks or futures.
You see, the put writer is obligated to be “put” or to purchase the
stock at the strike price.
Naked put writing is not popular with some option experts,
but I believe it is an excellent way to try to buy stock at lower
prices, and there are some experts that agree. Put writing is used
by some of the big name investors like Warren Buffet and by corporations
to buy back their stock.
Because the average investor has a tendency to buy stock at
higher prices than desirable, naked puts have a particular advantage.
When you write naked puts, you are forced to buy stock at
lower prices.
Even though I am an aggressive put writer and follow all the
rules I have laid out in previous chapters, such as buying back
puts when they hit my stop-loss, I only write puts on stocks that
I don’t mind owning at the strike price.
Also, when I write naked puts, I only use mental stops so if
the stock gaps below the strike price (remember—surprise
volatility!), I have the option of buying the stock instead of taking
a big loss on the put position if I have to buy back the option.
One warning here, make sure you have enough capital to
buy the stocks that you write puts on.
Naked put writing can be as conservative as covered call
writing, for naked put writing is a way to buy stocks or futures.
You see, the put writer is obligated to be “put” or to purchase the
stock at the strike price.
Naked put writing is not popular with some option experts,
but I believe it is an excellent way to try to buy stock at lower
prices, and there are some experts that agree. Put writing is used
by some of the big name investors like Warren Buffet and by corporations
to buy back their stock.
Because the average investor has a tendency to buy stock at
higher prices than desirable, naked puts have a particular advantage.
When you write naked puts, you are forced to buy stock at
lower prices.
Even though I am an aggressive put writer and follow all the
rules I have laid out in previous chapters, such as buying back
puts when they hit my stop-loss, I only write puts on stocks that
I don’t mind owning at the strike price.
Also, when I write naked puts, I only use mental stops so if
the stock gaps below the strike price (remember—surprise
volatility!), I have the option of buying the stock instead of taking
a big loss on the put position if I have to buy back the option.
One warning here, make sure you have enough capital to
buy the stocks that you write puts on.