Naked Put unlimited risk?????

[rajeshn2007]

Hi All,
Does the basic primise that I want to buy the underlying stock make the difference to the writing naked put case???

Please guide me in my endavour of making value investments more valuable

Regards,
Rishi

Hi Rishi,
you have done good work. But there are some more points to ponder.

1.you have to invest in stocks which are traded in futures alone
( which is always debatable whether most of the futures-stocks are worth investing).
2.the lot size and the number of shares you would want to buy --- may vary.
(you are compulsorily buying a fixed number of shares)

3. buying the stock and writing put are two different aspects, since one is investing and the other is trading.

4.Supposing you have written a put and the stock moves up substantially, you are left with tiny profits, instead of larger profits if you had actually invested.

just my views :thumb:

 

[hbkhrushikesh]

Hi rajeshn2007,

Thanks a lot really appreciate u r views, and u have given me a few more things to think abt, exactly what i and most other option newbies were hoping to learn from this thread and this forum I have a few thots on u r views. Please let me know u r counter views (open for ne one else to comment as well!)

Hi Rishi,
you have done good work. But there are some more points to ponder.

1.you have to invest in stocks which are traded in futures alone
( which is always debatable whether most of the futures-stocks are worth investing).

I was talkin abt riting puts (options) am i missing something?? why sud the shares be traded in futures????

2.the lot size and the number of shares you would want to buy --- may vary.
(you are compulsorily buying a fixed number of shares) [/QUOTE]
I totally agree with this comment, but i actually thot that this wud work in our favour in India as the options trade is cash settled ( and not with actual shares!!!)

3. buying the stock and writing put are two different aspects, since one is investing and the other is trading. [/QUOTE]

Again, cant really argue with this comment, the whole idea is to 'trade' in an option for a month to buy a share that u already were ready to buy at the current market price (CMP) i.e. invest at a discount for long term.

4.Supposing you have written a put and the stock moves up substantially, you are left with tiny profits, instead of larger profits if you had actually invested.[/QUOTE]
Absolutely right again! this is the only down side of this trade. But the way I saw it, if I write an option making some money (premium) even if the share prices moves ne where from 15% lower than the current CMP (which wud be my strike price) to ne value above???
just my views :thumb:[/QUOTE]

From the above comments, I have def realised that there are a few chinks in this trade ( is there a full proof trade??? what was i thinking!! and its good that I am being made more aware of the possible risks tho I wud like other members to pitch in and suggest methods, if ne to limit the risks involved in buying shares at a discount after 1 month by writing put options

Regards,
hbkhrushikesh

 

[rajeshn2007]

I was talkin abt riting puts (options) am i missing something?? why sud the shares be traded in futures????

Hi Rishi,
1. regarding writing options, you are restricted to stocks traded in futures ( since you had mentioned abt value investments , there are many such stocks in cash segment and not avlbl in futures/options segment).

one has to workout again and again, to maximize the returns.
keep us updated !