In this strategy workshop, Liz and Jenny explain the basics of a Naked Put. This method simply consists of a short Out of The Money (OTM) Put option. We typically look to sell the option with 30 days to 60 days to expiration (DTE).
We place Naked Puts in liquid stocks that have a high Implied Volatility Rank (above roughly 50%). Our maximum profit is the amount we were credited for opening the trade (100 X the Put's value).
Profit is achieved when the stock price stays above our strike price. In this case, the put expires OTM and is rendered worthless. This means we don't have to buy back the put, and we keep the premium we received in opening the trade.
If the stock does drop below the strike price at expiration, though, the put expires ITM, and we will be assigned 100 shares of stock at the original price before it dropped.