how a naked put works
a naked put option strategy assumes that the underlying security will fluctuate in value but generally rise over the next month or so based on this assumption a trader executes the strategy by selling a put option with no corresponding short position in their account this sold option is said to be uncovered because the initiator has no position with which to fill the terms of the option contract should a buyer wish to exercise their right to the option since a put option is designed to create profit for a trader who correctly forecasts that the price of the security will fall the naked put strategy is of no consequence if the price of the security actually goes up under this scenario the value of the put option goes to zero and the seller of the option gets to keep the money they received when they sold the option a seller of put options wants the underlying security to rise so that they end up profiting but if the price of the underlying security falls they may end up having to buy the stock because the option buyer might decide to exercise their right to sell someone the security traders who like this strategy prefer only to do this on underlying securities that they view favorably if they get the stock put to them and it is a stock they like and see prospects for they will not mind buying the stock and holding it for a least a month naked put vs covered puta naked put option strategy stands in contrast to a covered put strategy in a covered put the investor keeps a short position in the underlying security for the put option the underlying security and the puts are respectively shorted and sold in equal quantities 