Find the best options trading strategy for your trading needs. It is an aggressive strategy and involves huge risks. It should be used only in case where trader is certain about the bearish market view on the underlying. This strategy works well when you're of the view that the price of a particular underlying will rise, move sideways, or marginally fall.
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Naked Position Definition
In securities trading in general, a naked position refers to a securities position, long or short, that is not hedged from market risk. Both the potential gain and the potential risk are greater when a position is naked instead of covered or hedged in some way. In options trading this phrase specifically refers to an option sold by a trader without an established position in the underlying security. A naked stock position does not have the hedging associated with a call or put option or perhaps an opposite position in a related stock. For example, a long in Coke and a short in Pepsi. A naked position is inherently risky because there is no protection against an adverse move. Most investors do not consider owning stocks to be excessively risky, especially because in most cases it is easy to sell the position back to the market.
As traders gain experience, they often branch out and experiment with new strategies. Questions arise about which trading techniques make the most sense, and the question-and-answer session that follows sheds some light on the strategy of selling put spreads versus selling naked puts. The following series of questions comes from a rookie options trader. The answers are provided by Mark Wolfinger, a former options market maker with over 20 years of options trading experience.
Civility and respectful conversation. Options are on topic. Give sufficient details about your strategy and trade to discuss it. Title your post informatively with particulars.