A naked put consists of a single trade, writing a deeply out of the money put with the intention of buying the stock at the strike value of the put. If the stock stays above the strike, the put expires worthless and the profit is equal to the value of the put. If the stock falls below the strike, then the loss is the difference between the share and the strike price less the the premium collected. But on the other side the stock can now be purchased at the put strike price less the premium.
To take an example, 150 Put for BHEL(179.5) is written at 1.7. At a lot of 2000 the total value is 3400 at a margin of 42000. If the stock remains above 150, the return is roughly 8%. If it falls below, then we can purchase the stock at a 30 Rs discount as against buying it at 179.5. If the stock crashes further, it is better to buy the put back at a loss. Suggest trading to reduce the losses at this point.
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To take an example, 150 Put for BHEL(179.5) is written at 1.7. At a lot of 2000 the total value is 3400 at a margin of 42000. If the stock remains above 150, the return is roughly 8%. If it falls below, then we can purchase the stock at a 30 Rs discount as against buying it at 179.5. If the stock crashes further, it is better to buy the put back at a loss. Suggest trading to reduce the losses at this point.
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