Investment Type: Credit
Strike Prices: OTM
Expiration Month: current month (less than 30 days)
Composition: Sell Put

Sell Put (often called Naked Put) is the other side of the coin of Buy Put. Although it looks simple, it’s actually a risky strategy which is only used by advanced traders. There is common conception (or misconception for that matter) that says stocks will more likely to go up as there is no company who likes their stocks to go down over long period of time. That’s why Sell Put (Naked Put) is more widely used than Sell Call (Naked Call).

It’s best to sell short term OTM put as we are faced with unlimited risk if the market goes against us. The problem with OTM puts is that the premiums are low. In other words, we can only make limited amount of money while the worst case can happen to us anytime.

Many traders choose this strategy with the perception that they are not racing with time. Premium value will decrease exponentially as it reaches expiration date. However if there is sudden market crash and our options become ITM, we can suffer a great damage.