About Naked Puts
Selling a naked put is an investment strategy very similar to a covered call. It can be used to generate additional premium income, but unlike a covered call, you do not own the underlying stock. Over 75% of options are held until expiration and expire worthless. So what is a naked put?
Using a naked put strategy, you sell put options on a stock you do not own, and earn the premium income if the option expires worthless. A naked put strategy is somewhat riskier than a covered call strategy, as you will be obligated to buy shares of the underlying stock at the strike price if the call is exercised before it expires.
- You sell (short) a put option against a stock (1 option controls 100 shares).
Thus, 1 Naked Put = short 1 put option.
The aggregate operation is typically known as naked put writing. It is called “naked” because should the option be exercised you will have to purchase the stock required to fulfill the delivery obligation for the 100 shares, as opposed to selling a covered call, where you own the underlying stock. In a worst-case scenario for an exercised naked put, the underlying stock falls to 0.00 and you are obligated to buy a worthless stock at the strike price.
Naked Puts Strategy: The page is initially sorted by descending "Potential Return".
Options information is delayed a minimum of 30 minutes, and is updated once an hour, with the first update at 10:30am ET. The strategy is updated every 20 minutes thereafter throughout the day with new option candidates. The screener displays probability calculations based on the delayed stock price at the time the strategy is updated.
Barchart Premier subscribers can add or modify different filters on the screener to find calls on the most favorable stock options.
Once filters are added, you may drag and drop them in the SET FILTERS tab to reorder the way they appear on the RESULTS tab (when using the Filters View). Each filter you add has the "Order" icon which is used to reposition it.
Since a Naked Put is written on stocks you do not own (but will be required to purchase if the option is exercised), a typical filter to add to this screener is the Symbol filter.
So you can focus on the best options, the screener starts by removing certain puts and calls from all strategies:
- Break even must be greater than or equal to 0%.
- The stock price must be greater or equal to 1.00
- The options volume must be greater than or equal to 500.
- The bid price must be greater than 0.05
- Open interest must be greater than or equal to 100.
- The option must not be an "adjusted" option (Ex: The option cannot be based on a split stock).
- Moneyness is between -25% to -5% (OTM)
- If the ask is greater than or equal to $5.00, the spread between the bid and ask must be less than or equal to 10% of the ask.
- If the ask is between $2.00 and $5.00, the spread between the bid and ask must be less than or equal to 15% of the ask.
- If the ask is between $1.00 and $2.00, the spread between the bid and ask must be less than or equal to 25% of the ask.
- If the ask is less than $1.00, the spread between the bid and ask must be less than or equal to 50% of the ask.
Note: "Restricted options" (options quotes marked with an asterisk * after the strike price, and found on an individual symbol's options page) are automatically removed from the screener. A "restricted option" is typically created after spin-offs or mergers, and are not tradeable.
The Results page contains three standard views. You may switch the view using the links at the top of the screener results table. The Main View shows the Volume and Open Interest for each option, while the Dividend & Earnings View can be used to highlight strategies with upcoming dividends and earnings. The Filter view shows you the data contained in the field(s) you've added to the screener.
- Symbol - the underlying equity. Clicking on the symbol will take you to the current quote page.
- Last - the delayed stock price at the time the strategy is updated for the underlying equity.
- Strike - the price at which the underlying security can be bought if the option is exercised.
- Exp Date - the expiration date of the option.
- Bid - the premium to purchase this option.
- Break Even - the put strike price - bid price.
- Break Even% - the likelihood of the the strategy breaking even.
- Volume - the total number of options traded in the current day for a contract.
- Open Interest - the total number of open option contracts in the market for a particular contract. The more popular the contract is with options traders, the greater the Open Interest. An opening transaction will increase the Open Interest, and a closing transaction will decrease it.
- Delta - Delta measures the amount an option price will change as a result of a $1.00 price change of the underlying security. Since put options rise and fall directly with the price of the stock, they are assigned deltas between -100 to 0.
- Potential Return% - the potential percentage of return for this strategy, calculated as bid / (strike - bid) * 100
- Annualized Potential Return% - the annualized percentage of potential return for this covered call assuming the stock price remains the same (i.e. flat) until the option expiration. It is calculated as (Potential Return / Days Held) * 365 where Days Held is the number of days remaining until expiration.
Dividend & Earnings View
- Dividend - the dividend the equity pays on the Ex-Dividend Date. On the morning of the Dividend Ex-Date, the stock's price is lowered by the amount of the dividend that was just paid.
- Dividend Ex-Date - the first day on which the stock trades without the dividend. If you wish to receive the dividend, you must own the stock by the close of market on the day before the Dividend Ex-Date. Many times, a covered call is exercised early so the buyer can own the stock and collect the dividend. This typically happens to ITM options the day before the Dividend Ex-Date.
- Earnings Date - The date on which a company is expected to release their next earnings report. The prices are more volatile, which tends to inflate the prices of the near-the-money strikes. During a contract period when there is an earnings report due, the earnings announcement can dramatically shift the range in which the stock has been trading.