Cash Covered vs Naked Puts - What's The Difference?

Coffee With Markus | Episode 103

Intro: 0:00
What's Happening in The Markets: 1:16
Cash Secured Puts vs. Naked Puts: 4:55
Deep Dive Q&A: 16:46

Today in the markets, stocks are hugging the flat line again just like they were Wednesday. DJI is slightly down 0.2%, and the SPX is up slightly up 0.1%, and the NDX down 0.1% so not a whole lot going on.

Stocks seem to be teetering along but why is this? This is because there are no impulses right now. The economic calendar is pretty much empty, and everybody right now is waiting for the stimulus package and it's not coming. Markets moved up slightly yesterday when House Speaker Nancy Pelosi said "they were almost there," but today she said, "there were significant differences."

Last night we had our last we had our last Presidential Debate, but 50 million people have voted, so the debate likely didn't have any influence. According to realclearpoliics.com, it seems the gap is narrowing, but Biden is in the lead.

We are on pace for a losing week, just because there are no impulses and everyone has been waiting on the stimulus package.

There were several companies that reported earnings this week. One of the surprises was INTC, who reported earning that Wall Street did not like, with INTC being down 10.93%. Other notable earnings included TSLA, who are already experiencing a pullback. NFLX reported earnings that disappointed investors, causing NFLX to pull sharply down. IBM also reported earnings, and also had a pullback.

Now, I want to talk about the difference between Cash Secured Puts and Naked Puts. In a recent CWM I got a comment that said "It is the same" and of course that is NOT the case.

You trade Cash Secured Puts when trading The Wheel Strategy and if you need a refresher on The Wheel Strategy, I have linked the playlist for these videos down below.

What does it mean when you sell a Put Option? It means you have to buy the stock at the strike price you sold it for. You want the stock to stay above the strike price that you chose. In this case, you just keep the premium.

Here is a specific example. 3 days ago I sold 2 of the 115 Puts for IBM that expires today. I receive a premium of $43 per Option, $86 total. This comes to $29 per day.

So if IBM stays above $115 at expiration, the option would expire worthless and I just keep the $89.

However, if IBM is below $115 at expiration, then I have to buy 200 shares of IBM (2 contracts at 100 shares each).

If you only had $5000 in your account, you could still take this trade but you don't have enough money in your account to buy the shares if you get assigned. This means you sold the Naked Puts.

If you don't have enough money in your account, the broker is buying them anyhow for you with a Margin Call

With a Margin Call the broker is in control, but you want to be in control when you are trading The Wheel Strategy.

The Options Wheel Strategy Playlist:
https://www.youtube.com/playlist?list=PLBa3sAx-Io2nosgosERUhIZwzvIgD-3Vq

#cashcoveredvsnakedputs #cashcoveredputsvsnakedputs #cashcoveredputsandnakedputs
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Видео Cash Covered vs Naked Puts - What's The Difference? канала Markus Heitkoetter